EXHIBIT 10.6
 

 

 

 

 

 
ELINEAR, INC.
 
SECURITIES PURCHASE AGREEMENT
 
February 28, 2005
 

TABLE OF CONTENTS
Page
 
1.
Agreement to Sell and Purchase

 
2.
Fees and Warrant

 
3.
Closing, Delivery and Payment.

 
3.1
Closing

 
3.2
Delivery

 
4.
Representations and Warranties of the Company

 
4.1
Organization, Good Standing and Qualification

 
4.2
Subsidiaries

 
4.3
Capitalization; Voting Rights

 
4.4
Authorization; Binding Obligations

 
4.5
Liabilities

 
4.6
Agreements; Action

 
4.7
Obligations to Related Parties

 
4.8
Changes

 
4.9
Title to Properties and Assets; Liens, Etc.

 
4.10
Intellectual Property

 
4.11
Compliance with Other Instruments

 
4.12
Litigation

 
4.13
Tax Returns and Payments

 
4.14
Employees

 
4.15
Registration Rights and Voting Rights

 
4.16
Compliance with Laws; Permits

 
4.17
Environmental and Safety Laws

 
4.18
Valid Offering

 
4.19
Full Disclosure

 
4.20
Insurance

 
4.21
SEC Reports

 
4.22
Listing

 
4.23
No Integrated Offering

 
4.24
Stop Transfer

 
4.25
Dilution

4.26  Patriot Act          12
 
5.
Representations and Warranties of the Purchaser

 
5.1
No Shorting

 
5.2
Requisite Power and Authority

 
5.3
Investment Representations

 
5.4
Purchaser Bears Economic Risk

 
5.5
Acquisition for Own Account

 
5.6
Purchaser Can Protect Its Interest

 
5.7
Accredited Investor

 
5.8
Legends

5.9   Limitation on Acquisition of Common Stock of the Company………………...14
 
6.
Covenants of the Company

 
6.1
Stop-Orders

 
6.2
Listing

 
6.3
Market Regulations

 
6.4
Reporting Requirements

 
6.5
Use of Funds

 
6.6
Access to Facilities

 
6.7
Taxes

 
6.8
Insurance

 
6.9
Intellectual Property

 
6.10
Properties

 
6.11
Confidentiality

 
6.12
Required Approvals

 
6.13
Reissuance of Securities

 
6.14
Opinion

6.15  Margin Stock…………………………………………………………………...19
6.16  Restricted Cash Disclosure…………………………………………………….19
6.17  Financing Right of First Refusal……………………………………………….19
6.18  Pro Rata Requirement………………………………………………………….19
6.18  Prior Security Interest …………...…………………………………………….20

 
7.
Covenants of the Purchaser

 
7.1
Confidentiality

 
7.2
Non-Public Information

7.3   Limitation on Acquisition of Common Stock of the Company………………...20
 
8.
Covenants of the Company and Purchaser Regarding Indemnification

 
8.1
Company Indemnification

 
8.2
Purchaser's Indemnification

 
9.
Conversion of Convertible Note

 
9.1
Mechanics of Conversion

 
10.
Registration Rights.

10.1 Registration Rights Granted

 
10.2
Offering Restrictions
22

 
11.
Miscellaneous

 
11.1
Governing Law

 
11.2
Survival

 
11.3
Successors

 
11.4
Entire Agreement

 
11.5
Severability

 
11.6
Amendment and Waiver

 
11.7
Delays or Omissions

 
11.8
Notices

 
11.9
Attorneys' Fees

 
11.10
Titles and Subtitles

 
11.11
Facsimile Signatures; Counterparts

 
11.12
Broker's Fees

 
11.13
Construction

LIST OF EXHIBITS
Form of Convertible Term Note
Exhibit A
Form of Warrant
Exhibit B
Form of Opinion
Exhibit C
Form of Escrow Agreement
Exhibit D

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

SECURITIES PURCHASE AGREEMENT
 
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of February 28, 2005, by and between ELINEAR, INC., a Delaware corporation
(the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands company (the
"Purchaser").
 
RECITALS
 
WHEREAS, the Company has authorized the sale to the Purchaser of a Convertible
Term Note in the aggregate principal amount of up to Five Million Dollars (up to
$5,000,000) (collectively, as amended, modified or supplemented from time to
time, the "Note"), which Note is convertible into shares of the Company's common
stock, $0.02 par value per share (the "Common Stock") at an initial fixed
conversion price of $ 1.00 per share of Common Stock ("Fixed Conversion Price");
 
WHEREAS, the Company wishes to issue a warrant to the Purchaser to purchase up
to 750,000 shares of the Common Stock (subject to adjustment as set forth
therein) in connection with Purchaser's purchase of the Note;
 
WHEREAS, Purchaser desires to purchase the Note and the Warrant (as defined in
Section 2) on the terms and conditions set forth herein; and
 
WHEREAS, the Company desires to issue and sell the Note and Warrant to Purchaser
on the terms and conditions set forth herein.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
 
1.  Agreement to Sell and Purchase
 
. Pursuant to the terms and conditions set forth in this Agreement, on the
Closing Date (as defined in Section 3), the Company agrees to sell to the
Purchaser, and the Purchaser hereby agrees to purchase from the Company, a Note
in the aggregate principal amount of up to $5 million convertible in accordance
with the terms thereof into shares of Common Stock in accordance with the terms
of the Note and this Agreement. The Note purchased on the Closing Date shall be
known as the "Offering." A form of the Note is annexed hereto as Exhibit A. The
Note will mature on the Maturity Date (as defined in the Note). Collectively,
the Note, Warrant and Common Stock issuable in payment of the Note, upon
conversion of the Note and upon exercise of the Warrant are referred to as the
"Securities."
 
2.  Fees and Warrant
 
. On the Closing Date:
 
(a)  The Company will issue and deliver to the Purchaser a warrant to purchase
up to 750,000 shares of Common Stock in connection with the Offering
(collectively, as amended, modified or supplemented from time to time, the
"Warrant"). The Warrant must be delivered on the Closing Date. A form of Warrant
is annexed hereto as Exhibit B. All the representations, covenants, warranties,
undertakings, and indemnification, and other rights made or granted to or for
the benefit of the Purchaser by the Company are hereby also made and granted in
respect of the Warrant and shares of Common Stock issuable upon exercise of the
Warrant (the "Warrant Shares").
 
(b)  Subject to the terms of Section 2(d) below, the Company shall pay to the
Purchaser, a closing payment in an amount equal to three and one-half percent
(3.50%) of the aggregate principal amount of the Note, such 3.5% to be paid from
the 20% cash funded to the Company and from the 80% cash funded to the
Restricted Account. The foregoing fee is referred to herein as the "Closing
Payment."
 
(c)  The Company shall reimburse Purchaser for its reasonable expenses
(including legal fees and expenses) incurred in connection with the preparation
and negotiation of this Agreement and the Related Agreements (as hereinafter
defined), and expenses incurred in connection with the Purchaser's due diligence
review of the Company and its Subsidiaries (as defined in Section 4.2) and all
related matters. Amounts required to be paid under this Section 2(c) will be
paid on the Closing Date and shall be $27,500 for such expenses referred to in
this Section 2(c).
 
(d)  The Closing Payment and the expenses referred to in the preceding clause
(c) (net of deposits previously paid by the Company) shall be paid at closing
out of funds held pursuant to an Escrow Agreement (as defined below) and a
disbursement letter (the "Disbursement Letter").
 
3.  Closing, Delivery and Payment.
 

 
3.1  Closing
 
. Subject to the terms and conditions herein, the closing of the transactions
contemplated hereby (the "Closing"), shall take place on the date hereof, at
such time or place as the Company and Purchaser may mutually agree (such date is
hereinafter referred to as the "Closing Date").
 
3.2  Delivery
 
. Pursuant to the Escrow Agreement, at the Closing on the Closing Date, the
Company will deliver to the Purchaser, among other things, the Note and the
Warrant and the Purchaser will deliver to the Company, among other things, the
amounts set forth in the Disbursement Letter by certified funds or wire transfer
(it being understood that 80% of the proceeds of the Note shall be placed in the
Restricted Account (as defined in the Restricted Account Agreement referred to
below)).
 
4.  Representations and Warranties of the Company
 
. The Company, on behalf of itself and its Subsidiaries (as hereinafter
defined), hereby represents and warrants to the Purchaser as follows (which
representations and warranties are supplemented by the Company's filings under
the Securities Exchange Act of 1934, as amended (the åExchange Actæ) made prior
to the date of this Agreement (collectively, the "Exchange Act Filings"), access
to which have been provided to the Purchaser):
 
4.1  Organization, Good Standing and Qualification
 
. Each of the Company and each of its Subsidiaries is a corporation, partnership
or limited liability company, as the case may be, duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. The Company has the corporate power and authority to own and
operate its properties and assets, to execute and deliver (i) this Agreement,
(ii) the Note and the Warrant, (iii) the Master Security Agreement dated as of
the date hereof between the Company, certain Subsidiaries of the Company and the
Purchaser (as amended, modified or supplemented from time to time, the åMaster
Security Agreementæ), (iv) the Registration Rights Agreement relating to the
Warrant Shares and Note Shares (as hereinafter defined) dated as of the date
hereof between the Company and the Purchaser (as amended, modified or
supplemented from time to time, the åRegistration Rights Agreementæ), (v) the
Escrow Agreement dated as of the date hereof among the Company, the Purchaser
and the escrow agent referred to therein, substantially in the form of Exhibit D
hereto (as amended, modified or supplemented from time to time, the åEscrow
Agreementæ), (vi) the Restricted Account Agreement dated as of the date hereof
among the Company, the Purchaser and agreed upon bank (as amended, modified or
supplemented from time to time, the åRestricted Account Agreementæ), (vii) the
Restricted Account Side Letter related to the Restricted Account Agreement dated
as of the date hereof between the Company and the Purchaser (as amended,
modified or supplemented from time to time, the åRestricted Account Side
Letteræ) and (viii) all other agreements related to this Agreement and the Note
and referred to herein (the preceding clauses (ii) through (vii), collectively,
the "Related Agreements"), to issue and sell the Note and the shares of Common
Stock issuable upon conversion of the Note (the "Note Shares"), to issue and
sell the Warrant and the Warrant Shares, to carry out the provisions of this
Agreement and the Related Agreements and to carry on its business as presently
conducted. Each of the Subsidiaries has the corporate power and authority to own
and operate its properties and assets, to execute and deliver the Master
Security Agreement, and to carry out the provisions of any Related Agreement
such Subsidiary is a party to, and to carry on its business as presently
conducted. Each of the Company and each of its Subsidiaries is duly qualified
and is authorized to do business and is in good standing as a foreign
corporation, partnership or limited liability company, as the case may be, in
all jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so has not, or could not reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company and its Subsidiaries, taken
individually and as a whole (a åMaterial Adverse Effectæ).
 
4.2  Subsidiaries
 
. Each direct and indirect Subsidiary of the Company, the direct owner of such
Subsidiary and its percentage ownership thereof, is set forth on Schedule 4.2.
For the purpose of this Agreement, a åSubsidiaryæ of any person or entity means
(i) a corporation or other entity whose shares of stock or other ownership
interests having ordinary voting power (other than stock or other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the directors of such corporation, or other persons or
entities performing similar functions for such person or entity, are owned,
directly or indirectly, by such person or entity or (ii) a corporation or other
entity in which such person or entity owns, directly or indirectly, more than
50% of the equity interests at such time.
 

 
4.3  Capitalization; Voting Rights
 
.
 
(a)  The authorized capital stock of the Company, as of the date hereof consists
of 100,000,000 shares of Common Stock, of which 22,212,012 are shares are issued
and outstanding as of February 22, 2005. The authorized capital stock of each
Subsidiary of the Company is set forth on Schedule 4.3.
 
(b)  Except as disclosed on Schedule 4.3 and the Exchange Act Filings, other
than: (i) the shares reserved for issuance under the Company's stock option
plans; and (ii) shares which may be granted pursuant to this Agreement and the
Related Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), proxy
or stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except as
disclosed on Schedule 4.3, neither the offer, issuance or sale of any of the
Note or the Warrant, or the issuance of any of the Note Shares or Warrant
Shares, nor the consummation of any transaction contemplated hereby will result
in a change in the price or number of any securities of the Company outstanding,
under anti-dilution or other similar provisions contained in or affecting any
such securities.
 
(c)  All issued and outstanding shares of Common Stock: (i) have been duly
authorized and validly issued and are fully paid and nonassessable; and (ii)
were issued in compliance with all applicable state and federal laws concerning
the issuance of securities.
 
(d)  The rights, preferences, privileges and restrictions of the shares of the
Common Stock are as stated in the Company's Certificate of Incorporation (the
"Charter"). The Note Shares and Warrant Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Charter, the Securities will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Securities may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
 
4.4  Authorization; Binding Obligations
 
. All corporate, partnership or limited liability company, as the case may be,
action on the part of the Company and each of its Subsidiaries (including the
respective officers and directors) necessary for the authorization of this
Agreement and the Related Agreements, the performance of all obligations of the
Company and its Subsidiaries hereunder and under the other Related Agreements at
the Closing and, the authorization, sale, issuance and delivery of the Note and
Warrant has been taken or will be taken prior to the Closing. This Agreement and
the Related Agreements, when executed and delivered and to the extent it is a
party thereto, will be valid and binding obligations of each of the Company and
each of its Subsidiaries, enforceable against each such person in accordance
with their terms, except:
 
(a)  as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors' rights;
and
 
(b)  general principles of equity that restrict the availability of equitable or
legal remedies.
 
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
 
4.5  Liabilities
 
. Neither the Company nor any of its Subsidiaries has any material contingent
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.
 
4.6  Agreements; Action
 
. Except as set forth on Schedule 4.6 or as disclosed in any Exchange Act
Filings:
 
(a)  there are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company or any of
its Subsidiaries is a party or by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $250,000 (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business); or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than licenses arising from the
purchase of "off the shelf" or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
 
(b)  Since September 30, 2004, neither the Company nor any of its Subsidiaries
has: (i) declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital stock; (ii) incurred
any indebtedness for money borrowed or any other liabilities (other than
ordinary course obligations) individually in excess of $250,000 or, in the case
of indebtedness and/or liabilities individually less than $250,000, in excess of
$500,000 in the aggregate; (iii) made any loans or advances to any person not in
excess, individually or in the aggregate, of $500,000, other than ordinary
course advances for travel expenses; or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
 
(c)  For the purposes of subsections (a) and (b) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections.
 
4.7  Obligations to Related Parties
 
. Except as set forth on Schedule 4.7, there are no obligations of the Company
or any of its Subsidiaries to officers, directors, stockholders or employees of
the Company or any of its Subsidiaries other than:
 
(a)  for payment of salary for services rendered and for bonus payments;
 
(b)  reimbursement for reasonable expenses incurred on behalf of the Company and
its Subsidiaries;
 
(c)  for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock option
plan approved by the Board of Directors of the Company); and
 
(d)  obligations listed in the Company's financial statements or disclosed in
any of its Exchange Act Filings.
 
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $60,000
or have any direct or indirect material interest in any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
 
4.8  Changes
 
. Since September 30, 2004, except as disclosed in any Exchange Act Filing or in
any Schedule to this Agreement or to any of the Related Agreements, there has
not been:
 
(a)  any change in the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Company or any of its
Subsidiaries, which individually or in the aggregate has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
 
(b)  any resignation or termination of any officer, key employee or group of
employees of the Company or any of its Subsidiaries;
 
(c)  any material change, except in the ordinary course of business, in the
contingent obligations of the Company or any of its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;
 
(d)  any damage, destruction or loss, whether or not covered by insurance, which
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
 
(e)  any waiver by the Company or any of its Subsidiaries of a valuable right or
of a material debt owed to it;
 
(f)  any direct or indirect loans made by the Company or any of its Subsidiaries
to any stockholder, employee, officer or director of the Company or any of its
Subsidiaries, other than advances made in the ordinary course of business;
 
(g)  any material change in any compensation arrangement or agreement with any
employee, officer, director or stockholder of the Company or any of its
Subsidiaries;
 
(h)  any declaration or payment of any dividend or other distribution of the
assets of the Company or any of its Subsidiaries;
 
(i)  any labor organization activity related to the Company or any of its
Subsidiaries;
 
(j)  any debt, obligation or liability incurred, assumed or guaranteed by the
Company or any of its Subsidiaries, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
 
(k)  any sale, assignment or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets owned by the Company or any of its
Subsidiaries;
 
(l)  any change in any material agreement to which the Company or any of its
Subsidiaries is a party or by which either the Company or any of its
Subsidiaries is bound which either individually or in the aggregate has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
 
(m)  any other event or condition of any character that, either individually or
in the aggregate, has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect; or
 
(n)  any arrangement or commitment by the Company or any of its Subsidiaries to
do any of the acts described in subsection (a) through (m) above.
 
4.9  Title to Properties and Assets; Liens, Etc.
 
Each of the Company and each of its Subsidiaries has good and marketable title
to its material properties and assets, and good title to its material leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
 
(a)  those resulting from taxes which have not yet become delinquent;
 
(b)  minor liens and encumbrances which do not materially detract from the value
of the property subject thereto or materially impair the operations of the
Company or any of its Subsidiaries; and
 
(c)  those that have otherwise arisen in the ordinary course of business.
 
All material facilities, machinery, equipment, fixtures, vehicles and other
properties owned, leased or used by the Company and its Subsidiaries are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company and its Subsidiaries are in
compliance with all material terms of each lease to which it is a party or is
otherwise bound.
 
4.10  Intellectual Property
 
.
 
(a)  Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes necessary for its business as now conducted and to the Company’s
knowledge, as presently proposed to be conducted (the "Intellectual Property"),
without any known infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing
proprietary rights, nor is the Company or any of its Subsidiaries bound by or a
party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products.
 
(b)  Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has violated
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity, nor is the
Company or any of its Subsidiaries aware of any basis therefor.
 
(c)  The Company does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company or any of its Subsidiaries, except
for inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company or any of its Subsidiaries.
 
4.11  Compliance with Other Instruments
 
. Neither the Company nor any of its Subsidiaries is in violation or default of
(x) any term of its Charter or Bylaws, or (y) of any provision of any
indebtedness, mortgage, indenture, contract, agreement or instrument to which it
is party or by which it is bound or of any judgment, decree, order or writ,
which violation or default, in the case of this clause (y), has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. The execution, delivery and performance of and
compliance with this Agreement and the Related Agreements to which it is a
party, and the issuance and sale of the Note by the Company and the other
Securities by the Company each pursuant hereto and thereto, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term or
provision, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company or any of its
Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal
of any permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.
 
4.12  Litigation
 
. Except as set forth on Schedule 4.12 hereto and the Exchange Act filings,
there is no action, suit, proceeding or investigation pending or, to the
Company's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the Company or any of its Subsidiaries from entering
into this Agreement or the other Related Agreements, or from consummating the
transactions contemplated hereby or thereby, or which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect or any change in the current equity ownership of the
Company or any of its Subsidiaries, nor is the Company aware that there is any
basis to assert any of the foregoing. Neither the Company nor any of its
Subsidiaries is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. Other than disclosed in the Exchange Act Filings, there is no
action, suit, proceeding or investigation by the Company or any of its
Subsidiaries currently pending or which the Company or any of its Subsidiaries
intends to initiate.
 
4.13  Tax Returns and Payments
 
. Each of the Company and each of its Subsidiaries has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and all other
taxes due and payable by the Company or any of its Subsidiaries on or before the
Closing, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on Schedule 4.13, neither the Company nor any of
its Subsidiaries has been advised:
 
(a)  that any of its returns, federal, state or other, have been or are being
audited as of the date hereof; or
 
(b)  of any deficiency in assessment or proposed judgment to its federal, state
or other taxes.
 
The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
 
4.14  Employees
 
. Neither the Company nor any of its Subsidiaries has any collective bargaining
agreements with any of its employees. There is no labor union organizing
activity pending or, to the Company's knowledge, threatened with respect to the
Company or any of its Subsidiaries. Except as disclosed in the Exchange Act
Filings, neither the Company nor any of its Subsidiaries is a party to or bound
by any currently effective employment contract, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement
agreement or other employee compensation plan or agreement. The Company has not
been provided written notice that any employee of the Company or any of its
Subsidiaries, nor any consultant with whom the Company or any of its
Subsidiaries has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company or any of its Subsidiaries because of the nature of the business to be
conducted by the Company or any of its Subsidiaries; and to the Company's
knowledge the continued employment by the Company or any of its Subsidiaries of
its present employees, and the performance of the Company's and its
Subsidiaries’ contracts with its independent contractors, will not result in any
such violation. Neither the Company nor any of its Subsidiaries has been
provided written notice that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has
received any written notice alleging that any such violation has occurred.
Except for employees who have a current effective employment agreement with the
Company or any of its Subsidiaries, no employee of the Company or any of its
Subsidiaries has been granted the right to continued employment by the Company
or any of its Subsidiaries or to any material compensation following termination
of employment with the Company or any of its Subsidiaries. The Company has not
been provided written notice that any officer, key employee or group of
employees intends to terminate his, her or their employment with the Company or
any of its Subsidiaries, nor does the Company or any of its Subsidiaries have a
present intention to terminate the employment of any officer, key employee or
group of employees.
 
4.15  Registration Rights and Voting Rights
 
. Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act
Filings, neither the Company nor any of its Subsidiaries is presently under any
obligation, and neither the Company nor any of its Subsidiaries has granted any
rights, to register any of the Company's or its Subsidiaries’ presently
outstanding securities or any of its securities that may hereafter be issued. No
stockholder of the Company or any of its Subsidiaries has entered into any
agreement with respect to the voting of equity securities of the Company or any
of its Subsidiaries.
 
4.16  Compliance with Laws; Permits
 
. Neither the Company nor any of its Subsidiaries is in violation of any
applicable statute, rule, regulation, order or restriction of any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership of its properties which has had, or
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement or any other Related Agreement and the issuance of
any of the Securities, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner. Each of the Company and its Subsidiaries has
all material franchises, permits, licenses and any similar authority necessary
for the conduct of its business as now being conducted by it, the lack of which
could, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
 
4.17  Environmental and Safety Laws
 
. Neither the Company nor any of its Subsidiaries is in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. Except as set forth on Schedule 4.17, no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the Company
or any of its Subsidiaries or, to the Company's knowledge, by any other person
or entity on any property owned, leased or used by the Company or any of its
Subsidiaries. For the purposes of the preceding sentence, "Hazardous Materials"
shall mean:
 
(a)  materials which are listed or otherwise defined as "hazardous" or "toxic"
under any applicable local, state, federal and/or foreign laws and regulations
that govern the existence and/or remedy of contamination on property, the
protection of the environment from contamination, the control of hazardous
wastes, or other activities involving hazardous substances, including building
materials; or
 
(b)  any petroleum products or nuclear materials.
 
4.18  Valid Offering
 
. Assuming the accuracy of the representations and warranties of the Purchaser
contained in this Agreement, the offer, sale and issuance of the Securities will
be exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and will have been registered or qualified (or
are exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities laws.
 
4.19  Full Disclosure
 
. Neither this Agreement, the Related Agreements, the exhibits and schedules
hereto and thereto nor any other document delivered by the Company or any of its
Subsidiaries to Purchaser or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial projections
and other estimates provided to the Purchaser by the Company were based on the
Company's and its Subsidiaries’ experience in the industry and on assumptions of
fact and opinion as to future events which the Company or any of its
Subsidiaries, at the date of the issuance of such projections or estimates,
believed to be reasonable.
 
4.20  Insurance
 
. Each of the Company and each of its Subsidiaries has general commercial,
product liability, fire and casualty insurance policies with coverages which the
Company believes are customary for companies similarly situated to the Company
and its Subsidiaries in the same or similar business.
 
4.21  SEC Reports
 
. Except as set forth on Schedule 4.21, the Company has filed all proxy
statements, reports and other documents required to be filed by it under the
Exchange Act. The Company has provided the Purchaser with access to: (i) its
Annual Reports on Form 10-KSB for its fiscal years ended December 31, 2003; and
(ii) its Quarterly Reports on Form 10-QSB for its fiscal quarter ended September
30, 2004, and the Form 8-K filings which it has made during the fiscal year 2004
to date (collectively, the "SEC Reports"). Except as set forth on Schedule 4.21,
each SEC Report was, at the time of its filing, in substantial compliance with
the requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
 
4.22  Listing
 
. The Common Stock is listed for trading on the American Stock Exchange (åAMEXæ)
and satisfies all requirements for the continuation of such listing. The Company
has not received any notice that (i) the Common Stock will be delisted from AMEX
or (ii) that the Common Stock does not meet all requirements for listing.
 
4.23  No Integrated Offering
 
. Neither the Company, nor any of its Subsidiaries or affiliates, nor any person
acting on its or their behalf, has directly or indirectly made any offers or
sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement or any of the Related Agreements to be integrated with prior offerings
by the Company for purposes of the Securities Act which would prevent the
Company from selling the Securities pursuant to Rule 506 under the Securities
Act, or any applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or Subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.
 
4.24  Stop Transfer
 
. The Securities are restricted securities as of the date of this Agreement.
Neither the Company nor any of its Subsidiaries will issue any stop transfer
order or other order impeding the sale and delivery of any of the Securities at
such time as the Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal securities
laws.
 
4.25  Dilution. The Company specifically acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Note and exercise of the
Warrant is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company.
 
4.26 Patriot Act. The Company certifies that, to the best of Company’s
knowledge, neither the Company nor any of its Subsidiaries has been designated,
and is not owned or controlled, by a åsuspected terroristæ as defined in
Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and agrees that: (i) none of the cash or property that the Company or
any of its Subsidiaries will pay or will contribute to the Purchaser has been or
shall be derived from, or related to, any activity that is deemed criminal under
United States law; and (ii) no contribution or payment by the Company or any of
its Subsidiaries to the Purchaser, to the extent that they are within the
Company’s and/or its Subsidiaries’ control shall cause the Purchaser to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations ceases to be true
and accurate regarding the Company or any of its Subsidiaries. The Company
agrees to provide any additional information regarding the Company or any of its
Subsidiaries that is necessary for compliance with all applicable laws
concerning money laundering and similar activities. The Company understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering or similar activities, the Purchaser may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Purchaser’s investment in the Company. The Company further understands that the
Purchaser may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchaser is compelled to by federal or state agencies or
governments.
 

 
5.  Representations and Warranties of the Purchaser
 
. The Purchaser hereby represents and warrants to the Company as follows (such
representations and warranties do not lessen or obviate the representations and
warranties of the Company set forth in this Agreement):
 
5.1  No Shorting
 
. The Purchaser or any of its affiliates and investment partners has not during
the thirty (30) days prior to the date hereof, will not and will not cause any
person or entity to directly engage in "short sales" of Common Stock as long as
the Note shall be outstanding.
 
5.2  Requisite Power and Authority
 
. The Purchaser has all necessary power and authority under all applicable
provisions of law to execute and deliver this Agreement, the Related Agreements
and that certain Intercreditor Agreement between Purchaser and other third party
investors of the Company and to carry out their provisions. All corporate action
on Purchaser's part required for the lawful execution and delivery of this
Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except:
 
(a)  as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors' rights;
and
 
(b)  as limited by general principles of equity that restrict the availability
of equitable and legal remedies.
 
5.3  Investment Representations
 
. Purchaser understands that the Note and Warrant are being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon Purchaser's representations contained in the Agreement, including,
without limitation, that the Purchaser is an "accredited investor" within the
meaning of Regulation D under the Securities Act. The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Securities. The Purchaser further confirms that it has had an opportunity to
ask questions and receive answers from the Company regarding the Company's and
its Subsidiaries’ business, management and financial affairs and the terms and
conditions of the Offering and the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.
 
5.4  Purchaser Bears Economic Risk
 
. The Purchaser has substantial experience in evaluating and investing in
private placement transactions of securities in companies similar to the Company
so that it is capable of evaluating the merits and risks of its investment in
the Company and has the capacity to protect its own interests. The Purchaser
must bear the economic risk of this investment until the Securities are sold
pursuant to: (i) an effective registration statement under the Securities Act;
or (ii) an exemption from registration is available with respect to such sale.
 
5.5  Acquisition for Own Account
 
. The Purchaser is acquiring the Securities for the Purchaser's own account for
investment only, and not as a nominee or agent and not with a view towards or
for resale in connection with their distribution.
 
5.6  Purchaser Can Protect Its Interest
 
. The Purchaser represents that by reason of its, or of its management's,
business and financial experience, the Purchaser has the capacity to evaluate
the merits and risks of its investment in the Note, the Warrant and the
Securities and to protect its own interests in connection with the transactions
contemplated in this Agreement and the Related Agreements. Further, Purchaser is
aware of no publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.
 
5.7  Accredited Investor and not Broker/Dealer
 
. Purchaser represents that it is an accredited investor within the meaning of
Regulation D under the Securities Act. Purchaser further represents that is not
a broker/dealer or an affiliate of a broker/dealer as defined in the Exchange
Act.
 
5.8  Legends
 
.
 
(a)  The Note shall bear substantially the following legend:
 
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ELINEAR, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
 
(b)  The Note Shares and the Warrant Shares, if not issued by DWAC system (as
hereinafter defined), shall bear a legend which shall be in substantially the
following form until such shares are covered by an effective registration
statement filed with the SEC:
 
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ELINEAR, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
 
(c)  The Warrant shall bear substantially the following legend:
 
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ELINEAR, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.æ
 
6.  Covenants of the Company
 
. The Company covenants and agrees with the Purchaser as follows:
 
6.1  Stop-Orders
 
. The Company will advise the Purchaser, promptly after it receives notice of
issuance by the Securities and Exchange Commission (the "SEC"), any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
 
6.2  Listing
 
. The Company shall use its best efforts to promptly secure the listing of Note
Shares and Warrant Shares on the AMEX (the "Principal Market") (subject to
official notice of issuance) and shall maintain such listing so long as any
other shares of Common Stock shall be so listed. The Company will use its best
efforts to (i) maintain the listing of its Common Stock on the Principal Market,
and (ii) comply in all material respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the AMEX.
 
6.3  Market Regulations
 
. The Company shall take all necessary action and proceedings as may be required
and permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Purchaser and promptly provide copies thereof
to the Purchaser.
 
6.4  Reporting Requirements
 
. The Company will use its best efforts to timely file with the SEC all reports
required to be filed pursuant to the Exchange Act and refrain from terminating
its status as an issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations thereunder would permit
such termination.
 
6.5  Use of Funds
 
. The Company agrees that it will use the proceeds of the sale of the Note and
the Warrant for general working capital purposes and if needed for mergers or
acquisitions only (it being understood that 80% of the proceeds of the Note will
be deposited in the Restricted Account on the Closing Date and shall be subject
to the terms and conditions of the Restricted Account Agreement and the
Restricted Account Side Letter).
 
6.6  Access to Facilities
 
. Each of the Company and each of its Subsidiaries will permit any
representatives designated by the Purchaser (or any successor of the Purchaser),
upon reasonable notice and during normal business hours, at such person's
expense and accompanied by a representative of the Company, to:
 
(a)  visit and inspect any of the properties of the Company or any of its
Subsidiaries;
 
(b)  examine the corporate and financial records of the Company or any of its
Subsidiaries (unless such examination is not permitted by federal, state or
local law or by contract) and make copies thereof or extracts therefrom; and
 
(c)  discuss the affairs, finances and accounts of the Company or any of its
Subsidiaries with the directors, officers and independent accountants of the
Company or any of its Subsidiaries.
 
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
 
6.7  Taxes
 
. Each of the Company and each of its Subsidiaries will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company and its Subsidiaries; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company and/or such Subsidiary shall have set aside on
its books adequate reserves with respect thereto, and provided, further, that
the Company and its Subsidiaries will pay all such taxes, assessments, charges
or levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
 
6.8  Insurance
 
. Each of the Company and its Subsidiaries will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in similar businesses situated as the Company and its Subsidiaries;
and the Company and its Subsidiaries will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner which the Company
reasonably believes is customary for companies in similar business similarly
situated as the Company and its Subsidiaries and to the extent available on
commercially reasonable terms. 
 
6.9  Intellectual Property
 
. Each of the Company and each of its Subsidiaries shall maintain in full force
and effect its existence, rights and franchises and all licenses and other
rights to use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.
 
6.10  Properties
 
. Each of the Company and each of its Subsidiaries will keep its properties in
good repair, working order and condition, reasonable wear and tear excepted, and
from time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and each of the Company and each of its
Subsidiaries will at all times comply with each provision of all leases to which
it is a party or under which it occupies property if the breach of such
provision could, either individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
 
6.11  Confidentiality
 
. The Company agrees that it will not disclose, and will not include in any
public announcement, the name of the Purchaser, unless expressly agreed to by
the Purchaser or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Company may disclose Purchaser's identity and
the terms of this Agreement to its current and prospective debt and equity
financing sources and in its Exchange Act Filings.
 
6.12  Required Approvals
 
. For so long as fifty percent (50%) of the principal amount of the Note is
outstanding, the Company, without the prior written consent of the Purchaser,
shall not, and shall not permit any of its Subsidiaries to:
 
(a)  liquidate, dissolve or effect a material reorganization (it being
understood that in no event shall the Company dissolve, liquidate or merge with
any other person or entity (unless the Company is the surviving entity));
 
(b)  become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under any
circumstances) restrict the Company's or any of its Subsidiaries right to
perform the provisions of this Agreement, any Related Agreement or any of the
agreements contemplated hereby or thereby; or
 
(c)  (i) create, incur, assume or suffer to exist any indebtedness (exclusive of
trade debt and debt incurred to finance the purchase of equipment (not in excess
of ten percent (10%) of the fair market value of the Company's and its
Subsidiaries’ assets) whether secured or unsecured other than (x) the Company's
indebtedness to the Purchaser, (y) indebtedness set forth on Schedule 6.12(e)
attached hereto and made a part hereof and any refinancings or replacements
thereof on terms no less favorable to the Purchaser than the indebtedness being
refinanced or replaced, and (z) any debt incurred in connection with the
purchase of assets in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; (ii) cancel any debt owing to it in
excess of $350,000 in the aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except the endorsement of
negotiable instruments by the Company for deposit or collection or similar
transactions in the ordinary course of business or guarantees of indebtedness
otherwise permitted to be outstanding pursuant to this clause (c); and
 
(d)  materially alter or change the scope of the business of the Company and its
Subsidiaries taken as a whole.
 
6.13  Reissuance of Securities
 
. The Company agrees to reissue certificates representing the Securities without
the legends set forth in Section 5.8 above at such time as:
 
(a)  the holder thereof is permitted to dispose of such Securities pursuant to
Rule 144(k) under the Securities Act; or
 
(b)  upon resale subject to an effective registration statement after such
Securities are registered under the Securities Act.
 
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
 
6.14  Opinion
 
. On the Closing Date, the Company will deliver to the Purchaser an opinion
acceptable to the Purchaser from the Company's external legal counsel. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are deemed reasonably necessary by the Purchaser (and acceptable to
the Purchaser) in connection with the conversion of the Note and exercise of the
Warrant.
 
6.15 Margin Stock. The Company will not permit any of the proceeds of the Note
or the Warrant to be used directly or indirectly to åpurchaseæ or åcarryæ
åmargin stockæ or to repay indebtedness incurred to åpurchaseæ or åcarryæ
åmargin stockæ within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.
 
6.16 Restricted Cash Disclosure. The Company agrees that, in connection with its
filing of its 8-K Report with the SEC concerning the transactions contemplated
by this Agreement and the Related Agreements (such report, the åLaurus
Transaction 8-Kæ) in a timely manner after the date hereof, it will disclose in
such Laurus Transaction 8-K the amount of the proceeds of the Note issued to the
Purchaser that has been placed in a restricted cash account and is subject to
the terms and conditions of this Agreement and the Related Agreements.
Furthermore, the Company agrees to disclose in all public filings required by
the SEC (where appropriate) following the filing of the Laurus Transaction 8-K,
the existence of the restricted cash referred to in the immediately preceding
sentence, together with the amount thereof.
 
6.17 Sufficient Shares. The Company will at all times have authorized and
reserved a sufficient number of shares of Common Stock for the full conversion
of the Notes and exercise of the Warrants.
 
6.18 Pro Rata Requirement. The Company hereby agrees that if the Company takes
any action or omits to take any action in connection with or relating to this
Agreement or any of the Related Agreements (collectively, the "Transaction
Documents"), including, without limitation, any prepayments, redemptions,
repayments, conversions, determinations as to payments in cash or stock or a
combination of stock or cash or otherwise, then it must simultaneously take the
similar action or omission, pro rata as applicable, with respect to the
documents having substantially identical terms to the Transaction Documents
issued and entered into on the date hereof with certain other investors (the
"Other Investor Transaction Documents" and collectively with the Transaction
Documents, the "February Transaction Documents"). Neither the Company nor any
other person shall offer or pay any consideration to any person to amend or
consent to a waiver or modification of any provision of any of the Other
Investor Transaction Documents unless the same consideration also is offered to
the Purchaser or its designee. The Company has not, directly or indirectly, made
any agreements with any person relating to the terms or condition of the
transactions contemplated by the February Transaction Documents except as set
forth in the February Transaction Documents. The terms of the Other Investor
Transaction Documents are substantially identical to the terms of the
Transaction Documents (other than the amount of the investment to be made and
the number of warrants to be issued, in each case in accordance with the terms
thereof).

6.19 Priority Security Interest. With respect to holders of prior perfected
security interests in the Restrict Accounts as listed on Schedule 6.19, the
Company within thirty (30) days of the Closing shall either (i) obtain a waiver
from each of the prior perfected security interest holders whereby each such
holder waives any interest, right or title to the Restrict Account; or (ii) pay
off and terminate the obligations under each of the prior perfected security
interests.

 
7.  Covenants of the Purchaser
 
. The Purchaser covenants and agrees with the Company as follows:
 
7.1  Confidentiality
 
. The Purchaser agrees that it will not disclose, and will not include in any
public announcement, the name of the Company, unless expressly agreed to by the
Company or unless and until such disclosure is required by law, applicable
regulation, or AMEX and then only to the extent of such requirement.
 
7.2  Non-Public Information
 
. The Purchaser agrees not to effect any sales in the shares of the Company's
Common Stock while in possession of material, non-public information regarding
the Company if such sales would violate applicable securities law.
 
7.3  Limitation on Acquisition of Common Stock of the Company. Notwithstanding
anything to the contrary contained herein, in any Related Agreement or any
document, instrument or agreement entered into in connection with any other
transactions between the Purchaser and the Company, the Purchaser may not
acquire stock in the Company (including, without limitation, pursuant to a
contract to purchase, by exercising an option or warrant, by converting any
other security or instrument, by acquiring or exercising any other right to
acquire, shares of stock or other security convertible into shares of stock in
the Company, or otherwise, and such contracts, options, warrants, conversion or
other rights shall not be enforceable or exercisable) to the extent such stock
acquisition would cause any interest (including any original issue discount)
payable by the Company to Purchaser not to qualify as åportfolio interestæ
within the meaning of Section 881(c)(2) of the Code, by reason of
Section 881(c)(3) of the Code, taking into account the constructive ownership
rules under Section 871(h)(3)(C) of the Code (the åStock Acquisition
Limitationæ). The Stock Acquisition Limitation shall automatically become null
and void without any notice to the Company upon the earlier to occur of either
(a) the Company’s delivery to Purchaser of a Notice of Redemption (as defined in
the Note) or (b) the existence of an Event of Default (as defined in the Note)
at a time when the average closing price of the Company’s common stock as
reported by Bloomberg, L.P. on the Principal Market for the immediately
preceding five trading days is greater than or equal to 150% of the Fixed
Conversion Price (as defined in the Note).
 
7.4  Cooperation with AMEX listing. The Purchaser agrees to provide any
information or assistance to the Company as required for the Company’s listing
of Common Stock on AMEX.
 

 
8.  Covenants of the Company and Purchaser Regarding Indemnification
 
.
 
8.1  Company Indemnification
 
. The Company agrees to indemnify, hold harmless, reimburse and defend the
Purchaser, each of the Purchaser's officers, directors, agents, affiliates,
control persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Purchaser which results, arises out of
or is based upon: (i) any misrepresentation by the Company or any of its
Subsidiaries or breach of any warranty by the Company or any of its Subsidiaries
in this Agreement, any other Related Agreement or in any exhibits or schedules
attached hereto or thereto; or (ii) any breach or default in performance by
Company or any of its Subsidiaries of any covenant or undertaking to be
performed by Company or any of its Subsidiaries hereunder, under any other
Related Agreement or any other agreement entered into by the Company and/or any
of its Subsidiaries and Purchaser relating hereto or thereto.
 
8.2  Purchaser's Indemnification
 
. Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company's officers, directors, agents, affiliates, control
persons and principal shareholders, at all times against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal fees)
of any nature, incurred by or imposed upon the Company which results, arises out
of or is based upon: (i) any misrepresentation by Purchaser or breach of any
warranty by Purchaser in this Agreement or in any exhibits or schedules attached
hereto or any Related Agreement; or (ii) any breach or default in performance by
Purchaser of any covenant or undertaking to be performed by Purchaser hereunder,
or any other agreement entered into by the Company and Purchaser relating
hereto.
 
9.  Conversion of Convertible Note
 
.
 
9.1  Mechanics of Conversion
 
.
 
(a)  Provided the Purchaser has notified the Company of the Purchaser's
intention to sell the Note Shares and the Note Shares are included in an
effective registration statement or are otherwise exempt from registration when
sold: (i) upon the conversion of the Note or part thereof, the Company shall, at
its own cost and expense, take all necessary action (including the issuance of
an opinion of counsel reasonably acceptable to the Purchaser following a request
by the Purchaser) to assure that the Company's transfer agent shall issue shares
of Common Stock in the name of the Purchaser (or its nominee) or such other
persons as designated by the Purchaser in accordance with Section 9.1(b) hereof
and in such denominations to be specified representing the number of Note Shares
issuable upon such conversion; and (ii) the Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of Common Stock and that after the Effectiveness Date (as defined
in the Registration Rights Agreement) the Note Shares issued will be freely
transferable subject to the prospectus delivery requirements of the Securities
Act and the provisions of this Agreement, and will not contain a legend
restricting the resale or transferability of the Note Shares.
 
(b)  Purchaser will give notice of its decision to exercise its right to convert
the Note or part thereof by telecopying or otherwise delivering an executed and
completed notice of the number of shares to be converted to the Company (the
"Notice of Conversion"). The Purchaser will not be required to surrender the
Note until the Purchaser receives a credit to the account of the Purchaser's
prime broker through the DWAC system (as defined below), representing the Note
Shares or until the Note has been fully satisfied. Each date on which a Notice
of Conversion is telecopied or delivered to the Company in accordance with the
provisions hereof shall be deemed a "Conversion Date." Pursuant to the terms of
the Notice of Conversion, the Company will issue instructions to the transfer
agent accompanied by an opinion of counsel within one (1) business days of the
date of the delivery to the Company of the Notice of Conversion and shall cause
the transfer agent to transmit the certificates representing the Conversion
Shares to the Holder by crediting the account of the Purchaser's prime broker
with the Depository Trust Company ("DTC") through its Deposit Withdrawal Agent
Commission ("DWAC") system within three (3) business days after receipt by the
Company of the Notice of Conversion (the "Delivery Date").
 
(c)  The Company understands that a delay in the delivery of the Note Shares in
the form required pursuant to Section 9 hereof beyond the Delivery Date could
result in economic loss to the Purchaser. In the event that the Company fails to
direct its transfer agent to deliver the Note Shares to the Purchaser via the
DWAC system within the time frame set forth in Section 9.1(b) above and the Note
Shares are not delivered to the Purchaser by the Delivery Date, as compensation
to the Purchaser for such loss, the Company agrees to pay late payments to the
Purchaser for late issuance of the Note Shares in the form required pursuant to
Section 9 hereof upon conversion of the Note in the amount equal to the greater
of: (i) $500 per business day after the Delivery Date; or (ii) the Purchaser's
actual damages from such delayed delivery. Notwithstanding the foregoing, the
Company will not owe the Purchaser any late payments if the delay in the
delivery of the Note Shares beyond the Delivery Date is solely out of the
control of the Company and the Company is actively trying to cure the cause of
the delay. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand and, in the case of actual damages,
accompanied by reasonable documentation of the amount of such damages. Such
documentation shall show the number of shares of Common Stock the Purchaser is
forced to purchase (in an open market transaction) which the Purchaser
anticipated receiving upon such conversion, and shall be calculated as the
amount by which (A) the Purchaser's total purchase price (including customary
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the Note, for
which such Conversion Notice was not timely honored.
 
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.
 
10.  Registration Rights.
 
10.1  Registration Rights Granted
 
. The Company hereby grants registration rights to the Purchaser pursuant to a
Registration Rights Agreement dated as of even date herewith between the Company
and the Purchaser.
 
10.2  Offering Restrictions. Except as previously disclosed in the SEC Reports
or in the Exchange Act Filings, or stock or stock options granted to employees
or directors of the Company (these exceptions hereinafter referred to as the
åExcepted Issuancesæ), neither the Company nor any of its Subsidiaries will,
prior to the full repayment or conversion of the Note (together with all accrued
and unpaid interest and fees related thereto), enter in any agreement to issue
any securities with a variable/floating conversion and/or pricing feature which
does not have a floor.
 
11.  Miscellaneous
 
.
 
11.1  Governing Law
 
. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE
OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EACH
RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN
THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE
COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY
JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT
DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.
 
11.2  Survival
 
. The representations, warranties, covenants and agreements made herein shall
survive any investigation made by the Purchaser and the closing of the
transactions contemplated hereby to the extent provided therein. All statements
as to factual matters contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate or
instrument.
 
11.3  Successors
 
. Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, heirs, executors
and administrators of the parties hereto and shall inure to the benefit of and
be enforceable by each person who shall be a holder of the Securities from time
to time, other than the holders of Common Stock which has been sold by the
Purchaser pursuant to Rule 144 or an effective registration statement. Purchaser
may not assign its rights hereunder to a competitor of the Company.
 
11.4  Entire Agreement
 
. This Agreement, the Related Agreements, the exhibits and schedules hereto and
thereto and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any manner
by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
 
11.5  Severability
 
. In case any provision of the Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
 
11.6  Amendment and Waiver
 
.
 
(a)  This Agreement may be amended or modified only upon the written consent of
the Company and the Purchaser.
 
(b)  The obligations of the Company and the rights of the Purchaser under this
Agreement may be waived only with the written consent of the Purchaser.
 
(c)  The obligations of the Purchaser and the rights of the Company under this
Agreement may be waived only with the written consent of the Company.
 
11.7  Delays or Omissions
 
. It is agreed that no delay or omission to exercise any right, power or remedy
accruing to any party, upon any breach, default or noncompliance by another
party under this Agreement or the Related Agreements, shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance, or any acquiescence therein, or in any similar
breach, default or noncompliance thereafter occurring. All remedies, either
under this Agreement or the Related Agreements, by law or otherwise afforded to
any party, shall be cumulative and not alternative.
 
11.8  Notices
 
. All notices required or permitted hereunder shall be in writing and shall be
deemed effectively given:
 
(a)  upon personal delivery to the party to be notified;
 
(b)  when sent by confirmed facsimile if sent during normal business hours of
the recipient, if not, then on the next business day;
 
(c)  three (3) business days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or
 
(d)  one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.
 
All communications shall be sent as follows:
 
If to the Company, to:
ELINEAR, Inc.
2901 West Sam Houston Pkwy North
Suite E-300
Houston, TX 77043
Attention: Ramzi Nassar, Chief Strategy Officer
Facsimile: (713) 896-0510
     
with a copy to:
 
Brewer & Pritchard, PC
3 Riverway, Suite 1800
Houston, TX 77056
 
Attention: Thomas C. Pritchard 
Facsimile: (713) 209-2921
   
If to the Laurus, to:
Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
P.O. Box 309 GT
Ugland House, George Town
South Church Street
Grand Cayman, Cayman Islands
Facsimile: 345-949-8080
     
with a copy to:
     
John E. Tucker, Esq.
825 Third Avenue 14th Floor
New York, NY 10022
Facsimile: 212-541-4434
 

or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
 
11.9  Attorneys' Fees
 
. In the event that any suit or action is instituted to enforce any provision in
this Agreement, the prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement,
including, without limitation, such reasonable fees and expenses of attorneys
and accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
 
11.10  Titles and Subtitles
 
. The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
 
11.11  Facsimile Signatures; Counterparts
 
. This Agreement may be executed by facsimile signatures and in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
 
11.12  Broker's Fees
 
. Except as set forth on Schedule 11.12 hereof, each party hereto represents and
warrants that no agent, broker, investment banker, person or firm acting on
behalf of or under the authority of such party hereto is or will be entitled to
any broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto further
agrees to indemnify each other party for any claims, losses or expenses incurred
by such other party as a result of the representation in this Section 11.12
being untrue.
 
11.13  Construction
 
. Each party acknowledges that its legal counsel participated in the preparation
of this Agreement and the Related Agreements and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Agreement to favor any
party against the other.
 

 
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IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
 
COMPANY:
 
PURCHASER:
     
ELINEAR, Inc.
 
Laurus Master Fund, Ltd.
           
By:
   
By:
 
Name:
Michael Lewis
 
Name:
 
Title:
Chief Executive Officer
 
Title:
 

Address: _______________________________
_______________________________
Fax: _______________________________

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