Exhibit 10.94

 

THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES 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 UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO PATH 1 NETWORK TECHNOLOGIES INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.

 

SECURED CONVERTIBLE TERM NOTE

 

FOR VALUE RECEIVED, PATH 1 NETWORK TECHNOLOGIES INC., a Delaware corporation
(the “Company”), promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate
Services Limited, P.O. Box 309 GT, Ugland House, South Church Street, George
Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the “Holder”) or its
registered assigns or successors in interest, the sum of Two Million One Hundred
Thousand Dollars ($2,100,000), together with any accrued and unpaid interest
hereon, on December 6, 2008 (the “Maturity Date”) if not sooner paid.

 

Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof by and between the Company and the Holder (as amended, modified
and/or supplemented from time to time, the “Purchase Agreement”).

 

The following terms shall apply to this Secured Convertible Term Note (this
“Note”):

 

ARTICLE I

CONTRACT RATE AND AMORTIZATION

 

1.1 Contract Rate. Subject to Sections 4.2 and 5.10, interest payable on the
outstanding principal amount of this Note (the “Principal Amount”) shall accrue
at a rate per annum equal to the “prime rate” published in The Wall Street
Journal from time to time (the “Prime Rate”), plus two and a half percent
(2.5%) (the “Contract Rate”). The Contract Rate shall be increased or decreased
as the case may be for each increase or decrease in the Prime Rate in an amount
equal to such increase or decrease in the Prime Rate; each change to be
effective as of the day of the change in the Prime Rate. Interest shall be
(i) calculated on the basis of a 360 day year, and (ii) payable monthly, in
arrears, commencing on January 1, 2006, on the first business day of each
consecutive calendar month thereafter through and including the Maturity Date,
and on the Maturity Date, whether by acceleration or otherwise.

 

1.2 Contract Rate Adjustments and Payments. The Contract Rate shall be
calculated on the last business day of each calendar month hereafter (other than
for increases or decreases in the Prime Rate which shall be calculated and
become effective in accordance with the terms of Section 1.1) until the Maturity
Date (each a “Determination Date”) and shall be subject to adjustment as set
forth herein. If (i) the Company shall have registered the shares of

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

the Common Stock underlying the conversion of this Note and each Warrant on a
registration statement declared effective by the Securities and Exchange
Commission (the “SEC”), and (ii) the market price (the “Market Price”) of the
Common Stock as reported by Bloomberg, L.P. on the Principal Market for the
three (3) trading days immediately preceding a Determination Date exceeds the
then applicable Fixed Conversion Price by at least twenty-five percent (25%),
the Contract Rate for the succeeding calendar month shall automatically be
reduced by 200 basis points (200 b.p.) (2%) for each incremental twenty-five
percent (25%) increase in the Market Price of the Common Stock above the then
applicable Fixed Conversion Price. Notwithstanding the foregoing (and anything
to the contrary contained herein), in no event shall the Contract Rate at any
time be less than zero percent (0%).

 

1.3 Principal Payments. Amortizing payments of the aggregate principal amount
outstanding under this Note at any time (the “Principal Amount”) shall be made
by the Company on March 1, 2006 and on the first business day of each succeeding
month thereafter through and including the Maturity Date (each, an “Amortization
Date”). Subject to prospective reductions in the event of conversions under
Article III below, commencing on the first Amortization Date, the Company shall
make monthly payments to the Holder on each Repayment Date, each such payment in
the amount of $60,606.06 together with any accrued and unpaid interest on such
portion of the Principal Amount plus any and all other unpaid amounts which are
then owing under this Note, the Purchase Agreement and/or any other Related
Agreement (collectively, the “Monthly Amount”). Any outstanding Principal Amount
together with any accrued and unpaid interest and any and all other unpaid
amounts which are then owing by the Company to the Holder under this Note, the
Purchase Agreement and/or any other Related Agreement shall be due and payable
on the Maturity Date.

 

ARTICLE II

CONVERSION AND REDEMPTION

 

2.1 Payment of Monthly Amount.

 

(a) Payment in Cash or Common Stock. If the Monthly Amount (or a portion of such
Monthly Amount if not all of the Monthly Amount may be converted into shares of
Common Stock pursuant to Section 3.2) is required to be paid in cash pursuant to
Section 2.1(b), then the Company shall pay the Holder an amount in cash equal to
100% of the Monthly Amount (or such portion of such Monthly Amount to be paid in
cash) due and owing to the Holder on the Amortization Date. If the Monthly
Amount (or a portion of such Monthly Amount if not all of the Monthly Amount may
be converted into shares of Common Stock pursuant to Section 3.2) is required to
be paid in shares of Common Stock pursuant to Section 2.1(b), the number of such
shares to be issued by the Company to the Holder on such Amortization Date (in
respect of such portion of the Monthly Amount converted into shares of Common
Stock pursuant to Section 2.1(b)), shall be the number determined by dividing
(i) the portion of the Monthly Amount converted into shares of Common Stock, by
(ii) the then applicable Fixed Conversion Price. For purposes hereof, subject to
Section 3.6 hereof, the initial “Fixed Conversion Price” means $2.6316 [which
has been determined on the date of this Note as an amount equal to the volume
weighted average price of the Common Stock for the ten (10) trading days
immediately prior to the date of this Note].

 

2

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

(b) Monthly Amount Conversion Conditions. Subject to Sections 2.1(a), 2.2, and
3.2 hereof, the Holder shall convert into shares of Common Stock all or a
portion of the Monthly Amount due on each Amortization Date if the following
conditions (the “Conversion Criteria”) are satisfied: (i) the average closing
price of the Common Stock as reported by Bloomberg, L.P. on the Principal Market
for the five (5) trading days immediately preceding such Amortization Date shall
be greater than or equal to 115% of the Fixed Conversion Price and (ii) the
amount of such conversion does not exceed twenty percent (20%) of the aggregate
dollar trading volume of the Common Stock for the period of twenty-two
(22) trading days immediately preceding such Amortization Date. If subsection
(i) of the Conversion Criteria is met but subsection (ii) of the Conversion
Criteria is not met as to the entire Monthly Amount, the Holder shall convert
only such part of the Monthly Amount that meets subsection (ii) of the
Conversion Criteria. Any portion of the Monthly Amount due on an Amortization
Date that the Holder has not been able to convert into shares of Common Stock
due to the failure to meet the Conversion Criteria, shall be paid in cash by the
Company at the rate of 100% of the Monthly Amount otherwise due on such
Amortization Date, within three (3) business days of such Amortization Date.

 

2.2 No Effective Registration. Notwithstanding anything to the contrary herein,
none of the Company’s obligations to the Holder may be converted into Common
Stock unless (a) either (i) an effective current Registration Statement (as
defined in the Registration Rights Agreement) covering the shares of Common
Stock to be issued in connection with satisfaction of such obligations exists or
(ii) an exemption from registration for resale of all of the Common Stock issued
and issuable is available pursuant to Rule 144 of the Securities Act and (b) no
Event of Default (as hereinafter defined) exists and is continuing, unless such
Event of Default is cured within any applicable cure period or otherwise waived
in writing by the Holder.

 

2.3 Optional Redemption in Cash. The Company may prepay this Note (“Optional
Redemption”) by paying to the Holder a sum of money equal to one hundred and
nine percent (109%) of the Principal Amount outstanding at such time together
with accrued but unpaid interest thereon and any and all other sums due, accrued
or payable to the Holder arising under this Note, the Purchase Agreement or any
other Related Agreement (the “Redemption Amount”) outstanding on the Redemption
Payment Date (as defined below). The Company shall deliver to the Holder a
written notice of redemption (the “Notice of Redemption”) specifying the date
for such Optional Redemption (the “Redemption Payment Date”), which date shall
be ten (10) business days after the date of the Notice of Redemption (the
“Redemption Period”). A Notice of Redemption shall not be effective with respect
to any portion of this Note for which the Holder has previously delivered a
Notice of Conversion (as hereinafter defined) or for conversions elected to be
made by the Holder pursuant to Article III during the Redemption Period. The
Redemption Amount shall be determined as if the Holder’s conversion elections
had been completed immediately prior to the date of the Notice of Redemption. On
the Redemption Payment Date, the Redemption Amount must be paid in good funds to
the Holder. In the event the Company fails to pay the Redemption Amount on the
Redemption Payment Date as set forth herein, then such Redemption Notice will be
null and void.

 

3

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

ARTICLE III

HOLDER’S CONVERSION RIGHTS

 

3.1 Optional Conversion. Subject to the terms set forth in this Article III, the
Holder shall have the right, but not the obligation, to convert all or any
portion of the issued and outstanding Principal Amount and/or accrued interest
and fees due and payable into fully paid and nonassessable shares of Common
Stock at the Fixed Conversion Price. The shares of Common Stock to be issued
upon such conversion are herein referred to as, the “Conversion Shares.”

 

3.2 Conversion Limitation. Notwithstanding anything contained herein to the
contrary, the Holder shall not be entitled to convert pursuant to the terms of
this Note an amount that would be convertible into that number of Conversion
Shares which would exceed the difference between (i) 4.99% of the issued and
outstanding shares of Common Stock and (ii) the number of shares of Common Stock
beneficially owned by the Holder. For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. The
Conversion Share limitation described in this Section 3.2 shall automatically
become null and void following notice to the Company upon the occurrence and
during the continuance of an Event of Default, upon 75 days prior notice to the
Company, or upon receipt by the Holder of a Notice of Redemption, except that at
no time shall the number of shares of Common Stock beneficially owned by the
Holder exceed 19.99% of the outstanding shares of Common Stock. Notwithstanding
anything contained herein to the contrary, the number of shares of Common Stock
issuable or issued by the Company at a price below $2.55 per share pursuant to
the terms of this Note, the Purchase Agreement, or any other Related Agreement,
shall not exceed an aggregate of 1,454,593 shares of Common Stock (subject to
appropriate adjustment for stock splits, stock dividends, or other similar
recapitalizations affecting the Common Stock) (the “Maximum Common Stock
Issuance”), unless the issuance of Common Stock hereunder in excess of the
Maximum Common Stock Issuance shall first be approved by the Company’s
shareholders. If at any point in time and from time to time the number of shares
of Common Stock issued pursuant to the terms of this Note, the Purchase
Agreement, any other Related Agreement or otherwise, together with the number of
shares of Common Stock that would then be issuable by the Company to the Holder
in the event of a conversion or exercise pursuant to the terms of this Note, the
Purchase Agreement or any other Related Agreement, would exceed the Maximum
Common Stock Issuance but for this Section 3.2, the Company shall promptly call
a shareholders meeting to solicit shareholder approval for the issuance of the
shares of Common Stock hereunder in excess of the Maximum Common Stock Issuance.
Notwithstanding anything contained herein to the contrary, the provisions of
this Section 3.2 are irrevocable and may not be waived by the Holder or the
Company.

 

3.3 Mechanics of Holder’s Conversion. In the event that the Holder elects to
convert this Note into Common Stock, the Holder shall give notice of such
election by delivering an executed and completed notice of conversion in
substantially the form of Exhibit A hereto (appropriate completed) (“Notice of
Conversion”) to the Company and such Notice of Conversion shall provide a
breakdown in reasonable detail of the Principal Amount, accrued interest and
fees that are being converted. On each Conversion Date (as hereinafter defined)
and in accordance with its Notice of Conversion, the Holder shall make the
appropriate reduction to

 

4

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

the Principal Amount, accrued interest and fees as entered in its records and
shall provide written notice thereof to the Company within two (2) business days
after the Conversion Date. Each date on which a Notice of Conversion is
delivered or telecopied to the Company in accordance with the provisions hereof
shall be deemed a Conversion Date (the “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 day 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 Holder’s designated broker
with the Depository Trust Corporation (“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”). In the case of
the exercise of the conversion rights set forth herein the conversion privilege
shall be deemed to have been exercised and the Conversion Shares issuable upon
such conversion shall be deemed to have been issued upon the date of receipt by
the Company of the Notice of Conversion. The Holder shall be treated for all
purposes as the record holder of the Conversion Shares, unless the Holder
provides the Company written instructions to the contrary.

 

3.4 Late Payments. The Company understands that a delay in the delivery of the
Conversion Shares in the form required pursuant to this Article beyond the
Delivery Date could result in economic loss to the Holder. As compensation to
the Holder for such loss, in addition to all other rights and remedies which the
Holder may have under this Note, applicable law or otherwise, the Company shall
pay late payments to the Holder for any late issuance of Conversion Shares in
the form required pursuant to this Article II upon conversion of this Note, in
the amount equal to $500 per business day after the Delivery Date. The Company
shall make any payments incurred under this Section in immediately available
funds upon demand.

 

3.5 Conversion Mechanics. The number of shares of Common Stock to be issued upon
each conversion of this Note shall be determined by dividing that portion of the
principal and interest and fees to be converted, if any, by the then applicable
Fixed Conversion Price. In the event of any conversions of a portion of the
outstanding Principal Amount pursuant to this Article III, such conversions
shall be deemed to constitute conversions of the outstanding Principal Amount
applying to Monthly Amounts for the remaining Amortization Dates in
chronological order.

 

3.6 Adjustment Provisions. The Fixed Conversion Price and number and kind of
shares or other securities to be issued upon conversion determined pursuant to
this Note shall be subject to adjustment from time to time upon the occurrence
of certain events during the period that this conversion right remains
outstanding, as follows:

 

(a) Reclassification. If the Company at any time shall, by reclassification or
otherwise, change the Common Stock into the same or a different number of
securities of any class or classes, this Note, as to the unpaid Principal Amount
and accrued interest thereon, shall thereafter be deemed to evidence the right
to purchase an adjusted number of such securities and kind of securities as
would have been issuable as the result of such change with respect to the Common
Stock (i) immediately prior to or (ii) immediately after, such reclassification
or other change at the sole election of the Holder.

 

5

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

(b) Stock Splits, Combinations and Dividends. If the shares of Common Stock are
subdivided or combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock or any preferred stock
issued by the Company in shares of Common Stock, the Fixed Conversion Price
shall be proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination of shares, in
each such case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares of
Common Stock outstanding immediately prior to such event.

 

(c) Share Issuances. Subject to the provisions of this Section 3.6, if the
Company shall at any time prior to the conversion or repayment in full of the
Principal Amount issue any shares of Common Stock or securities convertible into
Common Stock to a Person other than the Holder (except (i) pursuant to Sections
3.6(a) or (b) above; (ii) pursuant to options, warrants, or other obligations to
issue shares outstanding on the date hereof as disclosed to the Holder in
writing; or (iii) pursuant to options that may be issued under any employee or
director stock option plan adopted by the Company) for a consideration per share
(the “Offer Price”) less than the Fixed Conversion Price in effect at the time
of such issuance, then the Fixed Conversion Price shall be immediately reset
pursuant to the formula below. For purposes hereof, the issuance of any security
of the Company convertible into or exercisable or exchangeable for Common Stock
shall result in an adjustment to the Fixed Conversion Price upon the issuance of
such securities.

 

If the Company issues any additional shares of Common Stock for a consideration
per share less than the then-applicable Fixed Conversion Price pursuant to this
Section 3.6 then, and thereafter successively upon each such issue, the Fixed
Conversion Price shall be adjusted by multiplying the then applicable Fixed
Conversion Price by the following fraction:

 

    A + B         (A + B) + [((C – D) x B) / C]    

 

A

   =    All then-outstanding Common Stock of the Company (including also, as if
outstanding, the total amount of shares convertible pursuant to this Note)

B

   =    Actual shares sold in the offering

C

   =    Fixed Conversion Price

D

   =    Offer Price

 

(d) Computation of Consideration. For purposes of any computation respecting
consideration received pursuant to Section 3.6(c) above, the following shall
apply:

 

(i) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case shall

 

6

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

any deduction be made for any commissions, discounts or other expenses incurred
by the Company for any underwriting of the issue or otherwise in connection
therewith;

 

(ii) in the case of the issuance of shares of Common Stock for a consideration
in whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair market value thereof as determined in good faith by the
Board of Directors of the Company (irrespective of the accounting treatment
thereof); and

 

(iii) upon any such exercise, the aggregate consideration received for such
securities shall be deemed to be the consideration received by the Company for
the issuance of such securities plus the additional minimum consideration, if
any, to be received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
subsections (i) and (ii) of this Section 3.6(d)).

 

3.7 Reservation of Shares. During the period the conversion right exists, the
Company will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Conversion Shares upon the full
conversion of this Note and the Warrant. The Company represents that upon
issuance, the Conversion Shares will be duly and validly issued, fully paid and
non-assessable. The Company agrees that its issuance of this Note shall
constitute full authority to its officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates to execute and
issue the necessary certificates for the Conversion Shares upon the conversion
of this Note.

 

3.8 Registration Rights. The Holder has been granted registration rights with
respect to the Conversion Shares as set forth in the Registration Rights
Agreement.

 

3.9 Issuance of New Note. Upon any partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of
the Holder, be issued by the Company to the Holder for the principal balance of
this Note and interest which shall not have been converted or paid. Upon
reissuance to the Holder of each new Note, the Holder shall promptly return to
the Company the Note replaced thereby. Subject to the provisions of Article IV
of this Note, the Company shall not pay any costs, fees or any other
consideration to the Holder for the production and issuance of a new Note.

 

ARTICLE IV

EVENTS OF DEFAULT

 

4.1 Events of Default. The occurrence of any of the following events set forth
in this Section 4.1 shall constitute an event of default (“Event of Default”)
hereunder:

 

(a) Failure to Pay. The Company fails to pay when due any installment of
principal, interest or other fees hereon in accordance herewith, or the Company
fails to pay any of the other Obligations (under and as defined in the Master
Security Agreement) when due, and, in any such case, such failure shall continue
for a period of three business (3) days following the date upon which any such
payment was due.

 

7

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

(b) Breach of Covenant. The Company or any of its Subsidiaries breaches any
covenant or any other term or condition of this Note in any material respect and
such breach, if subject to cure, continues for a period of fifteen (15) days
after the occurrence thereof.

 

(c) Breach of Representations and Warranties. Any representation, warranty or
statement made or furnished by the Company or any of its Subsidiaries in this
Note, the Purchase Agreement or any other Related Agreement shall at any time be
false or misleading in any material respect on the date as of which made or
deemed made.

 

(d) Default Under Other Agreements. The occurrence of any default (or similar
term) in the observance or performance of any other agreement or condition
relating to any indebtedness or contingent obligation of the Company or any of
its Subsidiaries beyond the period of grace (if any), the effect of which
default is to cause, or permit the holder or holders of such indebtedness or
beneficiary or beneficiaries of such contingent obligation to cause, such
indebtedness to become due prior to its stated maturity or such contingent
obligation to become payable; provided that it shall not be an Event of Default
under this Section 4.1(d) unless the aggregate amount of all indebtedness,
together with the aggregate maximum amount of all contingent obligations, in
each case as described above in this clause (d) is at least $25,000.

 

(e) Material Adverse Effect. Any change or the occurrence of any event which
could reasonably be expected to have a Material Adverse Effect;

 

(f) Bankruptcy. The Company or any of its Subsidiaries shall (i) apply for,
consent to or suffer to exist the appointment of, or the taking of possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general assignment for the benefit
of creditors, (iii) commence a voluntary case under the federal bankruptcy laws
(as now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent,
(v) file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to, without challenge within ten (10) days of
the filing thereof, or failure to have dismissed, within sixty (60) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;

 

(g) Judgments. Attachments or levies in excess of $50,000 in the aggregate are
made upon the Company or any of its Subsidiary’s assets or a judgment is
rendered against the Company’s property involving a liability of more than
$50,000 which shall not have been vacated, discharged, stayed or bonded within
thirty (30) days from the entry thereof;

 

(h) Insolvency. The Company or any of its Subsidiaries shall admit in writing
its inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business;

 

(i) Change of Control. A Change of Control (as defined below) shall occur with
respect to the Company, unless Holder shall have expressly consented to such
Change of Control in writing. A “Change of Control” shall mean any event or
circumstance as a result of which (i) any “Person” or “group” (as such terms are
defined in Sections 13(d) and 14(d) of the

 

8

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

Exchange Act, as in effect on the date hereof), other than the Holder, is or
becomes the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under
the Exchange Act), directly or indirectly, of 35% or more on a fully diluted
basis of the then outstanding voting equity interest of the Company (other than
a group at least 80% of the shares of which consist of shares of Common Stock
beneficially owned as of the date hereof by, and still owned as group members
by, one or more of Steven R. Simpson, Robert Bears Sr., Robert Bears Jr. and
Christopher Cope (trustee)), (ii) the Board of Directors of the Company shall
cease to consist of a majority of the Company’s board of directors on the date
hereof (or directors appointed by a majority of the board of directors in effect
immediately prior to such appointment) or (iii) the Company or any of its
Subsidiaries merges or consolidates with, or sells all or substantially all of
its assets to, any other person or entity;

 

(j) Indictment; Proceedings. The indictment or threatened indictment of the
Company or any of its Subsidiaries or any executive officer of the Company or
any of its Subsidiaries under any criminal statute, or commencement or
threatened commencement of criminal or civil proceeding against the Company or
any of its Subsidiaries or any executive officer of the Company or any of its
Subsidiaries pursuant to which statute or proceeding penalties or remedies
sought or available include forfeiture of any of the property of the Company or
any of its Subsidiaries; provided that, with respect to civil proceedings, it
shall not be an Event of Default under this Section 4.1(j) to the extent only
monetary damages (without a demand of forfeiture of property) are sought in
connection with such civil proceedings;

 

(k) The Purchase Agreement and Related Agreements. (i) An Event of Default shall
occur under and as defined in any other Related Agreement, (ii) the Company or
any of its Subsidiaries shall breach any term or provision of the Purchase
Agreement or any other Related Agreement in any material respect and such
breach, if capable of cure, continues unremedied for a period of fifteen
(15) days after the occurrence thereof, (iii) the Company or any of its
Subsidiaries attempts to terminate, challenges the validity of, or its liability
under, the Purchase Agreement or any Related Agreement, (iv) any proceeding
shall be brought to challenge the validity, binding effect of the Purchase
Agreement or any Related Agreement or (v) the Purchase Agreement or any Related
Agreement ceases to be a valid, binding and enforceable obligation of the
Company or any of its Subsidiaries (to the extent such persons or entities are a
party thereto);

 

(l) Stop Trade. An SEC stop trade order or Principal Market trading suspension
of the Common Stock shall be in effect for five (5) consecutive days or five
(5) days during a period of ten (10) consecutive days, excluding in all cases a
suspension of all trading on a Principal Market, after the Company shall not
have been able to cure such trading suspension within thirty (30) days of the
notice thereof or list the Common Stock on another Principal Market within sixty
(60) days of such notice; or

 

(m) Failure to Deliver Common Stock or Replacement Note. The Company’s failure
to deliver Common Stock to the Holder pursuant to and in the form required by
this Note and the Purchase Agreement and, if such failure to deliver Common
Stock shall not be cured within two (2) business days or the Company is required
to issue a replacement Note to the Holder and the Company shall fail to deliver
such replacement Note within seven (7) business days.

 

9

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

4.2 Default Interest. Following the occurrence and during the continuance of an
Event of Default, the Company shall pay additional interest on this Note in an
amount equal to five percent (5%) per annum, and all outstanding obligations
under this Note, the Purchase Agreement and each other Related Agreement,
including unpaid interest, shall continue to accrue interest at such additional
interest rate from the date of such Event of Default until the date such Event
of Default is cured or waived.

 

4.3 Default Payment. Following the occurrence and during the continuance of an
Event of Default, the Holder, at its option, may demand repayment in full of all
obligations and liabilities owing by Company to the Holder under this Note, the
Purchase Agreement and/or any other Related Agreement and/or may elect, in
addition to all rights and remedies of the Holder under the Purchase Agreement
and the other Related Agreements and all obligations and liabilities of the
Company under the Purchase Agreement and the other Related Agreements, to
require the Company to make a Default Payment (“Default Payment”). The Default
Payment shall be 109% of the outstanding principal amount of the Note, plus
accrued but unpaid interest, all other fees then remaining unpaid, and all other
amounts payable hereunder. The Default Payment shall be applied first to any
fees due and payable to the Holder pursuant to this Note, the Purchase
Agreement, and/or the other Related Agreements, then to accrued and unpaid
interest due on this Note and then to the outstanding principal balance of this
Note. The Default Payment shall be due and payable immediately on the date that
the Holder has exercised its rights pursuant to this Section 4.3.

 

ARTICLE V

MISCELLANEOUS

 

5.1 Conversion Privileges. The conversion privileges set forth in Article III
shall remain in full force and effect immediately from the date hereof until the
date this Note is indefeasibly paid in full and irrevocably terminated.

 

5.2 Cumulative Remedies. The remedies under this Note shall be cumulative.

 

5.3 Failure or Indulgence Not Waiver. No failure or delay on the part of the
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

 

5.4 Notices. Any notice herein required or permitted to be given shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party 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) five
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the Company at the
address provided in the Purchase Agreement executed in connection herewith, and
to the Holder at the address provided in the Purchase Agreement for such Holder,
with a copy to John E. Tucker, Esq., 825 Third Avenue,

 

10

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

14th Floor, New York, New York 10022, facsimile number (212) 541-4434, or at
such other address as the Company or the Holder may designate by ten days
advance written notice to the other parties hereto. A Notice of Conversion shall
be deemed given when made to the Company pursuant to the Purchase Agreement and
Article III hereof.

 

5.5 Amendment Provision. The term “Note” and all references thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented, and any
successor instrument as such successor instrument may be amended or
supplemented.

 

5.6 Assignability. This Note shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement. The Company may not assign any of its
obligations under this Note without the prior written consent of the Holder, any
such purported assignment without such consent being null and void.

 

5.7 Cost of Collection. In case of any Event of Default under this Note, the
Company shall pay the Holder reasonable costs of collection, including
reasonable attorneys’ fees.

 

5.8 Governing Law, Jurisdiction and Waiver of Jury Trial.

 

(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.

 

(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY,
ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE OR
ANY OF THE OTHER RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS NOTE OR ANY OF THE RELATED AGREEMENTS; PROVIDED, THAT THE COMPANY
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER
PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE
HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
THE HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH (COUNTY OF NEW YORK)
COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE
COMPANY HEREBY

 

11

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

WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN
ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE
COMPANY AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY’S ACTUAL RECEIPT
THEREOF OR FIVE (5) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.

 

(c) THE COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE COMPANY HERETO WAIVES ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE HOLDER AND THE
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, ANY OTHER
RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.

 

5.9 Severability. In the event that any provision of this Note 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 Note.

 

5.10 Maximum Payments. Nothing contained herein 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
required to be paid or other charges hereunder exceed the maximum rate permitted
by such law, any payments in excess of such maximum rate shall be credited
against amounts owed by the Company to the Holder and thus refunded to the
Company.

 

5.11 Security Interest. The Holder has been granted a security interest in
certain assets of the Company as more fully described in the Master Security
Agreement dated as of the date hereof.

 

5.12 Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Note 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 Note to favor any party
against the other.

 

5.13 Registered Obligation. This Note is intended to be a registered obligation
within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i) and the
Company (or its agent) shall register the Note (and thereafter shall maintain
such registration) as to both principal and any stated interest. Notwithstanding
any document, instrument or agreement relating to this Note to the contrary,
transfer of this Note (or the right to any payments of principal or stated
interest thereunder) may only be effected by (i) surrender of this Note and
either the reissuance by the Company of this Note to the new holder or the
issuance by the Company of a new instrument to the new holder, or (ii) transfer
through a book entry system maintained by the Company (or its agent), within the
meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).

 

[Balance of page intentionally left blank; signature page follows]

 

12

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

IN WITNESS WHEREOF, the Company has caused this Secured Convertible Term Note to
be signed in its name effective as of this 6th day of December 2005.

 

PATH 1 NETWORK TECHNOLOGIES INC.

By:

 

/s/ Jeremy Ferrell

   

Name: Jeremy Ferrell

   

Title: Interim CFO

 

WITNESS:

/s/ Thomas Tullie

 

13

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

 

EXHIBIT A

 

NOTICE OF CONVERSION

 

(To be executed by the Holder in order to convert all or part of

the Secured Convertible Term Note into Common Stock)

 

[Name and Address of Company]

 

The undersigned hereby converts $                     of the principal [and
$                     of accrued interest] due on [specify applicable Repayment
Date] under the Secured Convertible Term Note dated as of December 6, 2005 (the
“Note”) issued by Path 1 Network Technologies Inc. (the “Company”) by delivery
of shares of Common Stock of the Company (“Shares”) on and subject to the
conditions set forth in the Note.

 

1. Date of Conversion _______________________

 

2. Shares To Be Delivered: ____________________

 

[HOLDER]

By:

   

Name: 

   

Title: