**CONVERTIBLEPROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT**

This ConvertiblePromissory Note and Warrant Purchase Agreement (the “Agreement”) is made as of_____ ___, 2001 by and among TeraGlobal Communications Corp., a Delawarecorporation (the ”Company”), and the investors (collectively, the“Investors” and each individually an “Investor”) set forth in the Schedule ofInvestors attached hereto as Exhibit A (“Schedule of Investors”).

RECITALS

A.            The Investors desire to purchase fromthe Company, and the Company desires to issue to the Investors, ConvertiblePromissory Notes in the form of Exhibit B attached hereto (“Notes”) inthe aggregate principal amount of up to $1.5 million; and

B.            The Investors desire to purchase from the Company, andthe Company desires to issue to the Investors, Warrants, in the form of ExhibitC attached hereto on the terms and conditions set forth herein(“Warrants”), to purchase that number of the Company’s “New Equity Shares” (asdefined below) as determined pursuant to the terms and conditions of thisAgreement and the Warrants.

AGREEMENT

NOW, THEREFORE, inconsideration of the mutual covenants and agreements set forth herein and forgood and valuable consideration, the receipt and adequacy of which are herebyacknowledged, the parties hereby agree as follows:

# 1.             Purchase and Sale of Notes and Warrants.

## 1.1           Sale and Issuance of Notes andWarrants.  Subject to the terms andconditions of this Agreement, the Investors agree to purchase at the Closing(as defined below) and the Company agrees to sell and issue to the Investors atthe Closing (a) Notes in the form attached hereto as Exhibit B, in therespective principal amounts set forth on Exhibit A, at a price equal to100% of the principal amount thereof, and (b) Warrants to purchase suchvariable number of New Equity Shares as set forth by the terms of thisAgreement and the Warrants in the form attached hereto as Exhibit C.

## 1.2           Initial Closing.  The initial closing of the purchase and saleof Notes in the aggregate principal amount of at least $300,000 and Warrantsshall take place at the offices of TeraGlobal Communications Corp., 9171 TowneCentre Drive, Suite 600, San Diego, California at 10 a.m. on May 15, 2001,or at such other time and place as the Company and the Investors shall mutuallyagree in writing (which time and place are designated as the “Closing”).

## 1.3           Issuances AfterInitial Closing.  From time to timeafter the Initial Closing and prior to June 1, 2001, the Company may selladditional Notes and Warrants to additional investors who, upon execution ofcounterpart signature pages to this Agreement, shall be included within theterm “Investors” and shall be added to Schedule of Investors.

##  

## 1.4           Deliveries.  At or after (if applicable) the InitialClosing, the Company shall deliver to the Investors the Notes and the Warrantsthat the Investors are purchasing against payment by wire transfer or check.

## 1.5           Automatic Conversion of the Notes.  The Notes shall be automatically convertedinto shares of the Company’s equity securities pursuant to the terms andconditions set forth in the Notes.

## 1.6           Next Qualified Financing.  The term Next Qualified Financing shall meanthe next equity financing involving the receipt by the Company of at least TwoMillion Dollars ($2,000,000) (excluding amounts received on conversion of theNotes) which is completed before May 15, 2003. Notwithstanding the foregoing, the Next Qualified Financing shall notinclude an equity financing that is made in connection with either (i) anyarrangement between the Company and any third party for any research ordevelopment involving the Company (including, without limitation, anyarrangement that includes provision for research support, product developmentand/or testing support), (ii) any rights to commercialize any productsresulting from the development programs of the Company (including, withoutlimitation, rights to develop, make, use, license and/or sell any suchproducts), or (iii) any other non-monetary consideration.

## 1.7           New Equity Shares.  The term “New Equity Shares” shall mean theCompany’s stock issued in the Next Qualified Financing.

## 1.8           Allocation of Purchase Price tothe Warrant.  The Company herebyallocates to the Warrants a purchase price of $0.01 for each New Equity Sharethat each Warrant is exercisable into and such purchase price shall be retainedfrom the interest that accrued on such Investor’s Note by the Company at thetime such Investor’s Note is either (a) converted into New Equity Sharesor (b) paid in full.

# 2.             Representations and Warranties of the Investors.Each Investor hereby represents and warrants to and for the benefit of theCompany, with knowledge that the Company is relying thereon in entering intothis Agreement and issuing the Notes and the Warrants to the Investors, asfollows:

## 2.1           Purchase Entirely for Own Account.  By the Investor’s execution of thisAgreement, the Investor hereby confirms that the Note and Warrant to bereceived by the Investor, the New Equity Shares issuable upon conversion of theNote, and the New Equity Shares issuable upon exercise of the Warrant(collectively, the ”Securities”) shall be acquired for investment for theInvestor’s own account, not as a nominee or agent, and not with a view to theresale or distribution of any part thereof, and that the Investor has nopresent intention of selling, granting any participation in, or otherwisedistributing the same.  By executingthis Agreement, the Investor further represents that the Investor does not haveany contract, undertaking, agreement or arrangement with any person to sell,transfer or grant participation to such person or to any third person, withrespect to any of the Securities. Investor represents that it has full powerand authority to enter into this Agreement.

## 2.2           InvestmentExperience. Investor is an investor in securities of companies in thedevelopment stage and acknowledges that it is able to fend for itself, can bearthe economic risk of its investment and has such knowledge and experience infinancial or business matters that it is capable of evaluating the merits andrisks of the investment in the Securities.

##  

## 2.3           Accredited Investor. Investoris an “accredited investor” within the meaning of Securities and ExchangeCommission Rule 501 of Regulation D, as now in effect.

## 2.4           Restricted Securities.Investor understands that the Securities it is and shall be purchasing arecharacterized as “restricted securities” under the federal securities lawsinasmuch as they are being acquired from the Company in a transaction notinvolving a public offering and that under such laws and applicable regulationssuch securities may be resold without registration under the Securities Act of1933, as amended (the “Act”), only in certain limited circumstances.  In this connection, Investor represents thatit is familiar with Rule 144 promulgated under the Act, as now in effect,and understands the resale limitations imposed thereby and by the Act.

## 2.5           Legends. Investor understandthat the certificates evidencing the Securities may bear one or all of the followinglegends:

### (a)           The securities evidenced by this certificate have notbeen registered under the Securities Act of 1933, as amended (the “Act”) or thesecurities laws of any state of the United States.  The securities evidenced by this certificate may not be offered,sold or transferred for value directly or indirectly, in the absence of suchregistration under the Act and qualification under applicable state laws, orpursuant to an exemption from registration under the Act and qualificationunder applicable state laws, the availability of which is to be established tothe reasonable satisfaction of the Company.

### (b)           Any legend required by the laws of the states ofCalifornia or Delaware, including any legend required by the CaliforniaDepartment of Corporations and Sections 417 and 418 of the CaliforniaCorporations Code.

### (c)           Any legend required to be placed on the Securitiespurchased by investors in any future sale or offering of any Securities.

# 3.             Restrictions on Disposition.  Without in any way limiting therepresentations set forth in Section 2 above, each Investor further agrees notto make any disposition of all or any portion of the Securities unless anduntil the transferee has agreed in writing for the benefit of the Company to bebound by this Section 3, and in addition thereto, one of the followingconditions is satisfied:

## 3.1           Securities Registered.  There is then in effect a registrationstatement under the Act covering such proposed disposition and such dispositionis made in accordance with such registration statement.

## 3.2           Registration NotRequired. Each Investor shall have (i) notified the Company of theproposed disposition and shall have furnished the Company with a detailedstatement of the circumstances surrounding the proposed disposition and(ii) if reasonably requested by the Company, furnished the Company with anopinion of counsel, reasonably satisfactory to the Company, that suchdisposition will not require registration of such securities under the Act;provided, however, that the Company will not require opinions of counsel fortransactions made pursuant to Rule 144, except in unusual circumstances.

##  

## 3.3           Market Stand-Off Agreement.Each Investor hereby agrees that, during the period of duration specified bythe Company and an underwriter of Common Stock or other securities of theCompany, following the effective date of a registration statement of theCompany filed under the Act, it shall not, to the extent requested by theCompany and such underwriter, directly or indirectly sell, offer to sell,contract to sell (including, without limitation, any short sale), grant anyoption to purchase or otherwise transfer or dispose of (other than to doneeswho agree to be similarly bound) any securities of the Company held by it atany time during such period except Common Stock included in such registration.

## In order to enforce theforegoing covenant, the Company may impose stop-transfer instructions withrespect to the Securities of each Investor (and the shares or securities ofevery other person subject to the foregoing restriction) until the end of suchperiod.

# 4.             California Commissioner of Corporations.  THE SALE OF THE SECURITIES WHICH ARE THESUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OFCORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES ORTHE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIESPRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES ISEXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIACORPORATIONS CODE.  THE RIGHTS OF ALLPARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATIONBEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

# 5.             General Provisions.

## 5.1           Construction.  This Agreement shall be governed, construedand enforced in accordance with the internal laws of the State of California,without giving effect to its conflicts of laws principles.

## 5.2           Entire Agreement.  This Agreement, together with the agreementsand documents referred to herein, constitute the entire agreement among theparties hereto with respect to the subject matter hereof and supersede allprior and contemporaneous negotiations, agreements and understandings.

## 5.3           Notices.  All payments, notices, requests, demands andother communications hereunder shall be in writing and shall be deemed to havebeen duly given at the earlier of (i) the time of actual delivery or (ii) onthe third business day following the date deposited with the United StatesPostal Service, postage prepaid, certified with return receipt requested, tothe parties at the following addresses or at such other address as shall begiven in writing by a party to the other parties:

## Investors:              At the addresses set forth on theSchedule of Investors

 

## Company:              TeraGlobal Communications Corp.

                                                9171Towne Centre Drive, Suite 600

                                                SanDiego, CA 92122

                                                Attn:  Chief Executive Officer

 

## 5.4           Successors and Assigns.  This Agreement, and the rights andobligations of each of the parties hereunder, may not be assigned by an Investorwithout the prior written consent of the Company.  Subject to the foregoing sentence, this Agreement shall inure tothe benefit of, and shall be binding upon, the parties and their successors andassigns.

## 5.5           Severability.  If any term, covenant or condition of thisAgreement is held to be invalid, void or otherwise unenforceable by any courtof competent jurisdiction, the remainder of this Agreement shall not beaffected thereby and the terms, covenants and conditions of this Agreementshall be valid and enforceable to the fullest extent permitted by law.

## 5.6           Modification and Waiver.  Any term of this Agreement, the Notes andthe Warrants may be amended and the observance of any term of this Agreement,the Notes and the Warrants may be waived (either generally or in a particularinstance and either retroactively or prospectively), with the written consentof the Company and Investors holding in excess of a majority of the face valueof all Notes issued.  Any amendment orwaiver effected in accordance with this Section shall be binding upon allparties to this Agreement, including, without limitation, any holder who maynot have executed such amendment or waiver, and each future holder of anyequity security into which Notes are convertible and/or any holder of PreferredStock that is received upon the exercise of Warrants.  Notwithstanding the above, any amendment or waiver of anyprovision of this Agreement, the Notes or the Warrants in a manner that isadverse to any Investor and that does not similarly affect all other Investorsshall require the separate written consent of such Investor.

## 5.7           Attorneys’ Fees.  If any action of law or in equity isnecessary to enforce or interpret the terms of this Agreement, the prevailingparty shall be entitled to an award of its reasonable attorneys’ fees, costsand disbursements in addition to any other relief to which such party may beentitled.

## 5.8           Independent Counsel.  Each Investor further acknowledges andagrees that each has been provided the opportunity and encouraged to consultwith counsel of its own choosing with respect to this Agreement.

## 5.9           Counterparts.  This Agreement may be executed in one ormore counterparts, each of which shall be deemed an original, but all of whichtogether shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the undersigned have executed thisAgreement to be effective as of the date first written above.

| **COMPANY:**                    |                                        |
|---------------------------------|---------------------------------------------|
|                            |                                        |
| TERAGLOBAL COMMUNICATIONS CORP. |
|                            |                                        |
|                            |                                        |
| By:                             |                                        |
|                            | Robert E. Randall,  Chief Executive Officer |
|                                 |                                             |  |

 

** **
|     | **COUNTERPART  SIGNATURE PAGE**          |
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|     | **NOTE  AND WARRANT PURCHASE AGREEMENT** |
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|     | **INVESTOR:**                            |   |
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|     | By:                                      |   |
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| Address: |                                     |
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** **

**EXHIBIT B****FORM OF PROMISSORY NOTE**

NEITHER THIS CONVERTIBLEPROMISSORY NOTE NOR ANY OF THE SECURITIES ISSUABLE HEREUNDER HAS BEENREGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAYNOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THEABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES,OR DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCESATISFACTORY TO THE COMPANY THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE ORHYPOTHECATION IS IN COMPLIANCE WITH THE ACT OR UNLESS SOLD IN FULL COMPLIANCEWITH RULE 144 UNDER THE ACT.

THESALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS CONVERTIBLE SECUREDPROMISSORY NOTE HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OFTHE STATE OF CALIFORNIA OR THE STATE OF DELAWARE OR ANY OTHER STATE AND THEISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THECONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,UNLESS THE SALE OF SUCH SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE, OR APPLICABLEPROVISIONS OF THE SECURITIES LAWS OF DELAWARE OR ANY OTHER STATE.  THE RIGHTS OF THE HOLDER OF THIS CONVERTIBLEPROMISSORY NOTE ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEINGOBTAINED, UNLESS THE SALE IS SO EXEMPT.
| **$[                     ]** |   |   |   | San Diego, California |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|-----------------------|
|                                                                                                                             |   |   |   | _____ ___, 2001       |
|                                                                                                                             |   |   |   |                  |

TERAGLOBALCOMMUNICATIONS CORP.

CONVERTIBLE PROMISSORY NOTE

TeraGlobal Communications Corp., a Delaware corporation (the“Company”), for value received, hereby promises to pay to _________________(the “Holder”), the principal amount of**___________ ____**Dollars ($_______) (the“Issue Price”), together with interest on the unpaid amount thereof inaccordance with the terms hereof, from the date hereof until paid or convertedin accordance with the terms hereof.

####  

#### 1.             Terms of the Convertible Promissory Note(the “Note”).

##### 1.1           Interest Rate. The rate of interest hereunder (“Interest Rate”) shall beeight percent (8%) per annum and shall be computed on the basis of a 365day year for the actual number of days elapsed.

##### 1.2           Convertible Note and Warrant PurchaseAgreement.  This Note is issued by the Company inconnection with that certain Convertible Promissory Note and Warrant PurchaseAgreement dated the date hereof (the “Agreement”) among the Company and Holder,and is subject to, and Holder and Company shall be bound by, all the terms,conditions and provisions of the Agreement. Pursuant to the Agreement, the Company also issued the Holder thatcertain Warrant dated _________, 2001 (the “Warrant”). This Note and the otherconvertible promissory notes issued pursuant to the Agreement are collectivelyreferred to as the “Notes.”  The Warrantand other warrants issued pursuant to the Agreement are collectively referredto as the “Warrants.”  Capitalized termsnot otherwise defined herein shall have the meanings given them in theAgreement.

#### 2.             Automatic Conversion.

##### 2.1           At the Next Qualified Financing. Upon the Next Qualified Financing (as defined in the Agreement),the Issue Price and any accrued but unpaid interest related thereto (the“Conversion Amount”) shall automatically convert into that number of fully paidand nonassessable New Equity Shares (as defined in the Agreement) equal to theConversion Amount divided by the price per share at which the New Equity Shareswere sold in the Next Qualified Financing, with any fraction of a share roundedup to the next whole New Equity Share.

##### 2.2           If No Next Qualified Financing.  If a NextQualified Financing has not closed prior to May 2003, this Note and all Notesare due and payable on July 15, 2003.

##### 2.3           Corporate Transaction. In the event the Company completes a consolidation of the Company with,or merger of the Company into, another corporation or other businessorganization (other than a consolidation or merger in which the Company is thecontinuing corporation), or any sale or conveyance to another corporation orother business organization of all or substantially all of the assets of theCompany on or before the conversion of this Note pursuant to Sections 2.1 or 2.2above (a “Corporate Transaction”), the Conversion Amount will automaticallyconvert immediately prior to the Corporate Transaction into that number ofshares of the equity security of the Company sold or issued in the CorporateTransaction (the “Corporate Transaction Shares”) as is equal to the ConversionAmount divided by the per share purchase price (or fair market equivalent ofsuch) of the Corporate Transaction, with any fraction of a share rounded up tothe next whole share of the Corporate Transaction Shares.

##### 2.4           Termination of Rights Upon Conversion. The Holder shall have no right to negotiate any of the terms orconditions upon which the New Equity Shares or Corporate Transaction Sharesshall be issued, which negotiation shall be conducted solely among the Companyand the purchasers of the New Equity Securities or Corporate TransactionShares, as the case may be.  Conversionshall be deemed effective on the earlier of (a) the closing date of the NextQualified Financing or (b) the closing date of the CorporateTransaction.  Upon conversion of thisNote, the Holder of this Note shall have no further rights under this Note,whether or not this Note is surrendered.

#####  

##### 2.5           Delivery of Stock Certificates. As promptly as practicable after any conversion of this Note and theHolder’s surrender of this Note, the Company, at its expense, shall issue anddeliver to the Holder of this Note a certificate or certificates evidencing thenumber of shares issuable to the Holder upon any such conversion.

#### 3.             Miscellaneous.

##### 3.1           Transfer of Note. This Note shall not be transferable or assignable in any manner, exceptto affiliates of the Holder, and no interest shall be pledged or otherwiseencumbered by the Holder without the express written consent of the Company, andany such attempted disposition of this Note or any portion hereof shall be ofno force or effect.

##### 3.2           Titles and Subtitles. The titles and subtitles used in this Note are for convenience only andare not to be considered in construing or interpreting this Note.

##### 3.3           Notices.  Any noticerequired or permitted under this Note shall be given in writing and inaccordance with Section 5.3 of the Agreement (for purposes of which the term“Investor” shall mean the Holder hereunder), except as otherwise expresslyprovided in this Note.

##### 3.4           Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpretthe terms of this Note, the prevailing party shall be entitled to reasonableattorneys’ fees, costs and disbursements in addition to any other relief towhich such party may be entitled.

##### 3.5           Amendments and Waivers. This Note is issued by the Company pursuant to the Agreement.  Other than the right to the payment of theIssue Price and all accrued but unpaid interest thereon, which may only beamended or waived with the written consent of the Holder, any other term ofthis Note may be amended and the observance of any other term of this Note maybe waived (either generally or in a particular instance and eitherretroactively or prospectively), with the written consent of the Company andthe holders of at least a majority of the aggregate principal amount of theNotes then outstanding, and in accordance with the Agreement; provided, however,that any amendments made to this Note must be made to each of the Notes and inaccordance with the Agreement.  Anyamendment or waiver effected in accordance with this Section 3.5 shall bebinding upon the Holder of this Note (and of any securities into which thisNote is convertible), each future holder of all such securities and theCompany.

##### 3.6           Severability. If one or more provisions of this Note are held to be unenforceableunder applicable law, such provision shall be excluded from this Note and thebalance of the Note shall be interpreted as if such provision were so excludedand shall be enforceable in accordance with its terms.

##### 3.7           Governing Law.  This Noteshall be governed by and construed and enforced in accordance with the laws ofthe State of California, without giving effect to its conflicts of lawsprinciples.

#####  

##### 3.8           Independent Counsel. Holder acknowledges and agrees thatHolder has been provided the opportunity and encouraged to consult with counselof Holder’s own choosing with respect to this Note.

| Date:   ___________, 2001       | TERAGLOBAL COMMUNICATIONS CORP. |
|--------------------------------------|---------------------------------|
|                                 | a Delaware corporation          |
|                                 |                            |   |
|                                 |                            |   |
|                                 | By:                             |   |
|                                 |                            | Robert E. Randall,  Chief Executive Officer |
|                                 |                            |   |
| ACKNOWLEDGED AND AGREED:             |                            |   |
|                                 |                            |   |
|                                 |                            |   |
|                                 |                            |   |
| (Print Name of  Holder)              |                            |   |
|                                 |                            |   |
|                                 |                            |   |
| (Signature of  Holder)               |                            |   |
|                                 |                            |   |
|                                 |                            |   |
| (Title of Holder  Not an Individual) |                            |   |

 

** **

**EXHIBIT C****FORM OF WARRANT**

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVENOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),OR ANY STATE SECURITIES LAWS.  THEY MAYNOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERREDIN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THESECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TOTHE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TOAN EXEMPTION UNDER SUCH ACT.

 
| W-__   |   | Void after    |
|--------|--------|---------------|
|   |   | June 30, 2006 |
|   |   |          |

WARRANTOFTERAGLOBAL COMMUNCIATIONS CORP.

THIS CERTIFIES THAT, forvalue received, ___________________, together with his, her or its successorsand assigns (the “Holder”) is entitled to subscribe for and purchase, on theterms hereof, “New Equity Shares” (as defined in the Agreement (as definedbelow)), of TeraGlobal Communications Corp., a Delaware corporation (the“Company”), subject to the following terms and conditions:

###### 1.             Convertible Promissory Note and WarrantAgreement.  This Warrant (“Warrant”) is issued pursuantto that certain Convertible Promissory Note and Warrant Agreement dated__________, 2001 (the “Agreement”) by and among the Company and the Holder.  Pursuant to the Agreement, the Company alsoissued the Holder that certain Convertible Promissory Note dated __________,2001 (the “Note”).  The Note and theother convertible promissory notes issued pursuant to the Agreement arecollectively referred to as the “Notes.” The Warrant and other warrants issued pursuant to the Agreement arecollectively referred to as the “Warrants.”

###### 2.             Exercise of Warrant. The terms and conditions upon which this Warrant may be exercised, andthe New Equity Shares covered hereby may be purchased, are as follows:

2.1           Term.  Subject to the terms hereof, this Warrantmay be exercised at any time, or from time to time, in whole or in part (the“Exercise Date”), after the earlier of (i) the date of the closing of theCompany’s Next Qualified Financing (as defined in the Agreement), or (ii) ten(10) days prior to the closing of a Corporate Transaction (as defined below);provided, however, that in no event may this Warrant be exercised later than5:00 p.m. (Pacific Time) on the earlier of (a) the close of business on June30, 2006, (b) (i) the closing of the acquisition of the Company byanother entity by means of a transaction or series of related transactions or(ii) the closing of the sale of all or substantially all of the assets of theCompany, unless the Company’s stockholders of record prior to such acquisitionor sale shall hold at least fifty percent (50%) of the voting power of theacquiring or surviving entity immediately after such acquisition or sale (each,a “Corporate Transaction (the “Exercise Period”).  At least ten (10) business days prior to the occurrence of anevent specified in (b) of this Section 2.1, the Company shall send to theHolder notice of such event and that the Holder’s rights under this Warrantshall terminate upon the occurrence of such event; provided, that if theCompany sends such notice less than ten (10) days prior to the occurrence ofsuch event, the Holder’s right to exercise this Warrant shall be extended for aperiod of ten (10) days after the date the Holder receives such notice, afterwhich time the Holder’s rights under this Warrant shall terminate.  The notice required by this paragraph may bewaived by the Holder.

 

2.2           Number of Shares.  This Warrant may be exercised for the numberof New Equity Shares equal to:

A  =  0.5xB

         C

**                                where:

 

A    =      The number of New Equity Shares that maybe purchased by Holder pursuant to this Warrant.

B    =       Originalprincipal amount of Note.

C  =         The Exercise Price for the New EquityShares which shall be equal to the price per share at which New EquitySecurities are sold in the Next Equity Financing.

2.3           Exercise Price.  The Exercise Price for the New Equity Shareswhich shall be equal to the price per share at which New Equity Securities aresold in the Next Equity Financing. In the event that a Corporate Transactionoccurs prior to the Next Qualified Financing, the “Exercise Price” shall be theper share price (or fair market equivalent of such) paid for the Stock in theCorporate Transaction.

2.4           Methodof Exercise.  The exercise of thepurchase rights evidenced by this Warrant shall be effected by (a) thesurrender of the Warrant, together with a duly executed copy of the form ofsubscription attached hereto as Exhibit A, to the Company at itsprincipal offices and (b) the delivery of the purchase price by check payableto the Company’s order or by wire transfer of same day funds to the Company’saccount for the number of shares for which the purchase rights hereunder arebeing exercised or any other form of consideration approved by the Company’sBoard of Directors (the “Board”).  Eachexercise of this Warrant shall be deemed to have been effected immediatelyprior to the close of business on the day on which this Warrant shall have beensurrendered to the Company as provided herein or at such later date as may bespecified in the executed form of subscription, and at such time, the person orpersons in whose name or names any certificate or certificates for New EquityShares shall be issuable upon such exercise, as provided herein, shall bedeemed to have become the holder or holders of record thereof.

 

2.5           Net Issue Exercise.  In lieu of exercising this Warrant by payingthe Exercise Price in cash or by check, Holder may elect to receive sharesequal to the value of this Warrant (or the portion thereof being canceled) bysurrender of this Warrant at the Company’s principal office together with theNotice of Cashless Exercise attached hereto as Exhibit B dulycompleted and executed in which event the Company shall issue to Holder anumber of New Equity Shares computed using the following formula:

Z  =  (Y) (X-W)

    X

                                where:

                                                Z=          The number of New Equity Sharesto be issued to Holder.

                                                Y =          The number of New Equity Sharespurchasable under this Warrant.

                                                X =          The fair market value of one NewEquity Share.

                                                W =        Exercise Price (as adjusted to the dateof such calculations).

 

For purposes of thisSection, the fair market value of one New Equity Share shall be the fair marketvalue of such share (or the underlying shares of Common Stock into which it isconvertible) as determined in good faith by the Board.

###### 3.             Adjustments to Exercise Price. The number and kind of New Equity Shares issuable upon the exercise ofthis Warrant and the exercise price hereunder shall be subject to adjustmentfrom time to time upon the happening of certain events, as follows:

3.1           Splits and Subdivisions.  If the Company should at any time or fromtime to time fix a record date for the effectuation of a split or subdivisionof the outstanding New Equity Shares or the determination of the holders of NewEquity Shares entitled to receive a dividend or other distribution payable inadditional New Equity Shares or other securities or rights convertible into, orentitling the holder thereof to receive directly or indirectly, additional NewEquity Shares (hereinafter referred to as the “New Equity Equivalents”) withoutpayment of any consideration by such holder for the additional New EquityShares or New Equity Equivalents, then, as of such record date (or the date ofsuch distribution, split or subdivision if no record date is fixed), thepurchase price shall be appropriately decreased and the number of New EquityShares which this Warrant is exercisable for, if any, shall be appropriately increasedin proportion to such increase of outstanding shares.

3.2           Combinationof Shares.  If the number of NewEquity Shares outstanding at any time after the date hereof is decreased by acombination of the outstanding New Equity Shares, the purchase price shall beappropriately increased and the number of New Equity Shares which this Warrantis exercisable for, if any, shall be appropriately decreased in proportion tosuch decrease in outstanding shares.

 

3.3           Adjustments for OtherDistributions.  In the event theCompany shall declare a distribution payable in securities of other persons,evidences of indebtedness issued by the Company or other persons, assets(excluding cash dividends) or options or rights not referred to in Section 3.1,then, in each such case for the purpose of this Section 3.3, upon exercise ofthis Warrant the Holder shall be entitled to a proportionate share of any suchdistribution as though such Holder was the holder of the number of New EquityShares into which this Warrant may be exercised as of the record date fixed forthe determination of the holders of New Equity Shares entitled to receive suchdistribution.

3.4           Reclassification or Reorganization.  If the New Equity Shares (or any shares ofstock or other securities which may be) issuable upon the exercise of thisWarrant shall be changed into the same or different number of shares of anyclass or classes of stock, whether by capital reorganization, reclassificationor otherwise (other than a subdivision or combination of shares or stockdividend provided for in Sections 3.1, 3.2 and 3.3 above, then and in each suchevent the Holder shall be entitled to receive upon the exercise of this Warrantthe kind and amount of shares of stock and other securities and propertyreceivable upon such reorganization, reclassification or other change, to whicha holder of the number of New Equity Shares (or any shares of stock or othersecurities which may be) issuable upon the exercise of this Warrant would havereceived if this Warrant had been exercised immediately prior to suchreorganization, reclassification or other change, all subject to furtheradjustment as provided herein.

3.5           Notice of Adjustments and RecordDates.  The Company shall promptlynotify the Holder in writing of each adjustment or readjustment of the exerciseprice hereunder and the number of New Equity Shares issuable upon the exerciseof this Warrant.  Such notice shallstate the adjustment or readjustment and show in reasonable detail the facts onwhich that adjustment or readjustment is based.  In the event of any taking by the Company of a record of theholders of New Equity Shares for the purpose of determining the holders thereofwho are entitled to receive any dividend or other distribution, the Companyshall notify the Holder in writing of such record date at least twenty (20)days prior to the date specified therein.

3.6           No Impairment.  The Company shall not avoid or seek to avoidthe observance or performance of any of the terms to be observed or performedhereunder by the Company, but shall at all times in good faith assist in thecarrying out of all the provisions of this Warrant.

###### 4.             Replacement of the Warrant. On receipt by the Company of evidence reasonably satisfactory to theCompany of the loss, theft, destruction or mutilation of this Warrant and, inthe case of any such loss, theft or destruction of this Warrant, on delivery ofan indemnity agreement reasonably satisfactory in form and amount to theCompany or, in the case of any such mutilation, on surrender and cancellationof the Warrant, the Company at its expense shall execute and deliver to theHolder, in lieu thereof, a new Warrant of like tenor.

###### 5.             Investment Intent.  Unless acurrent registration statement under the Securities Act of 1933, as amended,shall be in effect with respect to the securities to be issued upon exercise ofthis Warrant, the Holder, by accepting this Warrant, covenants and agrees that,at the time of exercise hereof, and at the time of any proposed transfer of anysecurities acquired upon exercise hereof, the Holder shall deliver to theCompany a written statement that the securities acquired by the Holder uponexercise hereof are for the account of the Holder for investment and are notacquired with a view to, or for sale in connection with, any distributionthereof (or any portion thereof) and are being acquired with no presentintention (at any such time) of offering or distributing such securities (orany portion thereof).

 

###### 6.             No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights orother rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holderto purchase New Equity Shares, and no enumeration herein of the rights orprivileges of the Holder, shall give rise to any liability of the Holder as astockholder of the Company.

###### 7.             Miscellaneous.

7.1           Transfer of Warrant.  This Warrant shall not be transferable orassignable in any manner and no interest shall be pledged or otherwiseencumbered by Holder without the express written consent of the Company, andany such attempted disposition of this Warrant or any portion hereof shall beof no force or effect.

7.2           Titles and Subtitles.  The titles and subtitles used in this Warrantare for convenience only and are not to be considered in construing orinterpreting this Warrant.

7.3           Notices.  Any notice required or permitted under thisWarrant shall be given in writing and in accordance with Section 5.3 of theAgreement (for purposes of which, the term “Investors” shall mean Holderhereunder), except as otherwise expressly provided in this Warrant.

7.4           Attorneys’ Fees.  If any action at law or in equity isnecessary to enforce or interpret the terms of this Warrant, the prevailingparty shall be entitled to reasonable attorneys’ fees, costs and disbursementsin addition to any other relief to which such party may be entitled.

7.5           Amendments and Waivers.  This Warrant is issued by the Companypursuant to the Agreement.  Any term ofthis Warrant may be amended and the observance of any term of this Warrant maybe waived (either generally or in a particular instance and eitherretroactively or prospectively), in accordance with Section 6.6 of theAgreement.  Any amendment or waiver effectedin accordance with this Section 7.5 shall be binding upon the Holder of thisWarrant (and of any securities into which this Warrant is convertible), eachfuture holder of all such securities, and the Company.

7.6           Severability.  If one or more provisions of this Warrantare held to be unenforceable under applicable law, such provision shall beexcluded from this Warrant and the balance of the Warrant shall be interpretedas if such provision were so excluded and shall be enforceable in accordance withits terms.

7.7           Governing Law.  This Warrant shall be governed by andconstrued and enforced in accordance with the laws of the State of California,without giving effect to its conflicts of laws principles.

 
| Date:   __________, 2001        | TERAGLOBAL COMMUNICATIONS CORP. |
|--------------------------------------|---------------------------------|
|                                 | a Delaware corporation          |
|                                 |                            |   |
|                                 |                            |   |
|                                 | By:                             |   |
|                                 |                            | Robert E. Randall, Chief Executive Officer |
|                                 |                            |   |
|                                 |                            |   |
| ACKNOWLEDGED AND AGREED:             |                            |   |
|                                 |                            |   |
|                                 |                            |   |
|                                 |                            |   |
| (Print Name of Holder)               |                            |   |
|                                 |                            |   |
|                                 |                            |   |
| (Signature of Holder)                |                            |   |
|                                 |                            |   |
|                                 |                            |   |
| (Title of Holder Not an  Individual) |                            |   |

 

EXHIBIT A

 

FORM OF SUBSCRIPTION

 

(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)

 

To:          TERAGLOBAL COMMUNICATIONS CORP.

The undersigned, theholder of the Warrant attached hereto, hereby irrevocably elects to exercisethe purchase rights represented by such Warrant for, and to purchasethereunder, __________* shares of __________ Stock of TeraGlobal CommunicationsCorp., and herewith makes payment of $__________ and requests that thecertificates for such shares be issued in the name of, and delivered to________________, whose address is __________________________________, andwhose social security number/taxpayer identification number is_________________.
| Dated: |     |                                                                                                    |
|--------|----------|---------------------------------------------------------------------------------------------------------|
|   |     |                                                                                                    |
|   |     |                                                                                                    |
|   |     | (Signature must conform in all respects to name of the Holder as  specified on the face of the Warrant) |
|   |     |                                                                                                    |
|   |     |                                                                                                    |
|   |     | (Print Name)                                                                                            |
|   |     |                                                                                                    |
|   | Address: |                                                                                                    |
|   |     |                                                                                                    |
|   |     |                                                                                                    |
|        |          |                                                                                                         |  |  |

 

* Insert here the number of shares as to which the Warrant is beingexercised.

EXHIBIT B

 

NOTICEOF CASHLESS EXERCISE

To:  TERAGLOBAL COMMUNICATIONS CORP.

(1)           Theundersigned hereby elects to acquire in a cashless exercise ______________ NewEquity Shares (as defined in the attached Warrant) of TeraGlobal CommunicationsCorp. pursuant to the terms of Section 2.7 of the attached Warrant.

(2)           Pleaseissue a certificate or certificates representing such New Equity Shares in thename of the undersigned or in such other name as is specified below:
|   |
|--------|
|   |   |
|   |   |
| By:    |   |
|   |   |
|   |   |
| Name:  |   |