**Exhibit 10.3**

 

**PROMISSORYNOTE**

 

| $250,000 |   | July 9,  2009     |
|----------|--------|--------------------------------------------|

San Francisco, California

 

FOR VALUE RECEIVED,receipt of which is hereby acknowledged, Etelos, Inc., a DelawareCorporation with its principal place of business at 26828 Maple Valley Highway,#297, Maple Valley, WA 98038 (the “Borrower”) promises to pay to theorder of Enable Growth Partners LP located at One Ferry Building, Suite 255,San Francisco, California or at such other place as Lender may designate inwriting (the “Lender”) in lawful money of the United States of America,the principal sum of Two Hundred Fifty Thousand Dollars ($250,000) plusinterest thereon from the date the proceeds of the loan evidenced by this Noteare disbursed from the Lender to the Borrower until the Maturity Date (asdefined below), whether scheduled or accelerated, at a fixed interest rateequal to Ten Percent (10%) per annum. In addition, contemporaneous with theconsummation of the loan evidenced by this Note, the Borrower will issue theLender a five-year warrant (the “Warrant”) exercisable for 500,000shares of the Borrower’s common stock, at an exercise price of $0.75 per share,subject to adjustment therein.

 

1.                                       Payment. Payment of principal and accrued but unpaid interestshall be due and payable in full on January 9, 2010 (the “Maturity Date”),unless due earlier in accordance with the terms of this Note.

 

2.                                       Events of Default.

 

(a)                                  “Event of Default”, wherever usedherein, means any one of the following events (whatever the reason for suchevent and whether such event shall be voluntary or involuntary or effected byoperation of law or pursuant to any judgment, decree or order of any court, orany order, rule or regulation of any administrative or governmental body):

 

(i)                                          Any default in the payment of the principalamount of, or the interest on, this Note, when due and payable or any failureto pay any fees or other charges on this Note when due and payable;

 

(ii)                                       The Borrower or any of its subsidiariesor any other Person shall fail to provide the Lender with, or to perform anyobligation under this Note or any contract, instrument, addenda, or documentexecuted in connection with this Note, including without limitation, any rateoption agreement, guaranty, pledge agreement, security agreement, or deed of trust(all such documents, including this Note, each a “Loan Document”);

 

(iii)                                    The Borrower or any of its subsidiariesshall commence, or there shall be commenced against Borrower or any subsidiarya case under any applicable bankruptcy or insolvency laws as now or hereafterin effect or any

 

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successor thereto, or theBorrower or any subsidiary commences any other proceeding under anyreorganization, arrangement, adjustment of debt, relief of debtors,dissolution, insolvency or liquidation or similar law of any jurisdictionwhether now or hereafter in effect relating to Borrower or any subsidiary, orthere is commenced against Borrower or any subsidiary any such bankruptcy,insolvency or other proceeding which remains undismissed for a period of 60days; or Borrower or any subsidiary is adjudicated insolvent or bankrupt; orany order of relief or other order approving any such case or proceeding isentered; or Borrower or any subsidiary suffers any appointment of any custodianor the like for it or any substantial part of its property which continuesundischarged or unstayed for a period of 60 days; or Borrower or any subsidiarymakes a general assignment for the benefit of creditors; or Borrower or anysubsidiary shall fail to pay, or shall state that it is unable to pay, or shallbe unable to pay, its debts generally as they become due; or Borrower or anysubsidiary shall call a meeting of its creditors with a view to arranging acomposition, adjustment or restructuring of its debts; or the Borrower shall die,become incapacitated, dissolve or terminate the business of the Borrower; orBorrower or any subsidiary shall by any act or failure to act expresslyindicate its consent to, approval of or acquiescence in any of the foregoing;or any corporate or other action is taken by Borrower or any subsidiary for thepurpose of effecting any of the foregoing;

 

(iv)                              The Borrower or any of its subsidiariesshall fail to perform under any other agreement involving the borrowing ofmoney, the purchase of property, the advance of credit or any other monetaryliability of any kind to any Person, whether such indebtedness now exists orshall hereafter be created and such default shall result in such indebtednessbecoming or being declared due and payable prior to the date on which it wouldotherwise become due and payable;

 

(v)                                 The Borrower shall (a) be a party toany Change of Control Transaction (as defined below), (b) agree to sell ordispose all or in excess of 33% of its assets in one or more transactions(whether or not such sale would constitute a Change of Control Transaction), (c) redeemor repurchase more than a de minimis number of shares of Common Stock or otherequity securities of Borrower, or (d) make any distribution or declare orpay any dividends (in cash or other property, other than common stock) on, orpurchase, acquire, redeem, or retire any of Borrower’s capital stock, of anyclass, whether now or hereafter outstanding. “Change of Control Transaction”shall mean the occurrence after the date hereof of any of: (i) anacquisition after the date hereof by an individual or legal entity or “group”(as described in Rule 13d-5(b)(1) promulgated under the SecuritiesExchange Act of 1934, as amended) of effective control (whether through legalor beneficial ownership of capital stock of Borrower, by contract or otherwise)of in excess of 33% of the voting securities of Borrower, (ii) areplacement at one time or over time of more than one -half of the members ofBorrower’s board of directors which is not approved by a majority of those

 

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individuals who aremembers of the board of directors on the date hereof (or by those individualswho are serving as members of the board of directors on any date whosenomination to the board of directors was approved by a majority of the membersof the board of directors who are members on the date hereof), (iii) themerger of Borrower with or into another entity that is not wholly-owned byBorrower, consolidation or sale of 33% or more of the assets of Borrower in oneor a series of related transactions, or (iv) the execution by Borrower ofan agreement to which Borrower is a party or by which it is bound, providingfor any of the events set forth above in (i), (ii) or (iii).

 

(vi)                                   Any judgment(s), writ or similar finalprocess shall be entered or filed against the Borrower or any of itssubsidiaries, or any involuntary lien(s) of any kind or character shallattach to any assets or property of Borrower, any of which, in the judgment ofLender, might have a material adverse effect on the financial condition orbusiness of Borrower;

 

(vii)                                Any governmental or regulatory authorityshall take any action, any defined benefit pension plan maintained by Borrowershall have any unfunded liabilities, or any other event shall occur, any ofwhich, in the judgment of Lender, might have a material adverse effect on thefinancial condition or business of Borrower;

 

(viii)                             The Lender reasonably determine, in goodfaith, that its security interest in the Collateral (as defined in the SecurityAgreement) or the prospect of payment or performance under this Agreement orany Loan Document is materially impaired;

 

(ix)                                     Without Lender’s prior written consent,any change shall occur in the executive management of Borrower or any of itssubsidiaries or any change shall occur in the corporate or legal structure ofBorrower or any of its subsidiaries;

 

(x)                                        The Borrower or any of its subsidiariesshall fail to perform any of its covenants, agreements, duties or obligationsor otherwise commit any breach hereunder or in any Loan Document.

 

(b)                                 Remedies Upon Event of Default. If any Event of Default occurs (unless waivedin writing by the Lender), the full principal amount of this Note, togetherwith all accrued interest thereon, shall become, at the Lender’s election,immediately due and payable in cash. Commencing 5 days after the occurrence ofany Event of Default that results in the acceleration of this Note, theinterest rate on this Note shall accrue at the rate of 18% per annum, or suchlower maximum amount of interest permitted to be charged under applicable law.The Lender need not provide and Borrower hereby waives any presentment, demand,protest or other notice of any kind, and the Lender may immediately and withoutexpiration of any grace period enforce any and all of its rights and remedieshereunder and all other remedies available to it under

 

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applicable law. Suchdeclaration may be rescinded and annulled by Lender at any time prior topayment hereunder. No such rescission or annulment shall affect any subsequentEvent of Default or impair any right consequent thereon. The Lender have theright, at its sole option, to continue to accept interest and/or principalpayments due under the Loan Documents after any Event of Default, and suchacceptance shall not constitute a waiver of such Event of Default or anextension of the Maturity Date unless Lender agree otherwise in writing. In theevent of an Event of Default, Borrower agrees to pay all costs incurred inconnection with the collection of this Note, or enforcement of the terms ofthis Note, including Lender’s reasonable attorneys’ fees and related costs.

 

3.                                       Security Interest. As an inducement for the Lender to makethe loan evidenced by this Note, and to secure the complete and timely payment,performance and discharge in full, as the case may be, of all of theobligations of the Borrower under this Note, the Borrower, for itself, and eachof its subsidiaries, unconditionally and irrevocably pledges, grants andhypothecates to the Lender a continuing and perfected security interest in andto, a lien upon and a right of set-off against all of their respective right,title and interest of whatsoever kind and nature in and to, all of the assetsof the Borrower. The Borrower acknowledges and agrees that the obligations ofthe Borrower under this Note, are subject to security interest granted by theBorrower pursuant to the Security Agreement dated January 31, 2008, by andamong the Borrower and the secured parties thereto (the “Security Agreement”)and that such obligations are “Obligations” under the Security Agreement. TheBorrower and each of its subsidiaries shall take any and all actions requestedby the Lender in order to grant the Lender a first priority security interestin the assets of the Borrower and its subsidiaries, including all UCC-1 filingreceipts.

 

4.                                       No Waiver of Lender’s Rights. All payments of principal and interestshall be made without setoff, deduction or counterclaim. No delay or failure onthe part of the Lender in exercising any of its options, powers or rights, norany partial or single exercise of its options, powers or rights shallconstitute a waiver thereof or of any other option, power or right, and nowaiver on the part of the Lender of any of its options, powers or rights shallconstitute a waiver of any other option, power or right. Borrower hereby waivespresentment of payment, protest, and all notices or demands in connection withthe delivery, acceptance, performance, default or endorsement of this Note.Acceptance by the Lender of less than the full amount due and payable hereundershall in no way limit the right of the Lender to require full payment of allsums due and payable hereunder in accordance with the terms hereof.

 

5.                                       Modifications. No term or provision contained hereinmay be modified, amended or waived except by written agreement or consentsigned by the party to be bound thereby.

 

6.                                       Consent. In accordance with the provisions of the LoanDocuments held by Lender, and solely with respect to this Note, Lenderwaives its rights under those certain Loan Documents and grants its consent toBorrower to enter into and perform the obligations in this Note.

 

7.                                       Choice of Law. All questions concerning theconstruction, validity, enforcement and interpretation of this Note shall begoverned by and construed and enforced in accordance with

 

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the internal laws of theState of New York, without regard to the principles of conflicts of lawthereof. Each of Borrower and Lender agree that all legal proceedingsconcerning the interpretations, enforcement and defense of this Note shall becommenced in the state and federal courts sitting in the City of New York,Borough of Manhattan (the “New York Courts”). Each of Borrower andLender hereby irrevocably submit to the exclusive jurisdiction of the New YorkCourts for the adjudication of any dispute hereunder (including with respect tothe enforcement of this Note), and hereby irrevocably waives, and agrees not toassert in any suit, action or proceeding, any claim that it is not personallysubject to the jurisdiction of any such court, that such suit, action orproceeding is improper. Each of Borrower and Lender hereby irrevocably waivepersonal service of process and consents to process being served in any suchsuit, action or proceeding by mailing a copy thereof via registered orcertified mail or overnight delivery (with evidence of delivery) to the otherat the address in effect for notices to it under this Note and agrees that suchservice shall constitute good and sufficient service of process and noticethereof. Nothing contained herein shall be deemed to limit in any way any rightto serve process in any manner permitted by law. EACH OF BORROWER AND LENDERHEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF ORRELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

8.                                       Cumulative Rights and Remedies; Usury. The rights and remedies of Lenderexpressed herein are cumulative and not exclusive of any rights and remediesotherwise available under this Note or applicable law (including at equity).The election of Lender to avail itself of any one or more remedies shall not bea bar to any other available remedies, which Borrower agrees Lender may takefrom time to time. If it shall be found that any interest due hereunder shallviolate applicable laws governing usury, the applicable rate of interest duehereunder shall be reduced to the maximum permitted rate of interest under suchlaw.

 

9.                                       Severability. If any provision of this Note isdeclared by a court of competent jurisdiction to be in any way invalid, illegalor unenforceable, the balance of this Note shall remain in effect, and if anyprovision is inapplicable to any person or circumstance, it shall neverthelessremain applicable to all other persons and circumstances. If it shall be foundthat any interest or other amount deemed interest due hereunder shall violateapplicable laws governing usury, the applicable rate of interest due hereundershall automatically be lowered to equal the maximum permitted rate of interest.

 

10.                                 Successors and Assigns. This Note shall be binding uponBorrower and its successors and shall inure to the benefit of the Lender andits successors and assigns. The term “Lender” as used herein, shall alsoinclude any endorsee, assignee or other holder of this Note.

 

11.                                 Lost or Stolen Promissory Note. If this Note is lost, stolen, mutilatedor otherwise destroyed, Borrower shall execute and deliver to the Lender a newpromissory note containing the same terms, and in the same form, as this Note.In such event, Borrower may require the Lender to deliver to Borrower anaffidavit of lost instrument and customary indemnity in respect thereof as acondition to the delivery of any such new promissory note.

 

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12.                                 Due Authorization. This Note has been duly authorized,executed and delivered by Borrower and is the legal obligation of Borrower,enforceable against Borrower in accordance with its terms except as limited bygeneral equitable principles and applicable bankruptcy, insolvency,reorganization, moratorium and other laws of general application affectingenforcement of creditors’ rights generally. No consent of any other party andno consent, license, approval or authorization of, or registration ordeclaration with, any governmental authority, bureau or agency is required inconnection with the execution, delivery or performance by the Borrower, or thevalidity or enforceability of this Note other than such as have been met orobtained. The execution, delivery and performance of this Note and all otheragreements and instruments executed and delivered or to be executed anddelivered pursuant hereto or thereto or the securities issuable upon conversionof this Note will not violate any provision of any existing law or regulationor any order or decree of any court, regulatory body or administrative agencyor the certificate of incorporation or by-laws of the Borrower or any mortgage,indenture, contract or other agreement to which the Borrower is a party or bywhich the Borrower or any property or assets of the Borrower may be bound.

 

13.                                 Notice. Any and all notices or other communications ordeliveries to be provided by the Lender hereunder shall be in writing anddelivered personally, by facsimile, sent by a nationally recognized overnightcourier service or sent by certified or registered mail, postage prepaid,addressed to the Borrower, or such other address or facsimile number as theBorrower may specify for such purposes by notice to the Lender delivered inaccordance with this paragraph. Any and all notices or other communications ordeliveries to be provided by the Borrower hereunder shall be in writing anddelivered personally, by facsimile, sent by a nationally recognized overnightcourier service or sent by certified or registered mail, postage prepaid,addressed to the Lender at the address of the Lender appearing on the books ofthe Borrower, or if no such address appears, at the principal place of businessof the Lender. Any notice or other communication or deliveries hereunder shallbe deemed given and effective on the earliest of (i) the date oftransmission if delivered by hand or by telecopy that has been confirmed asreceived by 5:00 P.M. on a business day, (ii) one business day afterbeing sent by nationally recognized overnight courier or received by telecopyafter 5:00 P.M. on any day, or (iii) five business days after beingsent by certified or registered mail, postage and charges prepaid, returnreceipt requested .

 

14.                                 Time of the Essence. Time is of the essence of this Note.

 

15.                                 Current Report. Within 2 business days from the date ofthis Note, the Borrower shall file a Current Report on Form 8-K with theSecurities and Exchange Commission, attaching this Note and the Warrant, anddisclosing the material terms of this Note and the Warrant.

 

Prior to signing thisNote, Borrower has consulted with its counsel and has read and understands allthe provisions of this Note. Borrower agrees to the terms of the Note andacknowledges receipt of a completed copy of the Note.

 

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The undersigned signsthis Note as a maker and not as a surety or guarantor or in any other capacity.

 

 
|   | ETELOS, INC. |
|--------|--------------|
|   |         |
|   |         |
|   | By:          | /s/ Daniel  J.A. Kolke |
|   | Name:        | Daniel  J.A. Kolke |
|   | Title:       | Chairman  & Chief Executive Officer |

 

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