Securities Purchase AGreement




EXHIBIT
10.6

 




 




 




 




 




 

ELINEAR,
INC.

 

SECURITIES
PURCHASE AGREEMENT

 

February
28, 2005

 













TABLE
OF CONTENTS

Page

 


	
      1.
	
      Agreement
      to Sell and Purchase
	
      




 


	
      2.
	
      Fees
      and Warrant
	
      




 


	
      3.
	
      Closing,
      Delivery and Payment.
	
      





	 	
      3.1
	
      Closing
	
      





	 	
      3.2
	
      Delivery
	
      




 


	
      4.
	
      Representations
      and Warranties of the Company
	
      





	 	
      4.1
	
      Organization,
      Good Standing and Qualification
	
      





	 	
      4.2
	
      Subsidiaries
	
      





	 	
      4.3
	
      Capitalization;
      Voting Rights
	
      





	 	
      4.4
	
      Authorization;
      Binding Obligations
	
      





	 	
      4.5
	
      Liabilities
	
      





	 	
      4.6
	
      Agreements;
      Action
	
      





	 	
      4.7
	
      Obligations
      to Related Parties
	
      





	 	
      4.8
	
      Changes
	
      





	 	
      4.9
	
      Title
      to Properties and Assets; Liens, Etc.
	
      





	 	
      4.10
	
      Intellectual
      Property
	
      





	 	
      4.11
	
      Compliance
      with Other Instruments
	
      





	 	
      4.12
	
      Litigation
	
      





	 	
      4.13
	
      Tax
      Returns and Payments
	
      





	 	
      4.14
	
      Employees
	
      





	 	
      4.15
	
      Registration
      Rights and Voting Rights
	
      





	 	
      4.16
	
      Compliance
      with Laws; Permits
	
      





	 	
      4.17
	
      Environmental
      and Safety Laws
	
      





	 	
      4.18
	
      Valid
      Offering
	
      





	 	
      4.19
	
      Full
      Disclosure
	
      





	 	
      4.20
	
      Insurance
	
      





	 	
      4.21
	
      SEC
      Reports
	
      





	 	
      4.22
	
      Listing
	
      





	 	
      4.23
	
      No
      Integrated Offering
	
      





	 	
      4.24
	
      Stop
      Transfer
	
      





	 	
      4.25
	
      Dilution
	
      




4.26  Patriot
Act          12

 


	
      5.
	
      Representations
      and Warranties of the Purchaser
	
      





	 	
      5.1
	
      No
      Shorting
	
      





	 	
      5.2
	
      Requisite
      Power and Authority
	
      





	 	
      5.3
	
      Investment
      Representations
	
      





	 	
      5.4
	
      Purchaser
      Bears Economic Risk
	
      





	 	
      5.5
	
      Acquisition
      for Own Account
	
      





	 	
      5.6
	
      Purchaser
      Can Protect Its Interest
	
      





	 	
      5.7
	
      Accredited
      Investor
	
      





	 	
      5.8
	
      Legends
	
      




5.9
  Limitation
on Acquisition of Common Stock of the Company.....................14

 


	
      6.
	
      Covenants
      of the Company
	
      





	 	
      6.1
	
      Stop-Orders
	
      





	 	
      6.2
	
      Listing
	
      





	 	
      6.3
	
      Market
      Regulations
	
      





	 	
      6.4
	
      Reporting
      Requirements
	
      





	 	
      6.5
	
      Use
      of Funds
	
      





	 	
      6.6
	
      Access
      to Facilities
	
      





	 	
      6.7
	
      Taxes
	
      





	 	
      6.8
	
      Insurance
	
      





	 	
      6.9
	
      Intellectual
      Property
	
      





	 	
      6.10
	
      Properties
	
      





	 	
      6.11
	
      Confidentiality
	
      





	 	
      6.12
	
      Required
      Approvals
	
      





	 	
      6.13
	
      Reissuance
      of Securities
	
      





	 	
      6.14
	
      Opinion
	
      




6.15  Margin
Stock..............................................................................19

6.16  Restricted
Cash Disclosure.............................................................19

6.17  Financing
Right of First Refusal.......................................................19

6.18  Pro
Rata Requirement...................................................................19

6.18  Prior
Security Interest ...................................................................20




 


	
      7.
	
      Covenants
      of the Purchaser
	
      





	 	
      7.1
	
      Confidentiality
	
      





	 	
      7.2
	
      Non-Public
      Information
	
      




7.3
  Limitation
on Acquisition of Common Stock of the Company.....................20

 


	
      8.
	
      Covenants
      of the Company and Purchaser Regarding Indemnification
	
      





	 	
      8.1
	
      Company
      Indemnification
	
      





	 	
      8.2
	
      Purchaser's
      Indemnification
	
      




 


	
      9.
	
      Conversion
      of Convertible Note
	
      





	 	
      9.1
	
      Mechanics
      of Conversion
	
      




 


	
      10.
	
      Registration
      Rights.
	
      




10.1 Registration
Rights Granted


	 	
      10.2
	
      Offering
      Restrictions
	
      22




 


	
      11.
	
      Miscellaneous
	
      





	 	
      11.1
	
      Governing
      Law
	
      





	 	
      11.2
	
      Survival
	
      





	 	
      11.3
	
      Successors
	
      





	 	
      11.4
	
      Entire
      Agreement
	
      





	 	
      11.5
	
      Severability
	
      





	 	
      11.6
	
      Amendment
      and Waiver
	
      





	 	
      11.7
	
      Delays
      or Omissions
	
      





	 	
      11.8
	
      Notices
	
      





	 	
      11.9
	
      Attorneys'
      Fees
	
      





	 	
      11.10
	
      Titles
      and Subtitles
	
      





	 	
      11.11
	
      Facsimile
      Signatures; Counterparts
	
      





	 	
      11.12
	
      Broker's
      Fees
	
      





	 	
      11.13
	
      Construction
	
      











	
      LIST
      OF EXHIBITS

	
      Form
      of Convertible Term Note
	
      Exhibit
      A

	
      Form
      of Warrant
	
      Exhibit
      B

	
      Form
      of Opinion
	
      Exhibit
      C

	
      Form
      of Escrow Agreement
	
      Exhibit
      D














































SECURITIES
PURCHASE AGREEMENT

 

THIS
SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered into as of
February 28, 2005, by and between ELINEAR, INC., a Delaware corporation (the
"Company"), and Laurus Master Fund, Ltd., a Cayman Islands company (the
"Purchaser").

 

RECITALS

 

WHEREAS,
the Company has authorized the sale to the Purchaser of a Convertible Term Note
in the aggregate principal amount of up to Five Million Dollars (up to
$5,000,000) (collectively, as amended, modified or supplemented from time to
time, the "Note"), which Note is convertible into shares of the Company's common
stock, $0.02 par value per share (the "Common Stock") at an initial fixed
conversion price of $ 1.00 per share of Common Stock ("Fixed Conversion
Price");

 

WHEREAS,
the Company wishes to issue a warrant to the Purchaser to purchase up to 750,000
shares of the Common Stock (subject to adjustment as set forth therein) in
connection with Purchaser's purchase of the Note;

 

WHEREAS,
Purchaser desires to purchase the Note and the Warrant (as defined in Section 2)
on the terms and conditions set forth herein; and

 

WHEREAS,
the Company desires to issue and sell the Note and Warrant to Purchaser on the
terms and conditions set forth herein.

 

AGREEMENT

 

NOW,
THEREFORE, in consideration of the foregoing recitals and the mutual promises,
representations, warranties and covenants hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

1.  Agreement
to Sell and Purchase

 

.
Pursuant to the terms and conditions set forth in this Agreement, on the Closing
Date (as defined in Section 3), the Company agrees to sell to the Purchaser, and
the Purchaser hereby agrees to purchase from the Company, a Note in the
aggregate principal amount of up to $5 million convertible in accordance with
the terms thereof into shares of Common Stock in accordance with the terms of
the Note and this Agreement. The Note purchased on the Closing Date shall be
known as the "Offering." A form of the Note is annexed hereto as Exhibit A. The
Note will mature on the Maturity Date (as defined in the Note). Collectively,
the Note, Warrant and Common Stock issuable in payment of the Note, upon
conversion of the Note and upon exercise of the Warrant are referred to as the
"Securities."

 

2.  Fees
and Warrant

 

. On the
Closing Date:

 

(a)  The
Company will issue and deliver to the Purchaser a warrant to purchase up to
750,000 shares of Common Stock in connection with the Offering (collectively, as
amended, modified or supplemented from time to time, the "Warrant"). The Warrant
must be delivered on the Closing Date. A form of Warrant is annexed hereto as
Exhibit B. All the representations, covenants, warranties, undertakings, and
indemnification, and other rights made or granted to or for the benefit of the
Purchaser by the Company are hereby also made and granted in respect of the
Warrant and shares of Common Stock issuable upon exercise of the Warrant (the
"Warrant Shares").

 

(b)  Subject
to the terms of Section 2(d) below, the Company shall pay to the Purchaser,
a closing payment in an amount equal to three and one-half percent (3.50%) of
the aggregate principal amount of the Note, such 3.5% to be paid from the 20%
cash funded to the Company and from the 80% cash funded to the Restricted
Account. The foregoing fee is referred to herein as the "Closing
Payment."

 

(c)  The
Company shall reimburse Purchaser for its reasonable expenses (including legal
fees and expenses) incurred in connection with the preparation and negotiation
of this Agreement and the Related Agreements (as hereinafter defined), and
expenses incurred in connection with the Purchaser's due diligence review of the
Company and its Subsidiaries (as defined in Section 4.2) and all related
matters. Amounts required to be paid under this Section 2(c) will be paid on the
Closing Date and shall be $27,500 for such expenses referred to in this Section
2(c).

 

(d)  The
Closing Payment and the expenses referred to in the preceding clause (c) (net of
deposits previously paid by the Company) shall be paid at closing out of funds
held pursuant to an Escrow Agreement (as defined below) and a disbursement
letter (the "Disbursement Letter").

 

3.  Closing,
Delivery and Payment.

 




 

3.1  Closing

 

. Subject
to the terms and conditions herein, the closing of the transactions contemplated
hereby (the "Closing"), shall take place on the date hereof, at such time or
place as the Company and Purchaser may mutually agree (such date is hereinafter
referred to
as the "Closing Date").

 

3.2  Delivery

 

.
Pursuant to the Escrow Agreement, at the Closing on the Closing Date, the
Company will deliver to the Purchaser, among other things, the Note and the
Warrant and the Purchaser will deliver to the Company, among other things, the
amounts set forth in the Disbursement Letter by certified funds or wire transfer
(it being understood that 80% of the proceeds of the Note shall be placed in the
Restricted Account (as defined in the Restricted Account Agreement referred to
below)).

 

4.  Representations
and Warranties of the Company

 

. The
Company, on behalf of itself and its Subsidiaries (as hereinafter defined),
hereby represents and warrants to the Purchaser as follows (which
representations and warranties are supplemented by the Company's filings under
the Securities Exchange Act of 1934, as amended (the åExchange Actæ) made prior
to the date of this Agreement (collectively, the "Exchange Act Filings"), access
to which have been provided to the Purchaser):

 

4.1  Organization,
Good Standing and Qualification

 

. Each of
the Company and each of its Subsidiaries is a corporation, partnership or
limited liability company, as the case may be, duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization. The
Company has the corporate power and authority to own and operate its properties
and assets, to execute and deliver (i) this Agreement, (ii) the Note and the
Warrant, (iii) the Master Security Agreement dated as of the date hereof between
the Company, certain Subsidiaries of the Company and the Purchaser (as amended,
modified or supplemented from time to time, the åMaster Security Agreementæ),
(iv) the Registration Rights Agreement relating to the Warrant Shares and Note
Shares (as hereinafter defined) dated as of the date hereof between the Company
and the Purchaser (as amended, modified or supplemented from time to time, the
åRegistration Rights Agreementæ), (v) the Escrow Agreement dated as of the date
hereof among the Company, the Purchaser and the escrow agent referred to
therein, substantially in the form of Exhibit D hereto (as amended, modified or
supplemented from time to time, the åEscrow Agreementæ), (vi) the Restricted
Account Agreement dated as of the date hereof among the Company, the Purchaser
and agreed upon bank (as amended, modified or supplemented from time to time,
the åRestricted Account Agreementæ), (vii) the Restricted Account Side Letter
related to the Restricted Account Agreement dated as of the date hereof between
the Company and the Purchaser (as amended, modified or supplemented from time to
time, the åRestricted Account Side Letteræ) and (viii) all other agreements
related to this Agreement and the Note and referred to herein (the preceding
clauses (ii) through (vii), collectively, the "Related Agreements"), to issue
and sell the Note and the shares of Common Stock issuable upon conversion of the
Note (the "Note Shares"), to issue and sell the Warrant and the Warrant Shares,
to carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted. Each of the Subsidiaries has the
corporate power and authority to own and operate its properties and assets, to
execute and deliver the Master Security Agreement, and to carry out the
provisions of any Related Agreement such Subsidiary is a party to, and to carry
on its business as presently conducted. Each of the Company and each of its
Subsidiaries is duly qualified and is authorized to do business and is in good
standing as a foreign corporation, partnership or limited liability company, as
the case may be, in all jurisdictions in which the nature of its activities and
of its properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so has not, or could not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Company and its
Subsidiaries, taken individually and as a whole (a åMaterial Adverse
Effectæ).

 

4.2  Subsidiaries

 

. Each
direct and indirect Subsidiary of the Company, the direct owner of such
Subsidiary and its percentage ownership thereof, is set forth on Schedule 4.2.
For the purpose of this Agreement, a åSubsidiaryæ of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time. 

 




 

4.3  Capitalization;
Voting Rights

 

.

 

(a)  The
authorized capital stock of the Company, as of the date hereof consists of
100,000,000 shares of Common Stock, of which 22,212,012 are shares are issued
and outstanding as of February 22, 2005. The authorized capital stock of each
Subsidiary of the Company is set forth on Schedule 4.3.

 

(b)  Except as
disclosed on Schedule 4.3 and the Exchange Act Filings, other than: (i) the
shares reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except as
disclosed on Schedule 4.3, neither the offer, issuance or sale of any of the
Note or the Warrant, or the issuance of any of the Note Shares or Warrant
Shares, nor the consummation of any transaction contemplated hereby will result
in a change in the price or number of any securities of the Company outstanding,
under anti-dilution or other similar provisions contained in or affecting any
such securities.

 

(c)  All
issued and outstanding shares of Common Stock: (i) have been duly authorized and
validly issued and are fully paid and nonassessable; and (ii) were issued in
compliance with all applicable state and federal laws concerning the issuance of
securities.

 

(d)  The
rights, preferences, privileges and restrictions of the shares of the Common
Stock are as stated in the Company's Certificate of Incorporation (the
"Charter"). The Note Shares and Warrant Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Charter, the Securities will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Securities may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.

 

4.4  Authorization;
Binding Obligations

 

. All
corporate, partnership or limited liability company, as the case may be, action
on the part of the Company and each of its Subsidiaries (including the
respective officers and directors) necessary for the authorization of this
Agreement and the Related Agreements, the performance of all obligations of the
Company and its Subsidiaries hereunder and under the other Related Agreements at
the Closing and, the authorization, sale, issuance and delivery of the Note and
Warrant has been taken or will be taken prior to the Closing. This Agreement and
the Related Agreements, when executed and delivered and to the extent it is a
party thereto, will be valid and binding obligations of each of the Company and
each of its Subsidiaries, enforceable against each such person in accordance
with their terms, except:

 

(a)  as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights;
and

 

(b)  general
principles of equity that restrict the availability of equitable or legal
remedies.

 

The sale
of the Note and the subsequent conversion of the Note into Note Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with. The issuance of the Warrant and
the subsequent exercise of the Warrant for Warrant Shares are not and will not
be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with. 

 

4.5  Liabilities

 

. Neither
the Company nor any of its Subsidiaries has any material contingent liabilities,
except current liabilities incurred in the ordinary course of business and
liabilities disclosed in any Exchange Act Filings.

 

4.6  Agreements;
Action

 

. Except
as set forth on Schedule 4.6 or as disclosed in any Exchange Act
Filings:

 

(a)  there are
no agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company or any of its
Subsidiaries is a party or by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $250,000 (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business); or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than licenses arising from the
purchase of "off the shelf" or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company with respect to
infringements of proprietary rights.

 

(b)  Since
September 30, 2004, neither the Company nor any of its Subsidiaries has: (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock; (ii) incurred any
indebtedness for money borrowed or any other liabilities (other than ordinary
course obligations) individually in excess of $250,000 or, in the case of
indebtedness and/or liabilities individually less than $250,000, in excess of
$500,000 in the aggregate; (iii) made any loans or advances to any person not in
excess, individually or in the aggregate, of $500,000, other than ordinary
course advances for travel expenses; or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.

 

(c)  For the
purposes of subsections (a) and (b) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities the Company
has reason to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such
subsections.

 

4.7  Obligations
to Related Parties

 

. Except
as set forth on Schedule 4.7, there are no obligations of the Company or any of
its Subsidiaries to officers, directors, stockholders or employees of the
Company or any of its Subsidiaries other than:

 

(a)  for
payment of salary for services rendered and for bonus payments;

 

(b)  reimbursement
for reasonable expenses incurred on behalf of the Company and its
Subsidiaries;

 

(c)  for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company); and

 

(d)  obligations
listed in the Company's financial statements or disclosed in any of its Exchange
Act Filings.

 

Except as
described above or set forth on Schedule 4.7, none of the officers, directors
or, to the best of the Company's knowledge, key employees or stockholders of the
Company or any members of their immediate families, are indebted to the Company,
individually or in the aggregate, in excess of $60,000 or have any direct or
indirect material interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than one percent (1%) of such
company) which may compete with the Company. Except as described above, no
officer, director or stockholder, or any member of their immediate families, is,
directly or indirectly, interested in any material contract with the Company and
no agreements, understandings or proposed transactions are contemplated between
the Company and any such person. Except as set forth on Schedule 4.7, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.

 

4.8  Changes

 

. Since
September 30, 2004, except as disclosed in any Exchange Act Filing or in any
Schedule to this Agreement or to any of the Related Agreements, there has not
been:

 

(a)  any
change in the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company or any of its Subsidiaries,
which individually or in the aggregate has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse
Effect;

 

(b)  any
resignation or termination of any officer, key employee or group of employees of
the Company or any of its Subsidiaries; 

 

(c)  any
material change, except in the ordinary course of business, in the contingent
obligations of the Company or any of its Subsidiaries by way of guaranty,
endorsement, indemnity, warranty or otherwise;

 

(d)  any
damage, destruction or loss, whether or not covered by insurance, which has had,
or could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;

 

(e)  any
waiver by the Company or any of its Subsidiaries of a valuable right or of a
material debt owed to it;

 

(f)  any
direct or indirect loans made by the Company or any of its Subsidiaries to any
stockholder, employee, officer or director of the Company or any of its
Subsidiaries, other than advances made in the ordinary course of
business;

 

(g)  any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder of the Company or any of its Subsidiaries;


 

(h)  any
declaration or payment of any dividend or other distribution of the assets of
the Company or any of its Subsidiaries;

 

(i)  any labor
organization activity related to the Company or any of its
Subsidiaries;

 

(j)  any debt,
obligation or liability incurred, assumed or guaranteed by the Company or any of
its Subsidiaries, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;

 

(k)  any sale,
assignment or transfer of any patents, trademarks, copyrights, trade secrets or
other intangible assets owned by the Company or any of its
Subsidiaries;

 

(l)  any
change in any material agreement to which the Company or any of its Subsidiaries
is a party or by which either the Company or any of its Subsidiaries is bound
which either individually or in the aggregate has had, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect;

 

(m)  any other
event or condition of any character that, either individually or in the
aggregate, has had, or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect; or

 

(n)  any
arrangement or commitment by the Company or any of its Subsidiaries to do any of
the acts described in subsection (a) through (m) above.

 

4.9  Title
to Properties and Assets; Liens, Etc.

 

Each of
the Company and each of its Subsidiaries has good and marketable title to its
material properties and assets, and good title to its material leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:

 

(a)  those
resulting from taxes which have not yet become delinquent;

 

(b)  minor
liens and encumbrances which do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company or
any of its Subsidiaries; and

 

(c)  those
that have otherwise arisen in the ordinary course of business.

 

All
material facilities, machinery, equipment, fixtures, vehicles and other
properties owned, leased or used by the Company and its Subsidiaries are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company and its Subsidiaries are in
compliance with all material terms of each lease to which it is a party or is
otherwise bound.

 

4.10  Intellectual
Property

 

.

 

(a)  Each of
the Company and each of its Subsidiaries owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights and processes
necessary for its business as now conducted and to the Company’s knowledge, as
presently proposed to be conducted (the "Intellectual Property"), without any
known infringement of the rights of others. There are no outstanding options,
licenses or agreements of any kind relating to the foregoing proprietary rights,
nor is the Company or any of its Subsidiaries bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of "off
the shelf" or standard products.

 

(b)  Neither
the Company nor any of its Subsidiaries has received any communications alleging
that the Company or any of its Subsidiaries has violated any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity, nor is the Company or any of
its Subsidiaries aware of any basis therefor.

 

(c)  The
Company does not believe it is or will be necessary to utilize any inventions,
trade secrets or proprietary information of any of its employees made prior to
their employment by the Company or any of its Subsidiaries, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to the Company or any of its Subsidiaries.

 

4.11  Compliance
with Other Instruments

 

. Neither
the Company nor any of its Subsidiaries is in violation or default of (x) any
term of its Charter or Bylaws, or (y) of any provision of any indebtedness,
mortgage, indenture, contract, agreement or instrument to which it is party or
by which it is bound or of any judgment, decree, order or writ, which violation
or default, in the case of this clause (y), has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. The execution, delivery and performance of and compliance with this
Agreement and the Related Agreements to which it is a party, and the issuance
and sale of the Note by the Company and the other Securities by the Company each
pursuant hereto and thereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with
or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or any of its Subsidiaries or the
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties. 

 

4.12  Litigation

 

. Except
as set forth on Schedule 4.12 hereto and the Exchange Act filings, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. Other than disclosed in the
Exchange Act Filings, there is no action, suit, proceeding or investigation by
the Company or any of its Subsidiaries currently pending or which the Company or
any of its Subsidiaries intends to initiate.

 

4.13  Tax
Returns and Payments

 

. Each of
the Company and each of its Subsidiaries has timely filed all tax returns
(federal, state and local) required to be filed by it. All taxes shown to be due
and payable on such returns, any assessments imposed, and all other taxes due
and payable by the Company or any of its Subsidiaries on or before the Closing,
have been paid or will be paid prior to the time they become delinquent. Except
as set forth on Schedule 4.13, neither the Company nor any of its Subsidiaries
has been advised:

 

(a)  that any
of its returns, federal, state or other, have been or are being audited as of
the date hereof; or

 

(b)  of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes.

 

The
Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for. 

 

4.14  Employees

 

. Neither
the Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company or any of
its Subsidiaries. Except as disclosed in the Exchange Act Filings, neither the
Company nor any of its Subsidiaries is a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. The Company has not been provided written notice
that any employee of the Company or any of its Subsidiaries, nor any consultant
with whom the Company or any of its Subsidiaries has contracted, is in violation
of any term of any employment contract, proprietary information agreement or any
other agreement relating to the right of any such individual to be employed by,
or to contract with, the Company or any of its Subsidiaries because of the
nature of the business to be conducted by the Company or any of its
Subsidiaries; and to the Company's knowledge the continued employment by the
Company or any of its Subsidiaries of its present employees, and the performance
of the Company's and its Subsidiaries’ contracts with its independent
contractors, will not result in any such violation. Neither the Company nor any
of its Subsidiaries has been provided written notice that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with their duties to
the Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has received any written notice alleging that any such violation
has occurred. Except for employees who have a current effective employment
agreement with the Company or any of its Subsidiaries, no employee of the
Company or any of its Subsidiaries has been granted the right to continued
employment by the Company or any of its Subsidiaries or to any material
compensation following termination of employment with the Company or any of its
Subsidiaries. The Company has not been provided written notice that any officer,
key employee or group of employees intends to terminate his, her or their
employment with the Company or any of its Subsidiaries, nor does the Company or
any of its Subsidiaries have a present intention to terminate the employment of
any officer, key employee or group of employees.

 

4.15  Registration
Rights and Voting Rights

 

. Except
as set forth on Schedule 4.15 and except as disclosed in Exchange Act Filings,
neither the Company nor any of its Subsidiaries is presently under any
obligation, and neither the Company nor any of its Subsidiaries has granted any
rights, to register any of the Company's or its Subsidiaries’ presently
outstanding securities or any of its securities that may hereafter be issued. No
stockholder of the Company or any of its Subsidiaries has entered into any
agreement with respect to the voting of equity securities of the Company or any
of its Subsidiaries.

 

4.16  Compliance
with Laws; Permits

 

. Neither
the Company nor any of its Subsidiaries is in violation of any applicable
statute, rule, regulation, order or restriction of any domestic or foreign
government or any instrumentality or agency thereof in respect of the conduct of
its business or the ownership of its properties which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement or any other Related Agreement and the issuance of
any of the Securities, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner. Each of the Company and its Subsidiaries has
all material franchises, permits, licenses and any similar authority necessary
for the conduct of its business as now being conducted by it, the lack of which
could, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

4.17  Environmental
and Safety Laws

 

. Neither
the Company nor any of its Subsidiaries is in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
Except as set forth on Schedule 4.17, no Hazardous Materials (as defined below)
are used or have been used, stored, or disposed of by the Company or any of its
Subsidiaries or, to the Company's knowledge, by any other person or entity on
any property owned, leased or used by the Company or any of its Subsidiaries.
For the purposes of the preceding sentence, "Hazardous Materials" shall
mean:

 

(a)  materials
which are listed or otherwise defined as "hazardous" or "toxic" under any
applicable local, state, federal and/or foreign laws and regulations that govern
the existence and/or remedy of contamination on property, the protection of the
environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials;
or

 

(b)  any
petroleum products or nuclear materials.

 

4.18  Valid
Offering

 

.
Assuming the accuracy of the representations and warranties of the Purchaser
contained in this Agreement, the offer, sale and issuance of the Securities will
be exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and will have been registered or qualified (or
are exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities laws.


 

4.19  Full
Disclosure

 

. Neither
this Agreement, the Related Agreements, the exhibits and schedules hereto and
thereto nor any other document delivered by the Company or any of its
Subsidiaries to Purchaser or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial projections
and other estimates provided to the Purchaser by the Company were based on the
Company's and its Subsidiaries’ experience in the industry and on assumptions of
fact and opinion as to future events which the Company or any of its
Subsidiaries, at the date of the issuance of such projections or estimates,
believed to be reasonable. 

 

4.20  Insurance

 

. Each of
the Company and each of its Subsidiaries has general commercial, product
liability, fire and casualty insurance policies with coverages which the Company
believes are customary for companies similarly situated to the Company and its
Subsidiaries in the same or similar business.

 

4.21  SEC
Reports

 

. Except
as set forth on Schedule 4.21, the Company has filed all proxy statements,
reports and other documents required to be filed by it under the Exchange Act.
The Company has provided the Purchaser with access to: (i) its Annual Reports on
Form 10-KSB for its fiscal years ended December 31, 2003; and (ii) its Quarterly
Reports on Form 10-QSB for its fiscal quarter ended September 30, 2004, and the
Form 8-K filings which it has made during the fiscal year 2004 to date
(collectively, the "SEC Reports"). Except as set forth on Schedule 4.21, each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.

 

4.22  Listing

 

. The
Common Stock is listed for trading on the American Stock Exchange (åAMEXæ) and
satisfies all requirements for the continuation of such listing. The Company has
not received any notice that (i) the Common Stock will be delisted from AMEX or
(ii) that the Common Stock does not meet all requirements for listing.


 

4.23  No
Integrated Offering

 

. Neither
the Company, nor any of its Subsidiaries or affiliates, nor any person acting on
its or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would cause the offering of the Securities pursuant to this Agreement or any of
the Related Agreements to be integrated with prior offerings by the Company for
purposes of the Securities Act which would prevent the Company from selling the
Securities pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or Subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.

 

4.24  Stop
Transfer

 

. The
Securities are restricted securities as of the date of this Agreement. Neither
the Company nor any of its Subsidiaries will issue any stop transfer order or
other order impeding the sale and delivery of any of the Securities at such time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal securities
laws.

 

4.25  Dilution. The
Company specifically acknowledges that its obligation to issue the shares of
Common Stock upon conversion of the Note and exercise of the Warrant is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.


 

4.26 Patriot
Act. The
Company certifies that, to the best of Company’s knowledge, neither the Company
nor any of its Subsidiaries has been designated, and is not owned or controlled,
by a åsuspected terroristæ as defined in Executive Order 13224. The Company
hereby acknowledges that the Purchaser seeks to comply with all applicable laws
concerning money laundering and related activities. In furtherance of those
efforts, the Company hereby represents, warrants and agrees that: (i) none of
the cash or property that the Company or any of its Subsidiaries will pay or
will contribute to the Purchaser has been or shall be derived from, or related
to, any activity that is deemed criminal under United States law; and (ii) no
contribution or payment by the Company or any of its Subsidiaries to the
Purchaser, to the extent that they are within the Company’s and/or its
Subsidiaries’ control shall cause the Purchaser to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly
notify the Purchaser if any of these representations ceases to be true and
accurate regarding the Company or any of its Subsidiaries. The Company agrees to
provide any additional information regarding the Company or any of its
Subsidiaries that is necessary for compliance with all applicable laws
concerning money laundering and similar activities. The Company understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering or similar activities, the Purchaser may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Purchaser’s investment in the Company. The Company further understands that the
Purchaser may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchaser is compelled to by federal or state agencies or
governments.

 




 

5.  Representations
and Warranties of the Purchaser

 

. The
Purchaser hereby represents and warrants to the Company as follows (such
representations and warranties do not lessen or obviate the representations and
warranties of the Company set forth in this Agreement):

 

5.1  No
Shorting

 

. The
Purchaser or any of its affiliates and investment partners has not during the
thirty (30) days prior to the date hereof, will not and will not cause any
person or entity to directly engage in "short sales" of Common Stock as long as
the Note shall be outstanding.

 

5.2  Requisite
Power and Authority

 

. The
Purchaser has all necessary power and authority under all applicable provisions
of law to execute and deliver this Agreement, the Related Agreements and that
certain Intercreditor Agreement between Purchaser and other third party
investors of the Company and to carry out their provisions. All corporate action
on Purchaser's part required for the lawful execution and delivery of this
Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except:

 

(a)  as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights;
and

 

(b)  as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.

 

5.3  Investment
Representations

 

.
Purchaser understands that the Note and Warrant are being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon Purchaser's representations contained in the Agreement, including,
without limitation, that the Purchaser is an "accredited investor" within the
meaning of Regulation D under the Securities Act. The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Securities. The Purchaser further confirms that it has had an opportunity to
ask questions and receive answers from the Company regarding the Company's and
its Subsidiaries’ business, management and financial affairs and the terms and
conditions of the Offering and the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had
access.

 

5.4  Purchaser
Bears Economic Risk

 

. The
Purchaser has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company so that
it is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect its own interests. The Purchaser must
bear the economic risk of this investment until the Securities are sold pursuant
to: (i) an effective registration statement under the Securities Act; or (ii) an
exemption from registration is available with respect to such sale.

 

5.5  Acquisition
for Own Account

 

. The
Purchaser is acquiring the Securities for the Purchaser's own account for
investment only, and not as a nominee or agent and not with a view towards or
for resale in connection with their distribution.

 

5.6  Purchaser
Can Protect Its Interest

 

. The
Purchaser represents that by reason of its, or of its management's, business and
financial experience, the Purchaser has the capacity to evaluate the merits and
risks of its investment in the Note, the Warrant and the Securities and to
protect its own interests in connection with the transactions contemplated in
this Agreement and the Related Agreements. Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.

 

5.7  Accredited
Investor and
not Broker/Dealer

 

.
Purchaser represents that it is an accredited investor within the meaning of
Regulation D under the Securities Act. Purchaser further represents that is not
a broker/dealer or an affiliate of a broker/dealer as defined in the Exchange
Act.

 

5.8  Legends

 

.

 

(a)  The Note
shall bear substantially the following legend: 

 

"THIS
NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ELINEAR, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."

 

(b)  The Note
Shares and the Warrant Shares, if not issued by DWAC system (as hereinafter
defined), shall bear a legend which shall be in substantially the following form
until such shares are covered by an effective registration statement filed with
the SEC:

 

"THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ELINEAR, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

 

(c)  The
Warrant shall bear substantially the following legend:

 

"THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ELINEAR, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.æ

 

6.  Covenants
of the Company

 

. The
Company covenants and agrees with the Purchaser as follows:

 

6.1  Stop-Orders

 

. The
Company will advise the Purchaser, promptly after it receives notice of issuance
by the Securities and Exchange Commission (the "SEC"), any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.

 

6.2  Listing

 

. The
Company shall use its best efforts to promptly secure the listing of Note Shares
and Warrant Shares on the AMEX (the "Principal Market") (subject to official
notice of issuance) and shall maintain such listing so long as any other shares
of Common Stock shall be so listed. The Company will use its best efforts to (i)
maintain the listing of its Common Stock on the Principal Market, and (ii)
comply in all material respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the AMEX. 

 

6.3  Market
Regulations

 

. The
Company shall take all necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Purchaser and promptly provide copies thereof
to the Purchaser.

 

6.4  Reporting
Requirements

 

. The
Company will use its best efforts to timely file with the SEC all reports
required to be filed pursuant to the Exchange Act and refrain from terminating
its status as an issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations thereunder would permit
such termination. 

 

6.5  Use of
Funds

 

. The
Company agrees that it will use the proceeds of the sale of the Note and the
Warrant for general working capital purposes and if needed for mergers or
acquisitions only (it being understood that 80% of the proceeds of the Note will
be deposited in the Restricted Account on the Closing Date and shall be subject
to the terms and conditions of the Restricted Account Agreement and the
Restricted Account Side Letter).

 

6.6  Access
to Facilities

 

. Each of
the Company and each of its Subsidiaries will permit any representatives
designated by the Purchaser (or any successor of the Purchaser), upon reasonable
notice and during normal business hours, at such person's expense and
accompanied by a representative of the Company, to:

 

(a)  visit and
inspect any of the properties of the Company or any of its
Subsidiaries;

 

(b)  examine
the corporate and financial records of the Company or any of its Subsidiaries
(unless such examination is not permitted by federal, state or local law or by
contract) and make copies thereof or extracts therefrom; and

 

(c)  discuss
the affairs, finances and accounts of the Company or any of its Subsidiaries
with the directors, officers and independent accountants of the Company or any
of its Subsidiaries.

 

Notwithstanding
the foregoing, neither the Company nor any of its Subsidiaries will provide any
material, non-public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.

 

6.7  Taxes

 

. Each of
the Company and each of its Subsidiaries will promptly pay and discharge, or
cause to be paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon the income, profits,
property or business of the Company and its Subsidiaries; provided, however,
that any such tax, assessment, charge or levy need not be paid if the validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company and/or such Subsidiary shall have set aside on its books
adequate reserves with respect thereto, and provided, further, that the Company
and its Subsidiaries will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien which may
have attached as security therefor.

 

6.8  Insurance

 

. Each of
the Company and its Subsidiaries will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in similar businesses situated as the Company and its Subsidiaries;
and the Company and its Subsidiaries will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner which the Company
reasonably believes is customary for companies in similar business similarly
situated as the Company and its Subsidiaries and to the extent available on
commercially reasonable terms. 

 

6.9  Intellectual
Property

 

. Each of
the Company and each of its Subsidiaries shall maintain in full force and effect
its existence, rights and franchises and all licenses and other rights to use
Intellectual Property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business.

 

6.10  Properties

 

. Each of
the Company and each of its Subsidiaries will keep its properties in good
repair, working order and condition, reasonable wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and each of the Company and each of its
Subsidiaries will at all times comply with each provision of all leases to which
it is a party or under which it occupies property if the breach of such
provision could, either individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

6.11  Confidentiality

 

. The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchaser, unless expressly agreed to by the
Purchaser or unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement. Notwithstanding the
foregoing, the Company may disclose Purchaser's identity and the terms of this
Agreement to its current and prospective debt and equity financing sources and
in its Exchange Act Filings.

 

6.12  Required
Approvals

 

. For so
long as fifty percent (50%) of the principal amount of the Note is outstanding,
the Company, without the prior written consent of the Purchaser, shall not, and
shall not permit any of its Subsidiaries to:

 

(a)  liquidate,
dissolve or effect a material reorganization (it being understood that in no
event shall the Company dissolve, liquidate or merge with any other person or
entity (unless the Company is the surviving entity));

 

(b)  become
subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under any
circumstances) restrict the Company's or any of its Subsidiaries right to
perform the provisions of this Agreement, any Related Agreement or any of the
agreements contemplated hereby or thereby; or

 

(c)  (i)
create, incur, assume or suffer to exist any indebtedness (exclusive of trade
debt and debt incurred to finance the purchase of equipment (not in excess of
ten percent (10%) of the fair market value of the Company's and its
Subsidiaries’ assets) whether secured or unsecured other than (x) the Company's
indebtedness to the Purchaser, (y) indebtedness set forth on Schedule
6.12(e) attached
hereto and made a part hereof and any refinancings or replacements thereof on
terms no less favorable to the Purchaser than the indebtedness being refinanced
or replaced, and (z) any debt incurred in connection with the purchase of assets
in the ordinary course of business, or any refinancings or replacements thereof
on terms no less favorable to the Purchaser than the indebtedness being
refinanced or replaced; (ii) cancel any debt owing to it in excess of $350,000
in the aggregate during any 12 month period; (iii) assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligations of any other Person, except the endorsement of negotiable
instruments by the Company for deposit or collection or similar transactions in
the ordinary course of business or guarantees of indebtedness otherwise
permitted to be outstanding pursuant to this clause (c);
and

 

(d)  materially
alter or change the scope of the business of the Company and its Subsidiaries
taken as a whole.

 

6.13  Reissuance
of Securities

 

. The
Company agrees to reissue certificates representing the Securities without the
legends set forth in Section 5.8 above at such time as:

 

(a)  the
holder thereof is permitted to dispose of such Securities pursuant to Rule
144(k) under the Securities Act; or

 

(b)  upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act.

 

The
Company agrees to cooperate with the Purchaser in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to
allow such resales provided the Company and its counsel receive reasonably
requested representations from the selling Purchaser and broker, if
any.

 

6.14  Opinion

 

. On the
Closing Date, the Company will deliver to the Purchaser an opinion acceptable to
the Purchaser from the Company's external legal counsel. The Company will
provide, at the Company's expense, such other legal opinions in the future as
are deemed reasonably necessary by the Purchaser (and acceptable to the
Purchaser) in connection with the conversion of the Note and exercise of the
Warrant.

 

6.15 Margin
Stock. The
Company will not permit any of
the proceeds of the Note or the Warrant to be used directly or indirectly to
åpurchaseæ or åcarryæ åmargin stockæ or to repay indebtedness incurred to
åpurchaseæ or åcarryæ åmargin stockæ within the respective meanings of each of
the quoted terms under Regulation U of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect.

 

6.16 Restricted
Cash Disclosure. The
Company agrees that, in connection with its filing of its 8-K Report with the
SEC concerning the transactions contemplated by this Agreement and the Related
Agreements (such report, the åLaurus Transaction 8-Kæ) in a timely manner after
the date hereof, it will disclose in such Laurus Transaction 8-K the amount of
the proceeds of the Note issued to the Purchaser that has been placed in a
restricted cash account and is subject to the terms and conditions of this
Agreement and the Related Agreements. Furthermore, the Company agrees to
disclose in all public filings required by the SEC (where appropriate) following
the filing of the Laurus Transaction 8-K, the existence of the restricted cash
referred to in the immediately preceding sentence, together with the amount
thereof. 

 

6.17 Sufficient
Shares. The
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock for the full conversion of the Notes and exercise of the
Warrants.

 

6.18 Pro
Rata Requirement. The
Company hereby agrees that if the Company takes any action or omits to take any
action in connection with or relating to this Agreement or any of the Related
Agreements (collectively, the "Transaction
Documents"),
including, without limitation, any prepayments, redemptions, repayments,
conversions, determinations as to payments in cash or stock or a combination of
stock or cash or otherwise, then it must simultaneously take the similar action
or omission, pro rata as applicable, with respect to the documents having
substantially identical terms to the Transaction Documents issued and entered
into on the date hereof with certain other investors (the "Other
Investor Transaction Documents" and
collectively with the Transaction Documents, the "February
Transaction Documents").
Neither the Company nor any other person shall offer or pay any consideration to
any person to amend or consent to a waiver or modification of any provision of
any of the Other Investor Transaction Documents unless the same consideration
also is offered to the Purchaser or its designee. The Company has not, directly
or indirectly, made any agreements with any person relating to the terms or
condition of the transactions contemplated by the February Transaction Documents
except as set forth in the February Transaction Documents. The terms of the
Other Investor Transaction Documents are substantially identical to the terms of
the Transaction Documents (other than the amount of the investment to be made
and the number of warrants to be issued, in each case in accordance with the
terms thereof).




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







 

7.  Covenants
of the Purchaser

 

. The
Purchaser covenants and agrees with the Company as follows:

 

7.1  Confidentiality

 

. The
Purchaser agrees that it will not disclose, and will not include in any public
announcement, the name of the Company, unless expressly agreed to by the Company
or unless and until such disclosure is required by law, applicable regulation,
or AMEX and then only to the extent of such requirement.

 

7.2  Non-Public
Information

 

. The
Purchaser agrees not to effect any sales in the shares of the Company's Common
Stock while in possession of material, non-public information regarding the
Company if such sales would violate applicable securities law.

 

7.3  Limitation
on Acquisition of Common Stock of the Company.
Notwithstanding
anything to the contrary contained herein, in any Related Agreement or any
document, instrument or agreement entered into in connection with any other
transactions between the Purchaser and the Company, the Purchaser may not
acquire stock in the Company (including, without limitation, pursuant to a
contract to purchase, by exercising an option or warrant, by converting any
other security or instrument, by acquiring or exercising any other right to
acquire, shares of stock or other security convertible into shares of stock in
the Company, or otherwise, and such contracts, options, warrants, conversion or
other rights shall not be enforceable or exercisable) to the extent such stock
acquisition would cause any interest (including any original issue discount)
payable by the Company to Purchaser not to qualify as åportfolio interestæ
within the meaning of Section 881(c)(2) of the Code, by reason of
Section 881(c)(3) of the Code, taking into account the constructive
ownership rules under Section 871(h)(3)(C) of the Code (the åStock Acquisition
Limitationæ). The Stock Acquisition Limitation shall automatically become null
and void without any notice to the Company upon the earlier to occur of either
(a) the Company’s delivery to Purchaser of a Notice of Redemption (as defined in
the Note) or (b) the existence of an Event of Default (as defined in the Note)
at a time when the average closing price of the Company’s common stock as
reported by Bloomberg, L.P. on the Principal Market for the immediately
preceding five trading days is greater than or equal to 150% of the Fixed
Conversion Price (as defined in the Note).

 

7.4
 Cooperation
with AMEX listing. The Purchaser agrees to provide any information or assistance
to the Company as required for the Company’s listing of Common Stock on
AMEX.

 




 

8.  Covenants
of the Company and Purchaser Regarding Indemnification

 

.

 

8.1  Company
Indemnification

 

. The
Company agrees to indemnify, hold harmless, reimburse and defend the Purchaser,
each of the Purchaser's officers, directors, agents, affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Purchaser which results, arises out of
or is based upon: (i) any misrepresentation by the Company or any of its
Subsidiaries or breach of any warranty by the Company or any of its Subsidiaries
in this Agreement, any other Related Agreement or in any exhibits or schedules
attached hereto or thereto; or (ii) any breach or default in performance by
Company or any of its Subsidiaries of any covenant or undertaking to be
performed by Company or any of its Subsidiaries hereunder, under any other
Related Agreement or any other agreement entered into by the Company and/or any
of its Subsidiaries and Purchaser relating hereto or thereto.

 

8.2  Purchaser's
Indemnification

 

.
Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company's officers, directors, agents, affiliates, control
persons and principal shareholders, at all times against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal fees)
of any nature, incurred by or imposed upon the Company which results, arises out
of or is based upon: (i) any misrepresentation by Purchaser or breach of any
warranty by Purchaser in this Agreement or in any exhibits or schedules attached
hereto or any Related Agreement; or (ii) any breach or default in performance by
Purchaser of any covenant or undertaking to be performed by Purchaser hereunder,
or any other agreement entered into by the Company and Purchaser relating
hereto.

 

9.  Conversion
of Convertible Note

 

.

 

9.1  Mechanics
of Conversion

 

.

 

(a)  Provided
the Purchaser has notified the Company of the Purchaser's intention to sell the
Note Shares and the Note Shares are included in an effective registration
statement or are otherwise exempt from registration when sold: (i) upon the
conversion of the Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action (including the issuance of an opinion of
counsel reasonably acceptable to the Purchaser following a request by the
Purchaser) to assure that the Company's transfer agent shall issue shares of
Common Stock in the name of the Purchaser (or its nominee) or such other persons
as designated by the Purchaser in accordance with Section 9.1(b) hereof and in
such denominations to be specified representing the number of Note Shares
issuable upon such conversion; and (ii) the Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of Common Stock and that after the Effectiveness Date (as defined
in the Registration Rights Agreement) the Note Shares issued will be freely
transferable subject to the prospectus delivery requirements of the Securities
Act and the provisions of this Agreement, and will not contain a legend
restricting the resale or transferability of the Note Shares.

 

(b)  Purchaser
will give notice of its decision to exercise its right to convert the Note or
part thereof by telecopying or otherwise delivering an executed and completed
notice of the number of shares to be converted to the Company (the "Notice of
Conversion"). The Purchaser will not be required to surrender the Note until the
Purchaser receives a credit to the account of the Purchaser's prime broker
through the DWAC system (as defined below), representing the Note Shares or
until the Note has been fully satisfied. Each date on which a Notice of
Conversion is telecopied or delivered to the Company in accordance with the
provisions hereof shall be deemed a "Conversion Date." Pursuant to the terms of
the Notice of Conversion, the Company will issue instructions to the transfer
agent accompanied by an opinion of counsel within one (1) business days of the
date of the delivery to the Company of the Notice of Conversion and shall cause
the transfer agent to transmit the certificates representing the Conversion
Shares to the Holder by crediting the account of the Purchaser's prime broker
with the Depository Trust Company ("DTC") through its Deposit Withdrawal Agent
Commission ("DWAC") system within three (3) business days after receipt by the
Company of the Notice of Conversion (the "Delivery Date").

 

(c)  The
Company understands that a delay in the delivery of the Note Shares in the form
required pursuant to Section 9 hereof beyond the Delivery Date could result in
economic loss to the Purchaser. In the event that the Company fails to direct
its transfer agent to deliver the Note Shares to the Purchaser via the DWAC
system within the time frame set forth in Section 9.1(b) above and the Note
Shares are not delivered to the Purchaser by the Delivery Date, as compensation
to the Purchaser for such loss, the Company agrees to pay late payments to the
Purchaser for late issuance of the Note Shares in the form required pursuant to
Section 9 hereof upon conversion of the Note in the amount equal to the greater
of: (i) $500 per business day after the Delivery Date; or (ii) the Purchaser's
actual damages from such delayed delivery. Notwithstanding the foregoing, the
Company will not owe the Purchaser any late payments if the delay in the
delivery of the Note Shares beyond the Delivery Date is solely out of the
control of the Company and the Company is actively trying to cure the cause of
the delay. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand and, in the case of actual damages,
accompanied by reasonable documentation of the amount of such damages. Such
documentation shall show the number of shares of Common Stock the Purchaser is
forced to purchase (in an open market transaction) which the Purchaser
anticipated receiving upon such conversion, and shall be calculated as the
amount by which (A) the Purchaser's total purchase price (including customary
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the Note, for
which such Conversion Notice was not timely honored.

 

Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the
Company.

 

10.  Registration
Rights.

 

10.1  Registration
Rights Granted

 

. The
Company hereby grants registration rights to the Purchaser pursuant to a
Registration Rights Agreement dated as of even date herewith between the Company
and the Purchaser. 

 

10.2
 Offering
Restrictions. Except
as previously disclosed in the SEC Reports or in the Exchange Act Filings, or
stock or stock options granted to employees or directors of the Company (these
exceptions hereinafter referred to as the åExcepted Issuancesæ), neither the
Company nor any of its Subsidiaries will, prior to the full repayment or
conversion of the Note (together with all accrued and unpaid interest and fees
related thereto), enter in any agreement to issue any securities with a
variable/floating conversion and/or pricing feature which does not have a
floor.

 

11.  Miscellaneous

 

.

 

11.1  Governing
Law

 

. THIS
AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER
CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EACH RELATED
AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE
FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE
COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY
JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT
DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.

 

11.2  Survival

 

. The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by the Purchaser and the closing of the transactions
contemplated hereby to the extent provided therein. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or
instrument.

 

11.3  Successors

 

. Except
as otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and be
enforceable by each person who shall be a holder of the Securities from time to
time, other than the holders of Common Stock which has been sold by the
Purchaser pursuant to Rule 144 or an effective registration statement. Purchaser
may not assign its rights hereunder to a competitor of the Company.

 

11.4  Entire
Agreement

 

. This
Agreement, the Related Agreements, the exhibits and schedules hereto and thereto
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein.

 

11.5  Severability

 

. In case
any provision of the Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

 

11.6  Amendment
and Waiver

 

.

 

(a)  This
Agreement may be amended or modified only upon the written consent of the
Company and the Purchaser.

 

(b)  The
obligations of the Company and the rights of the Purchaser under this Agreement
may be waived only with the written consent of the Purchaser. 

 

(c)  The
obligations of the Purchaser and the rights of the Company under this Agreement
may be waived only with the written consent of the Company.

 

11.7  Delays
or Omissions

 

. It is
agreed that no delay or omission to exercise any right, power or remedy accruing
to any party, upon any breach, default or noncompliance by another party under
this Agreement or the Related Agreements, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or in any similar breach, default or
noncompliance thereafter occurring. All remedies, either under this Agreement or
the Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.

 

11.8  Notices

 

. All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given:

 

(a)  upon
personal delivery to the party to be notified;

 

(b)  when sent
by confirmed facsimile if sent during normal business hours of the recipient, if
not, then on the next business day;

 

(c)  three (3)
business days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or

 

(d)  one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt.

 

All
communications shall be sent as follows:

 


	
      If
      to the Company, to:
	
      ELINEAR,
      Inc.

      2901
      West Sam Houston Pkwy North

      Suite
      E-300

      Houston,
      TX 77043

      Attention: Ramzi
      Nassar, Chief Strategy Officer

      Facsimile: (713)
      896-0510

	 	 
	 	
      with
      a copy to:

	 	
      Brewer
      & Pritchard, PC

      3
      Riverway, Suite 1800

      Houston,
      TX 77056

	 	
      Attention:
      Thomas C. Pritchard 

      Facsimile:
      (713) 209-2921

	 	 
	
      If
      to the Laurus, to:
	
      Laurus
      Master Fund, Ltd.

      c/o
      M&C Corporate Services Limited

      P.O.
      Box 309 GT

      Ugland
      House, George Town

      South
      Church Street

      Grand
      Cayman, Cayman Islands

      Facsimile: 345-949-8080

	 	 
	 	
      with
      a copy to:

	 	 
	 	
      John
      E. Tucker, Esq.

      825
      Third Avenue 14th Floor

      New
      York, NY 10022

      Facsimile: 212-541-4434

       







or at
such other address as the Company or the Purchaser may designate by written
notice to the other parties hereto given in accordance herewith.

 

11.9  Attorneys'
Fees

 

. In the
event that any suit or action is instituted to enforce any provision in this
Agreement, the prevailing party in such dispute shall be entitled to recover
from the losing party all fees, costs and expenses of enforcing any right of
such prevailing party under or with respect to this Agreement, including,
without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.

 

11.10  Titles
and Subtitles

 

. The
titles of the sections and subsections of this Agreement are for convenience of
reference only and are not to be considered in construing this
Agreement.

 

11.11  Facsimile
Signatures; Counterparts

 

. This
Agreement may be executed by facsimile signatures and in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

 

11.12  Broker's
Fees

 

. Except
as set forth on Schedule 11.12 hereof, each party hereto represents and warrants
that no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any broker's
or finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 11.12 being
untrue.

 

11.13  Construction

 

. Each
party acknowledges that its legal counsel participated in the preparation of
this Agreement and the Related Agreements and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Agreement to favor any
party against the other.

 




 

[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 






















IN
WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.

 


	
      COMPANY:
	 	
      PURCHASER:

	 	 	 
	
      ELINEAR,
      Inc.
	 	
      Laurus
      Master Fund, Ltd.

	 	 	 
	 	 	 
	
      By:
	 	 	
      By:
	 
	
      Name:
	
      Michael
      Lewis
	 	
      Name:
	 
	
      Title:
	
      Chief
      Executive Officer
	 	
      Title:
	 



Address:
_______________________________

_______________________________

Fax:
_______________________________