Document:

Prepared by MERRILL CORPORATION

CONVERTIBLE

PROMISSORY NOTE AND WARRANT 

PURCHASE AGREEMENT

This Convertible

Promissory Note and Warrant Purchase Agreement (the “Agreement”) is made as of

_____ ___, 2001 by and among TeraGlobal Communications Corp., a Delaware

corporation (the ”Company”), and the investors (collectively, the

“Investors” and each individually an “Investor”) set forth in the Schedule of

Investors attached hereto as Exhibit A (“Schedule of Investors”).

RECITALS

A.            The Investors desire to purchase from

the Company, and the Company desires to issue to the Investors, Convertible

Promissory Notes in the form of Exhibit B attached hereto (“Notes”) in

the aggregate principal amount of up to $1.5 million; and

B.            The Investors desire to purchase from the Company, and

the Company desires to issue to the Investors, Warrants, in the form of Exhibit

C attached hereto on the terms and conditions set forth herein

(“Warrants”), to purchase that number of the Company’s “New Equity Shares” (as

defined below) as determined pursuant to the terms and conditions of this

Agreement and the Warrants.

AGREEMENT

NOW, THEREFORE, in

consideration of the mutual covenants and agreements set forth herein and for

good and valuable consideration, the receipt and adequacy of which are hereby

acknowledged, the parties hereby agree as follows:

1.             Purchase and Sale of Notes and Warrants.

1.1           Sale and Issuance of Notes and

Warrants.  Subject to the terms and

conditions of this Agreement, the Investors agree to purchase at the Closing

(as defined below) and the Company agrees to sell and issue to the Investors at

the Closing (a) Notes in the form attached hereto as Exhibit B, in the

respective principal amounts set forth on Exhibit A, at a price equal to

100% of the principal amount thereof, and (b) Warrants to purchase such

variable number of New Equity Shares as set forth by the terms of this

Agreement and the Warrants in the form attached hereto as Exhibit C.

1.2           Initial Closing.  The initial closing of the purchase and sale

of Notes in the aggregate principal amount of at least $300,000 and Warrants

shall take place at the offices of TeraGlobal Communications Corp., 9171 Towne

Centre Drive, Suite 600, San Diego, California at 10 a.m. on May 15, 2001,

or at such other time and place as the Company and the Investors shall mutually

agree in writing (which time and place are designated as the “Closing”).

1.3           Issuances After

Initial Closing.  From time to time

after the Initial Closing and prior to June 1, 2001, the Company may sell

additional Notes and Warrants to additional investors who, upon execution of

counterpart signature pages to this Agreement, shall be included within the

term “Investors” and shall be added to Schedule of Investors.

 

1.4           Deliveries.  At or after (if applicable) the Initial

Closing, the Company shall deliver to the Investors the Notes and the Warrants

that the Investors are purchasing against payment by wire transfer or check.

1.5           Automatic Conversion of the Notes.  The Notes shall be automatically converted

into shares of the Company’s equity securities pursuant to the terms and

conditions set forth in the Notes.

1.6           Next Qualified Financing.  The term Next Qualified Financing shall mean

the next equity financing involving the receipt by the Company of at least Two

Million Dollars ($2,000,000) (excluding amounts received on conversion of the

Notes) which is completed before May 15, 2003. 

Notwithstanding the foregoing, the Next Qualified Financing shall not

include an equity financing that is made in connection with either (i) any

arrangement between the Company and any third party for any research or

development involving the Company (including, without limitation, any

arrangement that includes provision for research support, product development

and/or testing support), (ii) any rights to commercialize any products

resulting from the development programs of the Company (including, without

limitation, rights to develop, make, use, license and/or sell any such

products), or (iii) any other non-monetary consideration.

1.7           New Equity Shares.  The term “New Equity Shares” shall mean the

Company’s stock issued in the Next Qualified Financing.

1.8           Allocation of Purchase Price to

the Warrant.  The Company hereby

allocates to the Warrants a purchase price of $0.01 for each New Equity Share

that each Warrant is exercisable into and such purchase price shall be retained

from the interest that accrued on such Investor’s Note by the Company at the

time such Investor’s Note is either (a) converted into New Equity Shares

or (b) paid in full.

2.             Representations and Warranties of the Investors.

Each Investor hereby represents and warrants to and for the benefit of the

Company, with knowledge that the Company is relying thereon in entering into

this Agreement and issuing the Notes and the Warrants to the Investors, as

follows:

2.1           Purchase Entirely for Own Account.  By the Investor’s execution of this

Agreement, the Investor hereby confirms that the Note and Warrant to be

received by the Investor, the New Equity Shares issuable upon conversion of the

Note, and the New Equity Shares issuable upon exercise of the Warrant

(collectively, the ”Securities”) shall be acquired for investment for the

Investor’s own account, not as a nominee or agent, and not with a view to the

resale or distribution of any part thereof, and that the Investor has no

present intention of selling, granting any participation in, or otherwise

distributing the same.  By executing

this Agreement, the Investor further represents that the Investor does not have

any contract, undertaking, agreement or arrangement with any person to sell,

transfer or grant participation to such person or to any third person, with

respect to any of the Securities. Investor represents that it has full power

and authority to enter into this Agreement.

2.2           Investment

Experience. Investor is an investor in securities of companies in the

development stage and acknowledges that it is able to fend for itself, can bear

the economic risk of its investment and has such knowledge and experience in

financial or business matters that it is capable of evaluating the merits and

risks of the investment in the Securities.

 

2.3           Accredited Investor. Investor

is an “accredited investor” within the meaning of Securities and Exchange

Commission Rule 501 of Regulation D, as now in effect.

2.4           Restricted Securities.

Investor understands that the Securities it is and shall be purchasing are

characterized as “restricted securities” under the federal securities laws

inasmuch as they are being acquired from the Company in a transaction not

involving a public offering and that under such laws and applicable regulations

such securities may be resold without registration under the Securities Act of

1933, as amended (the “Act”), only in certain limited circumstances.  In this connection, Investor represents that

it is familiar with Rule 144 promulgated under the Act, as now in effect,

and understands the resale limitations imposed thereby and by the Act.

2.5           Legends. Investor understand

that the certificates evidencing the Securities may bear one or all of the following

legends:

(a)           The securities evidenced by this certificate have not

been registered under the Securities Act of 1933, as amended (the “Act”) or the

securities laws of any state of the United States.  The securities evidenced by this certificate may not be offered,

sold or transferred for value directly or indirectly, in the absence of such

registration under the Act and qualification under applicable state laws, or

pursuant to an exemption from registration under the Act and qualification

under applicable state laws, the availability of which is to be established to

the reasonable satisfaction of the Company.

(b)           Any legend required by the laws of the states of

California or Delaware, including any legend required by the California

Department of Corporations and Sections 417 and 418 of the California

Corporations Code.

(c)           Any legend required to be placed on the Securities

purchased by investors in any future sale or offering of any Securities.

3.             Restrictions on Disposition.  Without in any way limiting the

representations set forth in Section 2 above, each Investor further agrees not

to make any disposition of all or any portion of the Securities unless and

until the transferee has agreed in writing for the benefit of the Company to be

bound by this Section 3, and in addition thereto, one of the following

conditions is satisfied:

3.1           Securities Registered.  There is then in effect a registration

statement under the Act covering such proposed disposition and such disposition

is made in accordance with such registration statement.

3.2           Registration Not

Required. Each Investor shall have (i) notified the Company of the

proposed disposition and shall have furnished the Company with a detailed

statement of the circumstances surrounding the proposed disposition and

(ii) if reasonably requested by the Company, furnished the Company with an

opinion of counsel, reasonably satisfactory to the Company, that such

disposition will not require registration of such securities under the Act;

provided, however, that the Company will not require opinions of counsel for

transactions made pursuant to Rule 144, except in unusual circumstances.

 

3.3           Market Stand-Off Agreement.

Each Investor hereby agrees that, during the period of duration specified by

the Company and an underwriter of Common Stock or other securities of the

Company, following the effective date of a registration statement of the

Company filed under the Act, it shall not, to the extent requested by the

Company and such underwriter, directly or indirectly sell, offer to sell,

contract to sell (including, without limitation, any short sale), grant any

option to purchase or otherwise transfer or dispose of (other than to donees

who agree to be similarly bound) any securities of the Company held by it at

any time during such period except Common Stock included in such registration.

In order to enforce the

foregoing covenant, the Company may impose stop-transfer instructions with

respect to the Securities of each Investor (and the shares or securities of

every other person subject to the foregoing restriction) until the end of such

period.

4.             California Commissioner of Corporations.  THE SALE OF THE SECURITIES WHICH ARE THE

SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF

CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR

THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES

PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS

EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA

CORPORATIONS CODE.  THE RIGHTS OF ALL

PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION

BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

5.             General Provisions.

5.1           Construction.  This Agreement shall be governed, construed

and enforced in accordance with the internal laws of the State of California,

without giving effect to its conflicts of laws principles.

5.2           Entire Agreement.  This Agreement, together with the agreements

and documents referred to herein, constitute the entire agreement among the

parties hereto with respect to the subject matter hereof and supersede all

prior and contemporaneous negotiations, agreements and understandings.

5.3           Notices.  All payments, notices, requests, demands and

other communications hereunder shall be in writing and shall be deemed to have

been duly given at the earlier of (i) the time of actual delivery or (ii) on

the third business day following the date deposited with the United States

Postal Service, postage prepaid, certified with return receipt requested, to

the parties at the following addresses or at such other address as shall be

given in writing by a party to the other parties:

Investors:              At the addresses set forth on the

Schedule of Investors

 

Company:              TeraGlobal Communications Corp.

                                                9171

Towne Centre Drive, Suite 600

                                                San

Diego, CA 92122

                                                Attn:  Chief Executive Officer

 

5.4           Successors and Assigns.  This Agreement, and the rights and

obligations of each of the parties hereunder, may not be assigned by an Investor

without the prior written consent of the Company.  Subject to the foregoing sentence, this Agreement shall inure to

the benefit of, and shall be binding upon, the parties and their successors and

assigns.

5.5           Severability.  If any term, covenant or condition of this

Agreement is held to be invalid, void or otherwise unenforceable by any court

of competent jurisdiction, the remainder of this Agreement shall not be

affected thereby and the terms, covenants and conditions of this Agreement

shall be valid and enforceable to the fullest extent permitted by law.

5.6           Modification and Waiver.  Any term of this Agreement, the Notes and

the Warrants may be amended and the observance of any term of this Agreement,

the Notes and the Warrants may be waived (either generally or in a particular

instance and either retroactively or prospectively), with the written consent

of the Company and Investors holding in excess of a majority of the face value

of all Notes issued.  Any amendment or

waiver effected in accordance with this Section shall be binding upon all

parties to this Agreement, including, without limitation, any holder who may

not have executed such amendment or waiver, and each future holder of any

equity security into which Notes are convertible and/or any holder of Preferred

Stock that is received upon the exercise of Warrants.  Notwithstanding the above, any amendment or waiver of any

provision of this Agreement, the Notes or the Warrants in a manner that is

adverse to any Investor and that does not similarly affect all other Investors

shall require the separate written consent of such Investor.

5.7           Attorneys’ Fees.  If any action of law or in equity is

necessary to enforce or interpret the terms of this Agreement, the prevailing

party shall be entitled to an award of its reasonable attorneys’ fees, costs

and disbursements in addition to any other relief to which such party may be

entitled.

5.8           Independent Counsel.  Each Investor further acknowledges and

agrees that each has been provided the opportunity and encouraged to consult

with counsel of its own choosing with respect to this Agreement.

5.9           Counterparts.  This Agreement may be executed in one or

more counterparts, each of which shall be deemed an original, but all of which

together shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the undersigned have executed this

Agreement to be effective as of the date first written above.

	

  COMPANY:

  	

   

  
	

   

  	

   

  
	

  TERAGLOBAL COMMUNICATIONS CORP.

  
	

   

  	

   

  
	

   

  	

   

  
	

  By:

  	

   

  
	

   

  	

  Robert E. Randall,

  Chief Executive Officer

  
			

 

 

	

   

  	

  COUNTERPART

  SIGNATURE PAGE

  
	

   

  	

   

  	

   

  
	

   

  	

  NOTE

  AND WARRANT PURCHASE AGREEMENT

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  INVESTOR:

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Address:

  	

   

  
	

   

  	

   

  
	

   

  	

   

  
				

 

EXHIBIT B

FORM OF PROMISSORY NOTE

NEITHER THIS CONVERTIBLE

PROMISSORY NOTE NOR ANY OF THE SECURITIES ISSUABLE HEREUNDER HAS BEEN

REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY

NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE

ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES,

OR DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCE

SATISFACTORY TO THE COMPANY THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR

HYPOTHECATION IS IN COMPLIANCE WITH THE ACT OR UNLESS SOLD IN FULL COMPLIANCE

WITH RULE 144 UNDER THE ACT.

THE

SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS CONVERTIBLE SECURED

PROMISSORY NOTE HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF

THE STATE OF CALIFORNIA OR THE STATE OF DELAWARE OR ANY OTHER STATE AND THE

ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE

CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,

UNLESS THE SALE OF SUCH SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION

25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE, OR APPLICABLE

PROVISIONS OF THE SECURITIES LAWS OF DELAWARE OR ANY OTHER STATE.  THE RIGHTS OF THE HOLDER OF THIS CONVERTIBLE

PROMISSORY NOTE ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING

OBTAINED, UNLESS THE SALE IS SO EXEMPT.

	

  $[                     ]

  	

   

  	

   

  	

   

  	

  San Diego, California

  
	

   

  	

   

  	

   

  	

   

  	

  _____ ___, 2001

  
	

   

  	

   

  	

   

  	

   

  	

   

  

TERAGLOBAL

COMMUNICATIONS CORP.

CONVERTIBLE PROMISSORY NOTE

TeraGlobal Communications Corp., a Delaware corporation (the

“Company”), for value received, hereby promises to pay to _________________

(the “Holder”), the principal amount of ___________ ____Dollars ($_______) (the

“Issue Price”), together with interest on the unpaid amount thereof in

accordance with the terms hereof, from the date hereof until paid or converted

in accordance with the terms hereof.

 

1.             Terms of the Convertible Promissory Note

(the “Note”).

1.1           Interest Rate. 

The rate of interest hereunder (“Interest Rate”) shall be

eight percent (8%) per annum and shall be computed on the basis of a 365

day year for the actual number of days elapsed.

1.2           Convertible Note and Warrant Purchase

Agreement.  This Note is issued by the Company in

connection with that certain Convertible Promissory Note and Warrant Purchase

Agreement dated the date hereof (the “Agreement”) among the Company and Holder,

and is subject to, and Holder and Company shall be bound by, all the terms,

conditions and provisions of the Agreement. 

Pursuant to the Agreement, the Company also issued the Holder that

certain Warrant dated _________, 2001 (the “Warrant”). This Note and the other

convertible promissory notes issued pursuant to the Agreement are collectively

referred to as the “Notes.”  The Warrant

and other warrants issued pursuant to the Agreement are collectively referred

to as the “Warrants.”  Capitalized terms

not otherwise defined herein shall have the meanings given them in the

Agreement.

2.             Automatic Conversion.

2.1           At the Next Qualified Financing. 

Upon the Next Qualified Financing (as defined in the Agreement),

the Issue Price and any accrued but unpaid interest related thereto (the

“Conversion Amount”) shall automatically convert into that number of fully paid

and nonassessable New Equity Shares (as defined in the Agreement) equal to the

Conversion Amount divided by the price per share at which the New Equity Shares

were sold in the Next Qualified Financing, with any fraction of a share rounded

up to the next whole New Equity Share.

2.2           If 

No Next Qualified Financing.  If a Next

Qualified Financing has not closed prior to May 2003, this Note and all Notes

are due and payable on July 15, 2003.

2.3           Corporate Transaction. 

In the event the Company completes a consolidation of the Company with,

or merger of the Company into, another corporation or other business

organization (other than a consolidation or merger in which the Company is the

continuing corporation), or any sale or conveyance to another corporation or

other business organization of all or substantially all of the assets of the

Company on or before the conversion of this Note pursuant to Sections 2.1 or 2.2

above (a “Corporate Transaction”), the Conversion Amount will automatically

convert immediately prior to the Corporate Transaction into that number of

shares of the equity security of the Company sold or issued in the Corporate

Transaction (the “Corporate Transaction Shares”) as is equal to the Conversion

Amount divided by the per share purchase price (or fair market equivalent of

such) of the Corporate Transaction, with any fraction of a share rounded up to

the next whole share of the Corporate Transaction Shares.

2.4           Termination of Rights Upon Conversion. 

The Holder shall have no right to negotiate any of the terms or

conditions upon which the New Equity Shares or Corporate Transaction Shares

shall be issued, which negotiation shall be conducted solely among the Company

and the purchasers of the New Equity Securities or Corporate Transaction

Shares, as the case may be.  Conversion

shall be deemed effective on the earlier of (a) the closing date of the Next

Qualified Financing or (b) the closing date of the Corporate

Transaction.  Upon conversion of this

Note, the Holder of this Note shall have no further rights under this Note,

whether or not this Note is surrendered.

 

2.5           Delivery of Stock Certificates. 

As promptly as practicable after any conversion of this Note and the

Holder’s surrender of this Note, the Company, at its expense, shall issue and

deliver to the Holder of this Note a certificate or certificates evidencing the

number of shares issuable to the Holder upon any such conversion.

3.             Miscellaneous.

3.1           Transfer of Note. 

This Note shall not be transferable or assignable in any manner, except

to affiliates of the Holder, and no interest shall be pledged or otherwise

encumbered by the Holder without the express written consent of the Company, and

any such attempted disposition of this Note or any portion hereof shall be of

no force or effect.

3.2           Titles and Subtitles. 

The titles and subtitles used in this Note are for convenience only and

are not to be considered in construing or interpreting this Note.

3.3           Notices.  Any notice

required or permitted under this Note shall be given in writing and in

accordance with Section 5.3 of the Agreement (for purposes of which the term

“Investor” shall mean the Holder hereunder), except as otherwise expressly

provided in this Note.

3.4           Attorneys’ Fees. 

If any action at law or in equity is necessary to enforce or interpret

the terms of this Note, the prevailing party shall be entitled to reasonable

attorneys’ fees, costs and disbursements in addition to any other relief to

which such party may be entitled.

3.5           Amendments and Waivers. 

This Note is issued by the Company pursuant to the Agreement.  Other than the right to the payment of the

Issue Price and all accrued but unpaid interest thereon, which may only be

amended or waived with the written consent of the Holder, any other term of

this Note may be amended and the observance of any other term of this Note may

be waived (either generally or in a particular instance and either

retroactively or prospectively), with the written consent of the Company and

the holders of at least a majority of the aggregate principal amount of the

Notes then outstanding, and in accordance with the Agreement; provided, however,

that any amendments made to this Note must be made to each of the Notes and in

accordance with the Agreement.  Any

amendment or waiver effected in accordance with this Section 3.5 shall be

binding upon the Holder of this Note (and of any securities into which this

Note is convertible), each future holder of all such securities and the

Company.

3.6           Severability. 

If one or more provisions of this Note are held to be unenforceable

under applicable law, such provision shall be excluded from this Note and the

balance of the Note shall be interpreted as if such provision were so excluded

and shall be enforceable in accordance with its terms.

3.7           Governing Law.  This Note

shall be governed by and construed and enforced in accordance with the laws of

the State of California, without giving effect to its conflicts of laws

principles.

 

3.8           Independent Counsel. Holder acknowledges and agrees that

Holder has been provided the opportunity and encouraged to consult with counsel

of Holder’s own choosing with respect to this Note.

	

  Date: 

  ___________, 2001

  	

  TERAGLOBAL COMMUNICATIONS CORP.

  
	

   

  	

  a Delaware corporation

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

  Robert E. Randall,

  Chief Executive Officer

  
	

   

  	

   

  	

   

  
	

  ACKNOWLEDGED AND AGREED:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  (Print Name of

  Holder)

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  (Signature of

  Holder)

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  (Title of Holder

  Not an Individual)

  	

   

  	

   

  

 

 

EXHIBIT C

FORM OF WARRANT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE

NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),

OR ANY STATE SECURITIES LAWS.  THEY MAY

NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED

IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE

SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO

THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO

AN EXEMPTION UNDER SUCH ACT.

 

	

  W-__

  	

   

  	

  Void after

  
	

   

  	

   

  	

  June 30, 2006

  
	

   

  	

   

  	

   

  

WARRANT

OF

TERAGLOBAL COMMUNCIATIONS CORP.

THIS CERTIFIES THAT, for

value received, ___________________, together with his, her or its successors

and assigns (the “Holder”) is entitled to subscribe for and purchase, on the

terms hereof, “New Equity Shares” (as defined in the Agreement (as defined

below)), of TeraGlobal Communications Corp., a Delaware corporation (the

“Company”), subject to the following terms and conditions:

1.             Convertible Promissory Note and Warrant

Agreement.  This Warrant (“Warrant”) is issued pursuant

to that certain Convertible Promissory Note and Warrant Agreement dated

__________, 2001 (the “Agreement”) by and among the Company and the Holder.  Pursuant to the Agreement, the Company also

issued the Holder that certain Convertible Promissory Note dated __________,

2001 (the “Note”).  The Note and the

other convertible promissory notes issued pursuant to the Agreement are

collectively referred to as the “Notes.” 

The Warrant and other warrants issued pursuant to the Agreement are

collectively referred to as the “Warrants.”

2.             Exercise of Warrant. 

The terms and conditions upon which this Warrant may be exercised, and

the New Equity Shares covered hereby may be purchased, are as follows:

2.1           Term.  Subject to the terms hereof, this Warrant

may be exercised at any time, or from time to time, in whole or in part (the

“Exercise Date”), after the earlier of (i) the date of the closing of the

Company’s Next Qualified Financing (as defined in the Agreement), or (ii) ten

(10) days prior to the closing of a Corporate Transaction (as defined below);

provided, however, that in no event may this Warrant be exercised later than

5:00 p.m. (Pacific Time) on the earlier of (a) the close of business on June

30, 2006, (b) (i) the closing of the acquisition of the Company by

another entity by means of a transaction or series of related transactions or

(ii) the closing of the sale of all or substantially all of the assets of the

Company, unless the Company’s stockholders of record prior to such acquisition

or sale shall hold at least fifty percent (50%) of the voting power of the

acquiring or surviving entity immediately after such acquisition or sale (each,

a “Corporate Transaction (the “Exercise Period”).  At least ten (10) business days prior to the occurrence of an

event specified in (b) of this Section 2.1, the Company shall send to the

Holder notice of such event and that the Holder’s rights under this Warrant

shall terminate upon the occurrence of such event; provided, that if the

Company sends such notice less than ten (10) days prior to the occurrence of

such event, the Holder’s right to exercise this Warrant shall be extended for a

period of ten (10) days after the date the Holder receives such notice, after

which time the Holder’s rights under this Warrant shall terminate.  The notice required by this paragraph may be

waived by the Holder.

 

2.2           Number of Shares.  This Warrant may be exercised for the number

of New Equity Shares equal to:

A  =  0.5xB

         C

                                where:

 

A    =      The number of New Equity Shares that may

be purchased by Holder pursuant to this Warrant.

B    =       Original

principal amount of Note.

C  =         The Exercise Price for the New Equity

Shares which shall be equal to the price per share at which New Equity

Securities are sold in the Next Equity Financing.

2.3           Exercise Price.  The Exercise Price for the New Equity Shares

which shall be equal to the price per share at which New Equity Securities are

sold in the Next Equity Financing. In the event that a Corporate Transaction

occurs prior to the Next Qualified Financing, the “Exercise Price” shall be the

per share price (or fair market equivalent of such) paid for the Stock in the

Corporate Transaction.

2.4           Method

of Exercise.  The exercise of the

purchase rights evidenced by this Warrant shall be effected by (a) the

surrender of the Warrant, together with a duly executed copy of the form of

subscription attached hereto as Exhibit A, to the Company at its

principal offices and (b) the delivery of the purchase price by check payable

to the Company’s order or by wire transfer of same day funds to the Company’s

account for the number of shares for which the purchase rights hereunder are

being exercised or any other form of consideration approved by the Company’s

Board of Directors (the “Board”).  Each

exercise of this Warrant shall be deemed to have been effected immediately

prior to the close of business on the day on which this Warrant shall have been

surrendered to the Company as provided herein or at such later date as may be

specified in the executed form of subscription, and at such time, the person or

persons in whose name or names any certificate or certificates for New Equity

Shares shall be issuable upon such exercise, as provided herein, shall be

deemed to have become the holder or holders of record thereof.

 

2.5           Net Issue Exercise.  In lieu of exercising this Warrant by paying

the Exercise Price in cash or by check, Holder may elect to receive shares

equal to the value of this Warrant (or the portion thereof being canceled) by

surrender of this Warrant at the Company’s principal office together with the

Notice of Cashless Exercise attached hereto as Exhibit B duly

completed and executed in which event the Company shall issue to Holder a

number of New Equity Shares computed using the following formula:

Z  =  (Y) (X-W)

    X

                                where:

                                                Z

=          The number of New Equity Shares

to be issued to Holder.

                                                Y =          The number of New Equity Shares

purchasable under this Warrant.

                                                X =          The fair market value of one New

Equity Share.

                                                W =        Exercise Price (as adjusted to the date

of such calculations).

 

For purposes of this

Section, the fair market value of one New Equity Share shall be the fair market

value of such share (or the underlying shares of Common Stock into which it is

convertible) as determined in good faith by the Board.

3.             Adjustments to Exercise Price. 

The number and kind of New Equity Shares issuable upon the exercise of

this Warrant and the exercise price hereunder shall be subject to adjustment

from time to time upon the happening of certain events, as follows:

3.1           Splits and Subdivisions.  If the Company should at any time or from

time to time fix a record date for the effectuation of a split or subdivision

of the outstanding New Equity Shares or the determination of the holders of New

Equity Shares entitled to receive a dividend or other distribution payable in

additional New Equity Shares or other securities or rights convertible into, or

entitling the holder thereof to receive directly or indirectly, additional New

Equity Shares (hereinafter referred to as the “New Equity Equivalents”) without

payment of any consideration by such holder for the additional New Equity

Shares or New Equity Equivalents, then, as of such record date (or the date of

such distribution, split or subdivision if no record date is fixed), the

purchase price shall be appropriately decreased and the number of New Equity

Shares which this Warrant is exercisable for, if any, shall be appropriately increased

in proportion to such increase of outstanding shares.

3.2           Combination

of Shares.  If the number of New

Equity Shares outstanding at any time after the date hereof is decreased by a

combination of the outstanding New Equity Shares, the purchase price shall be

appropriately increased and the number of New Equity Shares which this Warrant

is exercisable for, if any, shall be appropriately decreased in proportion to

such decrease in outstanding shares.

 

3.3           Adjustments for Other

Distributions.  In the event the

Company shall declare a distribution payable in securities of other persons,

evidences of indebtedness issued by the Company or other persons, assets

(excluding cash dividends) or options or rights not referred to in Section 3.1,

then, in each such case for the purpose of this Section 3.3, upon exercise of

this Warrant the Holder shall be entitled to a proportionate share of any such

distribution as though such Holder was the holder of the number of New Equity

Shares into which this Warrant may be exercised as of the record date fixed for

the determination of the holders of New Equity Shares entitled to receive such

distribution.

3.4           Reclassification or Reorganization.  If the New Equity Shares (or any shares of

stock or other securities which may be) issuable upon the exercise of this

Warrant shall be changed into the same or different number of shares of any

class or classes of stock, whether by capital reorganization, reclassification

or otherwise (other than a subdivision or combination of shares or stock

dividend provided for in Sections 3.1, 3.2 and 3.3 above, then and in each such

event the Holder shall be entitled to receive upon the exercise of this Warrant

the kind and amount of shares of stock and other securities and property

receivable upon such reorganization, reclassification or other change, to which

a holder of the number of New Equity Shares (or any shares of stock or other

securities which may be) issuable upon the exercise of this Warrant would have

received if this Warrant had been exercised immediately prior to such

reorganization, reclassification or other change, all subject to further

adjustment as provided herein.

3.5           Notice of Adjustments and Record

Dates.  The Company shall promptly

notify the Holder in writing of each adjustment or readjustment of the exercise

price hereunder and the number of New Equity Shares issuable upon the exercise

of this Warrant.  Such notice shall

state the adjustment or readjustment and show in reasonable detail the facts on

which that adjustment or readjustment is based.  In the event of any taking by the Company of a record of the

holders of New Equity Shares for the purpose of determining the holders thereof

who are entitled to receive any dividend or other distribution, the Company

shall notify the Holder in writing of such record date at least twenty (20)

days prior to the date specified therein.

3.6           No Impairment.  The Company shall not avoid or seek to avoid

the observance or performance of any of the terms to be observed or performed

hereunder by the Company, but shall at all times in good faith assist in the

carrying out of all the provisions of this Warrant.

4.             Replacement of the Warrant. 

On receipt by the Company of evidence reasonably satisfactory to the

Company of the loss, theft, destruction or mutilation of this Warrant and, in

the case of any such loss, theft or destruction of this Warrant, on delivery of

an indemnity agreement reasonably satisfactory in form and amount to the

Company or, in the case of any such mutilation, on surrender and cancellation

of the Warrant, the Company at its expense shall execute and deliver to the

Holder, in lieu thereof, a new Warrant of like tenor.

5.             Investment Intent.  Unless a

current registration statement under the Securities Act of 1933, as amended,

shall be in effect with respect to the securities to be issued upon exercise of

this Warrant, the Holder, by accepting this Warrant, covenants and agrees that,

at the time of exercise hereof, and at the time of any proposed transfer of any

securities acquired upon exercise hereof, the Holder shall deliver to the

Company a written statement that the securities acquired by the Holder upon

exercise hereof are for the account of the Holder for investment and are not

acquired with a view to, or for sale in connection with, any distribution

thereof (or any portion thereof) and are being acquired with no present

intention (at any such time) of offering or distributing such securities (or

any portion thereof).

 

6.             No Rights or Liability as a Stockholder. 

This Warrant does not entitle the Holder hereof to any voting rights or

other rights as a stockholder of the Company. 

No provisions hereof, in the absence of affirmative action by the Holder

to purchase New Equity Shares, and no enumeration herein of the rights or

privileges of the Holder, shall give rise to any liability of the Holder as a

stockholder of the Company.

7.             Miscellaneous.

7.1           Transfer of Warrant.  This Warrant shall not be transferable or

assignable in any manner and no interest shall be pledged or otherwise

encumbered by Holder without the express written consent of the Company, and

any such attempted disposition of this Warrant or any portion hereof shall be

of no force or effect.

7.2           Titles and Subtitles.  The titles and subtitles used in this Warrant

are for convenience only and are not to be considered in construing or

interpreting this Warrant.

7.3           Notices.  Any notice required or permitted under this

Warrant shall be given in writing and in accordance with Section 5.3 of the

Agreement (for purposes of which, the term “Investors” shall mean Holder

hereunder), except as otherwise expressly provided in this Warrant.

7.4           Attorneys’ Fees.  If any action at law or in equity is

necessary to enforce or interpret the terms of this Warrant, the prevailing

party shall be entitled to reasonable attorneys’ fees, costs and disbursements

in addition to any other relief to which such party may be entitled.

7.5           Amendments and Waivers.  This Warrant is issued by the Company

pursuant to the Agreement.  Any term of

this Warrant may be amended and the observance of any term of this Warrant may

be waived (either generally or in a particular instance and either

retroactively or prospectively), in accordance with Section 6.6 of the

Agreement.  Any amendment or waiver effected

in accordance with this Section 7.5 shall be binding upon the Holder of this

Warrant (and of any securities into which this Warrant is convertible), each

future holder of all such securities, and the Company.

7.6           Severability.  If one or more provisions of this Warrant

are held to be unenforceable under applicable law, such provision shall be

excluded from this Warrant and the balance of the Warrant shall be interpreted

as if such provision were so excluded and shall be enforceable in accordance with

its terms.

7.7           Governing Law.  This Warrant shall be governed by and

construed and enforced in accordance with the laws of the State of California,

without giving effect to its conflicts of laws principles.

 

	

  Date: 

  __________, 2001

  	

  TERAGLOBAL COMMUNICATIONS CORP.

  
	

   

  	

  a Delaware corporation

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

  Robert E. Randall, Chief Executive Officer

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  ACKNOWLEDGED AND AGREED:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  (Print Name of Holder)

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  (Signature of Holder)

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  (Title of Holder Not an

  Individual)

  	

   

  	

   

  

 

EXHIBIT A

 

FORM OF SUBSCRIPTION

 

(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)

 

To:          TERAGLOBAL COMMUNICATIONS CORP.

The undersigned, the

holder of the Warrant attached hereto, hereby irrevocably elects to exercise

the purchase rights represented by such Warrant for, and to purchase

thereunder, __________* shares of __________ Stock of TeraGlobal Communications

Corp., and herewith makes payment of $__________ and requests that the

certificates for such shares be issued in the name of, and delivered to

________________, whose address is __________________________________, and

whose social security number/taxpayer identification number is

_________________.

	

  Dated:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (Signature must conform in all respects to name of the Holder as

  specified on the face of the Warrant)

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (Print Name)

  
	

   

  	

   

  	

   

  
	

   

  	

  Address:

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
					

 

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

exercised.

EXHIBIT B

 

NOTICE

OF CASHLESS EXERCISE

To:  TERAGLOBAL COMMUNICATIONS CORP.

(1)           The

undersigned hereby elects to acquire in a cashless exercise ______________ New

Equity Shares (as defined in the attached Warrant) of TeraGlobal Communications

Corp. pursuant to the terms of Section 2.7 of the attached Warrant.

(2)           Please

issue a certificate or certificates representing such New Equity Shares in the

name of the undersigned or in such other name as is specified below:

	

   

  
	

   

  	

   

  
	

   

  	

   

  
	

  By:

  	

   

  
	

   

  	

   

  
	

   

  	

   

  
	

  Name:Exhibit 4.1

Number                                                                   Shares

                        PURADYN FILTER TECHNOLOGIES, INC.
              INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK                                                  CUSIP 746091 10 7

THIS CERTIFIES THAT
                    -----------------------------------------------------

is the registered Holder of _______________________________________Shares of the
Common Stock Par Value $.001 Per Share

fully paid and non-assessable, transferable only on the books of the Corporation
by the holder hereof in person or by Attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.

In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ____ day of _______, 20____.

----------------------------------            ----------------------------------
          SECRETARY                                       PRESIDENT

<PAGE>

For Value Received _________________________ hereby sell assign and transfer
unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
  IDENTIFYING NUMBER OF ASSIGNEE

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

____________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ___________________________________________________________________
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises. Dated
__________________ 20_____

         In presence of

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

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