Document:

Common Stock Purchase Warrant

 

EXHIBIT
10.2

 

THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK 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 UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO eLINEAR, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.

 

Right to
Purchase 750,000 Shares of Common Stock of

 

eLinear,
Inc.

 

(subject
to adjustment as provided herein)

 

COMMON
STOCK PURCHASE WARRANT

 

No.
_________________Issue
Date: February 28, 2005 

 

eLINEAR,
INC., a corporation organized under the laws of the State of Delaware, hereby
certifies that, for value received, LAURUS MASTER FUND, LTD., or assigns (the
"Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company (as defined herein) from and after the Issue Date of this Warrant
and at any time or from time to time before 5:00 p.m., New York time, through
the close of business February 28, 2012 (the "Expiration Date"), up to 750,000
fully paid and nonassessable shares of Common Stock (as hereinafter defined), at
the applicable Exercise Price per share (as defined below). The number and
character of such shares of Common Stock and the applicable Exercise Price per
share are subject to adjustment as provided herein.

 

As used
herein the following terms, unless the context otherwise requires, have the
following respective meanings: 

 

(a) The term
"Company" shall include eLinear, Inc. and any corporation which shall succeed,
or assume the obligations of, eLinear, Inc. hereunder. 

 

(b) The term
"Common Stock" includes (i) the Company's Common Stock, par value $0.02 per
share; and (ii) any other securities into which or for which any of the
securities described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or
otherwise.

 

(c) The term
"Other Securities" refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the
holder of the Warrant at any time shall be entitled to receive, or shall have
received, on the exercise of the Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 4 or otherwise. 

 

(d) The
"Exercise Price" applicable under this Warrant shall be $1.25 per share of
Common Stock.

 

1.  Exercise
of Warrant.

 

1.1  Number
of Shares Issuable upon Exercise. From
and after the date hereof through and including the Expiration Date, the Holder
shall be entitled to receive, upon exercise of this Warrant in whole or in part,
by delivery of an original or fax copy of an exercise notice in the form
attached hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of
the Company, subject to adjustment pursuant to Section 4.

 

1.2  Fair
Market Value. For
purposes hereof, the "Fair Market Value" of a share of Common Stock as of a
particular date (the "Determination Date") shall mean: 

 

(a)  If the
Common Stock is traded on the American Stock Exchange or another national
exchange or is quoted on the National or SmallCap Market of The NASDAQ Stock
Market, Inc. ("NASDAQ"), then the closing or last sale price, respectively,
reported for the last business day immediately preceding the Determination
Date.

 

(b)  If the
Common Stock is not traded on the American Stock Exchange or another national
exchange or on the NASDAQ but is traded on the NASD OTC Bulletin Board, then the
mean of the average of the closing bid and asked prices reported for the last
business day immediately preceding the Determination Date.

 

(c)  Except as
provided in clause (d) below, if the Common Stock is not publicly traded, then
as the Holder and the Company agree or in the absence of agreement by
arbitration in accordance with the rules then in effect of the American
Arbitration Association, before a single arbitrator to be chosen from a panel of
persons qualified by education and training to pass on the matter to be
decided.

 

(d)  If the
Determination Date is the date of a liquidation, dissolution or winding up, or
any event deemed to be a liquidation, dissolution or winding up pursuant to the
Company's charter, then all amounts to be payable per share to holders of the
Common Stock pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per share in
respect of the Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then issuable
upon exercise of the Warrant are outstanding at the Determination
Date.

 

1.3  Company
Acknowledgement. The
Company will, at the time of the exercise of the Warrant, upon the request of
the holder hereof acknowledge in writing its continuing obligation to afford to
such holder any rights to which such holder shall continue to be entitled after
such exercise in accordance with the provisions of this Warrant. If the holder
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder any such rights.

 

1.4  Trustee
for Warrant Holders. In the
event that a bank or trust company shall have been appointed as trustee for the
holders of the Warrant pursuant to Subsection 3.2, such bank or trust company
shall have all the powers and duties of a warrant agent (as hereinafter
described) and shall accept, in its own name for the account of the Company or
such successor person as may be entitled thereto, all amounts otherwise payable
to the Company or such successor, as the case may be, on exercise of this
Warrant pursuant to this Section 1.

 

2.  Procedure
for Exercise.

 

2.1  Delivery
of Stock Certificates, Etc., on Exercise. The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares in accordance herewith. As
soon as practicable after the exercise of this Warrant in full or in part, and
in any event within three (3) business days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder, or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.

 

2.2  Exercise. Payment
may be made either (i) in cash or by certified or official bank check payable to
the order of the Company equal to the applicable aggregate Exercise Price, (ii)
by delivery of the Warrant, or shares of Common Stock and/or Common Stock
receivable upon exercise of the Warrant in accordance with Section (b) below, or
(iii) by a combination of any of the foregoing methods, for the number of Common
Stock specified in such Exercise Notice (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common Stock
issuable to the Holder per the terms of this Warrant) and the Holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully-paid and non-assessable shares of Common Stock (or Other Securities)
determined as provided herein. Notwithstanding any provisions herein to the
contrary, if the Fair Market Value of one share of Common Stock is greater than
the Exercise Price (at the date of calculation as set forth below), in lieu of
exercising this Warrant for cash, the Holder may elect to receive shares equal
to the value (as determined below) of this Warrant (or the portion thereof being
exercised) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Exercise Notice in which event the Company
shall issue to the Holder a number of shares of Common Stock computed using the
following formula:

 

X=Y (A-B)

 

A

 

Where X
= the
number of shares of Common Stock to be issued to the Holder

 

Y
= the
number of shares of Common Stock purchasable under the Warrant or, if only a
portion of the Warrant is being exercised, the portion of the Warrant being
exercised (at the date of such calculation)

 

A
= the Fair
Market Value of one share of the Common Stock (at the date of such
calculation)

 

B
= Exercise
Price (as adjusted to the date of such calculation)

 

3.  Effect
of Reorganization, Etc.; Adjustment of Exercise Price.

 

3.1  Reorganization,
Consolidation, Merger, Etc. In case
at any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.

 

3.2  Dissolution. In the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, concurrently with
any distributions made to holders of its Common Stock, shall at its expense
deliver or cause to be delivered to the Holder the stock and other securities
and property (including cash, where applicable) receivable by the Holder of the
Warrant pursuant to Section 3.1, or, if the Holder shall so instruct the
Company, to a bank or trust company specified by the Holder and having its
principal office in New York, NY as trustee for the Holder of the
Warrant.

 

3.3  Continuation
of Terms. Upon
any reorganization, consolidation, merger or transfer (and any dissolution
following any transfer) referred to in this Section 3, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable to
the shares of stock and other securities and property receivable on the exercise
of this Warrant after the consummation of such reorganization, consolidation or
merger or the effective date of dissolution following any such transfer, as the
case may be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transactions described in this Section
3, then the Company's securities and property (including cash, where applicable)
receivable by the Holders of the Warrant will be delivered to Holder or the
trustee as contemplated by Section 3.2.

 

4.  Extraordinary
Events Regarding Common Stock. In the
event that the Company shall (a) issue additional shares of the Common Stock as
a dividend or other distribution on outstanding Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of the
Common Stock into a smaller number of shares of the Common Stock, then, in each
such event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Exercise Price then in effect. The
Exercise Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Exercise Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Exercise Price in effect
on the date of such exercise.

 

5.  Certificate
as to Adjustments. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrant, the Company at its expense
will promptly cause its Chief Financial Officer or other appropriate designee to
compute such adjustment or readjustment in accordance with the terms of the
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or receivable by
the Company for any additional shares of Common Stock (or Other Securities)
issued or sold or deemed to have been issued or sold, (b) the number of shares
of Common Stock (or Other Securities) outstanding or deemed to be outstanding,
and (c) the Exercise Price and the number of shares of Common Stock to be
received upon exercise of this Warrant, in effect immediately prior to such
adjustment or readjustment and as adjusted or readjusted as provided in this
Warrant. The Company will forthwith mail a copy of each such certificate to the
holder of the Warrant and any Warrant agent of the Company (appointed pursuant
to Section 11 hereof).

 

6.  Reservation
of Stock, Etc., Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrant, shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the
Warrant.

 

7.  Assignment;
Exchange of Warrant. Subject
to compliance with applicable securities laws, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a
"Transferor") in whole or in part. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the "Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, which shall include, without limitation, a legal opinion from the
Transferor's counsel that such transfer is exempt from the registration
requirements of applicable securities laws, the Company at its expense but with
payment by the Transferor of any applicable transfer taxes will issue and
deliver to or on the order of the Transferor thereof a new Warrant of like
tenor, in the name of the Transferor and/or the transferee(s) specified in such
Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant so surrendered by the Transferor.

 

8.  Replacement
of Warrant. On
receipt 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 or
security reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu thereof, a new Warrant
of like tenor.

 

9.  Registration
Rights. The
Holder of this Warrant has been granted certain registration rights by the
Company. These registration rights are set forth in a Registration Rights
Agreement entered into by the Company and Purchaser dated as of even date of
this Warrant.

 

10.  Maximum
Exercise. The
Holder shall not be entitled to exercise this Warrant on an exercise date, in
connection with that number of shares of Common Stock which would be in excess
of the sum of (i) the number of shares of Common Stock beneficially owned by the
Holder and its affiliates on an exercise date, and (ii) the number of shares of
Common Stock issuable upon the exercise of this Warrant with respect to which
the determination of this proviso is being made on an exercise date, which would
result in beneficial ownership by the Holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock of the Company on such date. For
the purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Notwithstanding the foregoing, the restriction described in this paragraph may
be revoked upon 75 days prior notice from the Holder to the Company and is
automatically null and void upon an Event of Default under the
Note.

 

11.  Warrant
Agent. The
Company may, by written notice to the each Holder of the Warrant, appoint an
agent for the purpose of issuing Common Stock (or Other Securities) on the
exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant
to Section 7, and replacing this Warrant pursuant to Section 8, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.

 

12.  Transfer
on the Company's Books. Until
this Warrant is transferred on the books of the Company, the Company may treat
the registered holder hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.

 

13.  Notices,
Etc. All
notices and other communications from the Company to the Holder of this Warrant
shall be mailed by first class registered or certified mail, postage prepaid, at
such address as may have been furnished to the Company in writing by such Holder
or, until any such Holder furnishes to the Company an address, then to, and at
the address of, the last Holder of this Warrant who has so furnished an address
to the Company.

 

14.  No
Shorting. The
Purchaser or any of its affiliates and investment partners will not and will not
cause any person or entity, directly or indirectly, to engage in "short sales"
of the Common Stock or any other hedging strategies.

 

15.  Miscellaneous. This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. This Warrant shall
be governed by and construed in accordance with the laws of State of New York
without regard to principles of conflicts of laws. Any action brought concerning
the transactions contemplated by this Warrant shall be brought only in the state
courts of New York or in the federal courts located in the state of New York;
provided, however, that the Holder may choose to waive this provision and bring
an action outside the state of New York. The individuals executing this Warrant
on behalf of the Company agree to submit to the jurisdiction of such courts and
waive trial by jury. The prevailing party shall be entitled to recover from the
other party its reasonable attorney's fees and costs. In the event that any
provision of this Warrant 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 Warrant. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision. The
Company acknowledges that legal counsel participated in the preparation of this
Warrant 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 Warrant to favor any party against the other
party.

 

IN
WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above. 

 

	 	
       

      eLINEAR,
      INC.

       

       

      By:

       

       

      Name:
      Michael
      Lewis

       

       

      Title:
      Chief
      Executive Officer

       

	
       

      WITNESS:

       

       

       

       

       

      

       
	 

 

	
      SJG: 
	 	 

 

EXHIBIT
A

 

FORM
OF SUBSCRIPTION

 

(To Be
Signed Only On Exercise Of Warrant)

 

TO: eLinear,
Inc. 

 

Attention: Chief
Financial Officer

 

The
undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable
box):

 

________
shares of the Common Stock covered by such Warrant; or

 

the
maximum number of shares of Common Stock covered by such Warrant pursuant to the
cashless exercise procedure set forth in Section 2.

 

The
undersigned herewith makes payment of the full Exercise Price for such shares at
the price per share provided for in such Warrant, which is $___________. Such
payment takes the form of (check applicable box or boxes):

 

$__________
in lawful money of the United States; and/or

 

the
cancellation of such portion of the attached Warrant as is exercisable for a
total of _______ shares of Common Stock (using a Fair Market Value of $_______
per share for purposes of this calculation); and/or

 

the
cancellation of such number of shares of Common Stock as is necessary, in
accordance with the formula set forth in Section 2.2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.

 

The
undersigned requests that the certificates for such shares be issued in the name
of, and delivered to ______________________________________________ whose
address is
___________________________________________________________________________.

 

The
undersigned represents and warrants that all offers and sales by the undersigned
of the securities issuable upon exercise of the within Warrant shall be made
pursuant to registration of the Common Stock under the Securities Act of 1933,
as amended (the "Securities Act") or pursuant to an exemption from registration
under the Securities Act.

 

	
       

      Dated:
      

       
	
       

      

       

       

      (Signature
      must conform to name of holder as specified on the face of the
      Warrant)

       

       

      Address:
      

       

       

      

       

 

	 	
      A-
	 

 

EXHIBIT
B

 

FORM
OF TRANSFEROR ENDORSEMENT 

 

(To Be
Signed Only On Transfer Of Warrant)

 

For value
received, the undersigned hereby sells, assigns, and transfers unto the
person(s) named below under the heading "Transferees" the right represented by
the within Warrant to purchase the percentage and number of shares of Common
Stock of eLinear, Inc. into which the within Warrant relates specified under the
headings "Percentage Transferred" and "Number Transferred," respectively,
opposite the name(s) of such person(s) and appoints each such person Attorney to
transfer its respective right on the books of eLinear, Inc. with full power of
substitution in the premises.

 

	
       

      Transferees

       
	
       

      Address

       
	
       

      Percentage
      Transferred

       
	
       

      Number

       

       

      Transferred

       

	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

 

	
       

      Dated:
      

       
	
       

      

       

       

      (Signature
      must conform to name of holder as specified on the face of the
      Warrant)

       

       

      Address:
      

       

       

      

       

	 	
       

      SIGNED
      IN THE PRESENCE OF:

       

       

      

       

      (Name)

       

 

ACCEPTED
AND AGREED:

 

[TRANSFEREE] 

 

(Name)Secured Convertible Term Note

EXHIBIT
10.3

 

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

 

SECURED
CONVERTIBLE TERM NOTE

 

FOR VALUE
RECEIVED, ELINEAR, INC., a Delaware corporation (the "Borrower"), hereby
promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services
Limited, P.O. Box 309 GT, Ugland House, South Church Street, George Town, Grand
Cayman, Cayman Islands, Fax: 345-949-8080 (the "Holder") or its
registered assigns or successors in interest, on order, the sum of Five Million
Dollars ($5,000,000), together with any accrued and unpaid interest hereon, on
February 28, 2008 (the "Maturity
Date") if not
sooner paid. The initial $1,140,000 of the original principal amount of this
Note is subject to amortization payments under section 1.2 hereof and is
hereinafter referred to as the "Amortizing
Principal Amount." The
remaining $3,860,000 of the original principal amount of this Note is
hereinafter referred to as the "Non-Amortizing
Principal Amount." The
Amortizing Principal Amount and the Non-Amortizing Principal Amount are
collectively referred to herein as the "Principal
Amount".

 

Capitalized
terms used herein without definition shall have the meanings ascribed to such
terms in that certain Securities Purchase Agreement dated as of the date hereof
between the Borrower and the Holder (the "Purchase
Agreement").

 

The
Non-Amortizing Principal Amount is subject to the provisions of that certain
Restricted Account Agreement.

 

The
following terms shall apply to this Note:

 

ARTICLE
I

INTEREST
& AMORTIZATION

 

1.1 (a) Interest
Rate. Subject
to Sections 1.1(b), 4.12 and 5.6 hereof, interest payable on this Note shall
accrue at a rate per annum (the "Interest Rate") equal to the "prime rate"
published in The
Wall Street Journal from
time to time, plus seventy five basis points (75 bp). The prime rate shall be
increased or decreased as the case may be for each increase or decrease in the
prime rate in an amount equal to such increase or decrease in the prime rate;
each change to be effective as of the day of the change in such rate. Subject to
Section 1.1(b) hereof, the Interest Rate shall not be less than five and one
half percent (5.50%). Interest shall be calculated on the basis of a 360 day
year. Interest on the Amortizing Principal Amount shall be payable monthly, in
arrears, commencing on April 1, 2005 and on the first day of each consecutive
calendar month thereafter (each, a "Repayment
Date") and on
the Maturity Date, whether by acceleration or otherwise. Accrued interest on the
Non-Amortizing Principal Amount shall be payable only on the Maturity Date or,
in the event of the redemption or conversion of all or any portion of the
Non-Amortizing Principal Amount, accrued interest on the amount so redeemed or
converted shall be paid on the date of redemption or conversion, as the case may
be. Interest accruing and earned on the Restricted Account shall be credited
towards amounts outstanding hereunder. 

 

(b) Interest
Rate Adjustment. The
Interest Rate shall be subject to adjustment on the last business day of each
month hereafter until the Maturity Date (each a "Determination
Date"). If on
any Determination Date (i) the Borrower shall have registered under the
Securities Act of 1933, as amended ("the Securities
Act"), the
shares of Common Stock underlying the conversion of this Note and the exercise
of the Warrant issued on a registration statement (the "Registration Statement"
(as more fully described in the Registration Rights Agreement)) declared
effective by the Securities and Exchange Commission (the "SEC"), and (ii) the
market price (the "Market" Price") of the Common Stock as reported by Bloomberg,
LP on the Principal Market (as defined below) for the five (5) consecutive
trading days immediately preceding such Determination Date exceeds the then
applicable Fixed Conversion Price by at least twenty five percent (25%), the
Interest Rate for the succeeding calendar month shall automatically be reduced
by 200 basis points (200 b.p.) (2.0.%) for each incremental twenty five percent
(25%) increase in the Market Price of the Common Stock above the then applicable
Fixed Conversion Price. Notwithstanding the foregoing (and anything to the
contrary contained in herein), in no event shall the Interest Rate be less than
zero percent (0%).  

 

1.2 Minimum
Monthly Principal Payments.
Borrower shall make monthly payments on the Repayment Date for the outstanding
principal of the Amortized Principal Amount beginning on June 1, 2005 and
recurring on each succeeding Repayment Date thereafter until the Amortizing
Principal Amount has been repaid in full, whether by the payment of cash or by
the conversion of such principal into Common Stock pursuant to the terms hereof.
Subject to Section 2.1 and Article 3 below, beginning on June 1, 2005 on each
Repayment Date, the Borrower shall make payments to the Holder in the amount of
$30,303.03 (the "Monthly
Principal Amount"),
together with any accrued and unpaid interest then due on such portion of the
Amortizing Principal Amount plus any and all other amounts which are then owing
under this Note that have not been paid (the Monthly Principal Amount, together
with such accrued and unpaid interest and such other amounts, collectively, the
"Monthly
Amount");
provided that, following a release of an amount of funds from the Restricted
Account (as defined in the Restricted Account Agreement) for the purposes set
forth in the Restricted Account Side Letter (other than with respect to a
release that occurs as a result of a conversion of any Principal Amount) (each,
a "Release
Amount") each
Monthly Principal Amount due on any Repayment Date following any such release
shall be increased by an amount equal to (x) such Release Amount divided by (y)
the sum of (I) the number of Repayment Dates remaining until the Maturity Date
plus (II) one (1). Any Principal Amount that remains outstanding on the Maturity
Date shall be due and payable on the Maturity Date.

 

ARTICLE
II

CONVERSION
REPAYMENT 

 

2.1 (a) Payment
of Monthly Amount in Cash or Common Stock. If the
Monthly Amount (or a portion thereof of such Monthly Amount if such portion of
the Monthly Amount would have been converted into shares of Common Stock but for
Section 3.2) shall be paid in cash pursuant to Section 2.1(b) or 2.1(c), then
the Borrower shall pay the Holder an amount
equal to One Hundred one percent (101%) of the principal amount of the Monthly
Amount then due and owing to the
Holder in
cash, within three (3) days of the Repayment Date
(excluding such portion thereof of such Monthly Amount that would have been
converted into shares of Common Stock but for Section 3.2 ). If the Monthly
Amount (or a portion of such Monthly Amount if not all of the Monthly Amount is
converted into shares of Common Stock pursuant to Section 3.2) is to be paid in
shares of Common Stock pursuant to Section 2.1(b) , the number of such shares to
be issued by the Borrower to the Holder on such Repayment Date (in respect of
such portion of the Monthly Amount converted into in shares of Common Stock
pursuant to Section 2.1(b)), shall be the number determined by dividing (x) the
portion of the Monthly Amount converted into shares of Common Stock, by (y) the
then applicable Fixed Conversion Price. For purposes hereof, the initial
"Fixed
Conversion Price" means
$1.00, subject to Section 3.5 of this Agreement, shall at no time be less than
$1.00. The Fixed Conversion Price shall be reset to the closing price of the
common stock on each date upon which an aggregate of $500,000 of conversions are
made (singularly or in the aggregate) pursuant to the terms hereof (the
"Reset"). For the purposes of the preceding sentence, if a conversion amount
exceeds the applicable $500,000 threshold, triggering a Reset, such conversion
amount (not to exceed $50,000) shall be converted at such Fixed Conversion Price
then in effect. 

 

(b)
 Monthly
Amount Conversion Guidelines. Subject
to Sections 2.1(a), and 2.2 hereof, the Holder shall convert into shares of
Common Stock all or a portion of the Monthly Amount due on each Repayment Date
according to the following guidelines (collectively, the "Conversion
Criteria"): (i)
the average closing price of the Common Stock as reported by Bloomberg, LP on
the Principal Market for the five (5) consecutive trading days immediately
preceding such Redemption Date shall be greater than or equal to 110% of the
Fixed Conversion Price and (ii) the amount of such conversion does not exceed
10.4% of the aggregate dollar trading volume of the Common Stock for the twenty
two (22) trading days immediately preceding the applicable Repayment Date. If
the Conversion Criteria are not met, the Holder shall convert only such part of
the Monthly Amount that meets the Conversion Criteria. 

 

(c) Borrower’s
right to convert the Monthly Amount if Conversion Criteria is not
met. Subject
to Sections 2.1 and 2.2 hereof, if the Borrower is required to pay cash pursuant
to Section 2.1(b) hereof because the average closing price of the Common Stock
on the Principal Market is less than one hundred ten percent (110%) of the Fixed
Conversion Price for the five (5) trading days immediately preceding a Repayment
Date, then the Borrower may elect to provide the Holder with a notice (the
"Repayment
Notice")
requiring the conversion of the Monthly Amount (together with accrued and unpaid
interest and applicable fees) at a conversion price equal to eighty five percent
(85%) of the average of the five (5) lowest closing prices of the Common Stock
during the twenty two (22) trading days immediately prior to the date of the
Repayment Notice, provided, however, that such conversion of the Monthly Amount
does not exceed 10.4% of the aggregate dollar trading volume of the Common Stock
for the twenty two (22) trading days immediately preceding delivery of a
Repayment Notice. In no event shall Borrower convert pursuant to this Section
2.1(c) if the conversion price for the purposes of this Section 2.1(c) is less
than $1.00. If the Monthly Amount (or a portion of such Monthly Amount if not
all of the Monthly Amount is converted into shares of Common Stock pursuant to
Section 3.2) is to be paid in shares of Common Stock pursuant to Section 2.1(c),
the number of such shares to be issued by the Borrower to the Holder on such
Repayment Date (in respect of such portion of the Monthly Amount converted into
in shares of Common Stock pursuant to Section 2.1(c)), shall be the number
determined by dividing (x) the portion of the Monthly Amount converted into
shares of Common Stock, by (y) the eighty five (85%) of the average of the five
(5) lowest closing prices of the Common Stock during the twenty two (22) trading
days immediately prior to the date of the Repayment Notice.

(d)
 
Borrower’s right to convert the Non-Amortizing Principal Amount. Subject
to Sections 2.1 and 2.2 hereof, following the date upon which the Registration
Statement is declared effective by the SEC, the Borrower may provide the Holder
with a Repayment Notice requiring the conversion of all or a portion of the Non
Amortizing Principal Amount (together with accrued and unpaid interest and
applicable fees). The conversion price for a conversion of the Non Amortizing
Principal Amount pursuant to this Section 2.1(d), shall be (i) at a conversion
price equal to eighty five percent (85%) of the average of the five (5) lowest
closing prices of the Common Stock during the twenty two (22) trading days
immediately prior to the date of the respective Repayment Notice if the average
closing price of the Common Stock on the Principal Market is less than one
hundred ten percent (110%) of the Fixed Conversion Price for any five (5)
consecutive trading day period immediately preceding such Repayment Notice, or
(ii) at the Fixed Conversion Price, if the average closing price of the Common
Stock on the Principal Market for the five (5) consecutive trading days
immediately preceding such Repayment Notice shall be greater than or equal to
110% of the Fixed Conversion Price; provided, however, that any conversions of
Non-Amortizing Principal Amount shall not exceed 10.4% of the aggregate dollar
trading volume of the Common Stock for the twenty two (22) trading days
immediately preceding delivery of a Repayment Notice. No more than three (3)
Repayment Notices per calendar month shall be delivered by Borrower to Holder
under this Section 2.1(d). In no event shall the Borrower convert pursuant to
this Section 2.1(d) if the conversion price for the purposes of this Section
2.1(d) is less than $1.00. If the Non-Amortizing Principal Amount (together with
accrued and unpaid interest and applicable fees) is to be paid in shares of
Common Stock pursuant to Section 2.1(d) , the number of such shares to be issued
by the Borrower to the Holder pursuant to such conversion shall be the number
determined by dividing (x) the portion of the Non-Amortizing Principal Amount
(together with accrued an unpaid interest and applicable fees) converted into
shares of Common Stock, by (y) the then applicable conversion price as
determined above.

 

 (e) Application
of Conversion Amounts. Any
amounts converted by the Holder pursuant to Section 2.1 (a), (b), or (c) shall
be deemed to constitute payments of, or applied against, (i) first, outstanding
fees, (ii) second, accrued interest on the Amortizing Principal Amount, and
(iii), the Amortizing Principal Amount. Any amounts converted by the Holder
pursuant to a Repayment Notice pursuant to Section 2.1(d) shall be deemed to
constitute payments of, or applied against, (i) first, outstanding fees, (ii)
second, accrued interest on the portion of the Non-Amortizing Principal Amount
that is subject to the Repayment Notice, and third, (iii) the Non Amortizing
Principal Amount.

 

2.2 No
Effective Registration.
Notwithstanding anything to the contrary herein, no amount payable hereunder may
be converted into Common Stock unless (a) either (i) an effective current
Registration Statement exists, or (ii) an exemption from registration of the
Common Stock is available pursuant to Rule 144 of the Securities Act, and (b) no
Event of Default hereunder exists and is continuing, unless such Event of
Default is cured within any applicable cure period or is otherwise waived in
writing by the Holder in whole or in part at the Holder’s option.

 

2.3 Optional
Redemption of Amortizing Principal Amount. The
Borrower will have the option of prepaying the outstanding Amortizing Principal
Amount ("Optional
Amortizing Redemption"), in
whole or in part, by paying to the Holder a sum of money equal to one hundred
fifteen percent (115%) of the Amortizing Principal Amount to be redeemed,
together with accrued but unpaid interest thereon and any and all other sums
due, accrued or payable to the Holder arising under this Note, the Purchase
Agreement or any Related Agreement (the "Amortizing
Redemption Amount") on the
Amortizing Redemption Payment Date (as defined below). The Borrower shall
deliver to the Holder a notice of redemption (the "Notice
of Amortizing Redemption")
specifying the date for such Optional Amortizing Redemption (the
"Amortizing
Redemption Payment Date"), which
date shall be not less than seven (7) business days after the date of the Notice
of Amortizing Redemption (the "Redemption
Period"). A
Notice of Amortizing Redemption shall not be effective with respect to any
portion of the Amortizing Principal Amount for which the Holder has a pending
election to convert pursuant to Section 3.1 or for conversions initiated or made
by the Holder pursuant to Section 3.1 during the Redemption Period. The
Amortizing Redemption Amount shall be determined as if such Holder’s conversion
elections had been completed immediately prior to the date of the Notice of
Amortizing Redemption. On the Amortizing Redemption Payment Date, the Amortizing
Redemption Amount shall be paid in good funds to the Holder. In the event the
Borrower fails to pay the Amortizing Redemption Amount on the Amortizing
Redemption Payment Date as set forth herein, then such Notice of Amortizing
Redemption will be null and void.

 

2.4 Optional
Redemption of Non-Amortizing Principal Amount. The
Borrower will have the option of repaying the outstanding Non-Amortizing
Principal Amount ("Optional
Non-Amortizing Redemption"), in
whole or in part, by paying the Holder a sum of money equal to one hundred
fifteen percent (115%) of the Non-Amortizing Principal Amount to be redeemed,
together with accrued but unpaid interest thereon (the "Non-Amortizing
Redemption Amount") on the
Non-Amortizing Redemption Date (as defined below). The Borrower shall deliver to
the Holder a written notice of redemption (the "Notice
of Non-Amortizing Redemption")
specifying the date for such Optional Non-Amortizing Redemption (the
"Non-Amortizing
Redemption Date"), which
date shall be not less than seven (7) business days after the date of the Notice
of Non-Amortizing Redemption (the "Non-Amortizing
Redemption Period"). A
Notice of Non-Amortizing Redemption shall not be effective with respect to any
portion of the Non-Amortizing Principal Amount for which the Holder has a
pending election to convert pursuant to Section 3.1 or for conversions initiated
or made by the Holder pursuant to Section 3.1 during the Redemption Period. The
Non-Amortizing Redemption Amount shall be determined as if the Holder’s
conversion elections had been completed immediately prior to the date of the
Notice of Non-Amortizing Redemption. On the Non-Amortizing Redemption Date, the
Non-Amortizing Redemption Amount shall be paid (i) in good funds to the Holder,
(ii) by furnishing the Holder written direction to notify the bank holding the
Restricted Account to release from the Restricted Account and deliver to the
Holder a sum of money equal to the Non-Amortizing Redemption Amount, or (iii) if
the amount on deposit in the Restricted Account is less than the Non-Amortizing
Redemption Amount, by furnishing the Holder written direction to notify the bank
holding the Restricted Account to release all amounts on deposit in the
Restricted Account to the Holder and delivering to the Holder good funds in an
amount equal to the balance of the Non-Amortizing Redemption
Amount.

 

ARTICLE
III

CONVERSION
RIGHTS

 

3.1. Holder’s
Conversion Rights. Subject
to Section 2.2, the Holder shall have the right, but not the obligation, to
convert all or any portion of the then aggregate outstanding Principal Amount of
this Note, together with interest and fees due hereon, at the Fixed Conversion
Price, as adjusted, into shares of Common Stock, subject to the terms and
conditions set forth in this Article III. The Holder may exercise such right by
delivery to the Borrower of a written Notice of Conversion pursuant to Section
3.3. The shares of Common Stock to be issued upon such conversion are herein
referred to as the "Conversion
Shares.æ

 

3.2 Conversion
Limitation.
Notwithstanding anything contained herein to the contrary, the Holder shall not
be entitled to convert pursuant to the terms of the Note an amount that would be
convertible into that number of shares of Common Stock which, when added to the
number of shares of Common Stock otherwise beneficially owned by such Holder
including those issuable upon exercise of warrants held by such Holder would
exceed 4.99% of the outstanding shares of Common Stock of the Borrower at the
time of conversion. For the purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and Regulation 13d-3 thereunder. The conversion limitation
described in this Section 3.2 shall automatically become null and void without
any notice to Borrower upon the occurrence and during the continuance beyond any
applicable grace period of an Event of Default, or upon 75 days prior notice to
the Borrower, except that at no time shall the beneficial ownership exceed 8.33%
of the Common Stock. Notwithstanding anything contained herein to the contrary,
the number of shares of Common Stock issuable by the Borrower and acquirable by
the Holder pursuant to the terms of this Note, the Purchase Agreement or any
Related Agreement at a price below the market price of the Common Stock on the
date of this Note, shall not exceed 8.33% of the shares outstanding (subject to
appropriate adjustment for stock splits, stock dividends, or other similar
recapitalizations affecting the Common Stock) (the "Maximum
Common Stock Issuance"), unless
the issuance of shares hereunder in excess of the Maximum Common Stock Issuance
shall first be approved by the Borrower’s shareholders. If at any point in time
and from time to time the number of shares of Common Stock issued pursuant to
the terms of this Note, the Purchase Agreement or any Related Agreement,
together with the number of shares of Common Stock that would then be issuable
by the Borrower to the Holder in the event of a conversion or exercise pursuant
to the terms of this Note, the Purchase Agreement or any Related Agreement,
would exceed the Maximum Common Stock Issuance but for this Section 3.2, the
Borrower shall promptly call a shareholders meeting to solicit shareholder
approval for the issuance of the shares of Common Stock hereunder in excess of
the Maximum Common Stock Issuance.

 

3.3 Mechanics
of Holder’s Conversion. (a) In
the event that the Holder elects to convert any amounts outstanding under this
Note into Common Stock, the Holder shall give notice of such election by
delivering an executed and completed notice of conversion (a "Notice
of Conversion") to the
Borrower, which Notice of Conversion shall provide a breakdown in reasonable
detail of the Principal Amount, accrued interest and fees being converted. On
each Conversion Date (as hereinafter defined) and in accordance with its Notice
of Conversion, the Holder shall make the appropriate reduction to the Principal
Amount, accrued interest and fees as entered in its records and shall provide
written notice thereof to the Borrower within two (2) business days after the
Conversion Date. Each date on which a Notice of Conversion is delivered or
telecopied to the Borrower in accordance with the provisions hereof shall be
deemed a "Conversion
Date". A form
of Notice of Conversion to be employed by the Holder is annexed hereto as
Exhibit A. 

(b)
 Pursuant
to the terms of a Notice of Conversion, the Borrower will issue
instructions to the transfer agent accompanied by an opinion of counsel, if so
required by the Borrower’s transfer agent, within one (1)
business
days of the
date of the delivery to Borrower of the Notice of Conversion and shall cause the
transfer agent to transmit the certificates representing the Conversion Shares
to the Holder by crediting the account of the Holder’s designated broker with
the Depository Trust Corporation ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system
within three (3) business days after receipt by the Borrower of the Notice of
Conversion (the "Delivery
Date"). In the
case of the exercise of the conversion rights set forth herein the conversion
privilege shall be deemed to have been exercised and the Common Stock issuable
upon such conversion shall be deemed to have been issued upon the date of
receipt by the Borrower of the Notice of Conversion. The Holder shall be treated
for all purposes as the record holder of such shares of Common Stock, unless the
Holder provides the Borrower written instructions to the contrary.

3.4 Conversion
Mechanics.

 

(a) The
number of shares of Common Stock to be issued upon each conversion of this Note
pursuant to this Article III shall be determined by dividing that portion of the
Principal Amount and interest and fees to be converted, if any, by the then
applicable Fixed Conversion Price. In the event of any conversions of
outstanding obligations under this Note in part pursuant to this Article III,
such conversions shall be deemed to constitute conversions (i) first, of the
Monthly Amount for the current calendar month, (ii) then of the accrued interest
on the Principal Amount being converted in such Conversion Notice, (iii) then of
outstanding Amortizing Principal Amount, by applying the conversion amount to
Monthly Principal Amounts for the remaining Repayment Dates in chronological
order and (iv) then, of outstanding Non-Amortizing Principal
Amount.

 

3.5 (a) The
Fixed Conversion Price and number and kind of shares or other securities to be
issued upon conversion is subject to adjustment from time to time upon the
occurrence of certain events, as follows:

 

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

 

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

 

C. Share
Issuances. Subject
to the provisions of this Section 3.4, if the Borrower shall at any time prior
to the conversion or repayment in full of the Principal Amount issue any shares
of Common Stock or securities convertible into Common Stock to a person other
than the Holder (except (i) securities issued upon the conversion or exercise of
any securities issued pursuant to this Note, the Purchase Agreement or the
Related Agreement; (ii) securities issued upon the conversion or exercise of any
convertible securities, options, warrants or other obligations to issue shares
outstanding on the date hereof; iii) securities issued upon the conversion or
exercise of any notes (up to $15 million, including the Note) or warrants (to
purchase up to 2,250,000 shares of Common Stock, including the Warrant) issued
on or about the date hereof and upon the same terms and conditions as the Notes
and/or Warrants; iv) shares of Common Stock or options to employees, officers or
directors of the Company pursuant to the any employee stock or option plan
and/or any qualified stock option plan adopted by the Borrower; (v) securities
issued pursuant to any acquisition or strategic transactions, provided that such
issuance shall only be to a Person which is, itself or through its subsidiaries,
an operating company in a business synergistic with the business of the Borrower
or any of Borrowers subsidiaries and in which the Borrower receives benefits in
additional to the investment of funds, but shall not include a transaction in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities; and
(vi) up to, in the aggregate, $1,000,000 shares of Common Stock or equivalents
in any 12 month period to consultants as payment for service rendered) for a
consideration per share (the "Offer
Price") less
than the Fixed Conversion Price in effect at the time of such issuance, then the
Fixed Conversion Price shall be immediately reset to such lower Offer Price
pursuant to the formula below ("Subsequent
Offering"). For
purposes hereof, the issuance of any security of the Borrower convertible into
or exercisable or exchangeable for Common Stock shall result in an adjustment to
the Fixed Conversion Price at the time of issuance of such
securities.

 

If the
Company issues any additional shares pursuant to Section 3.4 above then, and
thereafter successively upon each such issue, the Fixed Conversion Price shall
be adjusted by multiplying the then applicable Fixed Conversion Price by the
following fraction: 

 

	
       

      A +
      B

	
       

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

 

                A = Total amount of
shares convertible pursuant to this Note.

 

                B = Actual shares
sold in the offering

 

                C = Fixed Conversion
Price

 

                D = Offering price

 

 

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

 

3.6 Issuance
of Replacement Note. Upon
any partial conversion of this Note, a replacement Note containing the same date
and provisions of this Note shall, at the written request of the Holder, be
issued by the Borrower to the Holder for the outstanding Principal Amount of
this Note and accrued interest which shall not have been converted or paid.
Subject to the provisions of Article IV, the Borrower will pay no costs, fees or
any other consideration to the Holder for the production and issuance of a
replacement Note.

 

ARTICLE
IV

EVENTS
OF DEFAULT

 

 Upon the
occurrence and continuance of an Event of Default beyond any applicable grace
period, the Holder may make all sums of principal, interest and other fees then
remaining unpaid hereon and all other amounts payable hereunder immediately due
and payable. In the event of such an acceleration, the amount due and owing to
the Holder shall be 115% of the outstanding principal amount of the Note (plus
accrued and unpaid interest and fees, if any) (the "Default
Payment"). The
Default Payment shall be applied first to any fees due and payable to Holder
pursuant to this Note, the Purchase Agreement or the Related Agreements, then to
accrued and unpaid interest due on the Note and then to outstanding principal
balance of the Note.

 

The
occurrence of any of the following events set forth in Sections 4.1 through
4.10, inclusive, is an "Event
of Default":

 

4.1 Failure
to Pay Principal, Interest or other Fees. The
Borrower fails to pay when due any installment of principal, interest or other
fees hereon in accordance herewith or any other note to Holder, and in any such
case, Borrower does not cure such failure a period of five (5) days
..

 

4.2 Breach
of Covenant. The
Borrower breaches any covenant or any other term or condition of this Note or
the Purchase Agreement in any material respect, any such case, such breach, if
subject to cure, continues for a period of thirty (30) days of such
breach.

 

4.3 Breach
of Representations and Warranties. Any
representation or warranty made by the Borrower in this Note or the Purchase
Agreement, or by the Borrower or any of its Subsidiaries in any Related
Agreement, shall, in any such case, be false or misleading in any material
respect on the date that such representation or warranty was made or deemed
made.

 

4.4 Receiver
or Trustee. The
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee shall otherwise
be appointed.

 

4.5 Judgments. Any
money judgment, writ or similar final process shall be entered or filed against
the Borrower or any of its Subsidiaries or any of their respective property or
other assets for more than $750,000, and shall remain unvacated, unbonded or
unstayed for a period of thirty (30) days.

 

4.6 Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Borrower, unless such proceeding
is withdrawn by Borrower within sixty (60) days of being filed.

 

4.7 Stop
Trade. An SEC
stop trade order or Principal Market trading suspension of the Common Stock
shall be in effect for fifteen (15) consecutive days, excluding in all cases a
suspension of all trading on a Principal Market, provided that the
Borrower shall not have been able to cure such trading suspension within thirty
(30) days of the notice thereof or list the Common Stock on another Principal
Market within sixty (60) days of such notice. The åPrincipal Marketæ for the
Common Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market System, American Stock Exchange, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock).

 

4.8
  Failure
to Deliver Common Stock or Replacement Note. The
Borrower shall fail (i) to timely deliver Common Stock to the Holder pursuant to
and in the form required by this Note, and Section 9 of the Purchase Agreement,
if such failure to timely deliver Common Stock shall not be cured within ten
(10) business days or (ii) to deliver a replacement Note to Holder within ten
(10) business days following the required date of such issuance pursuant to this
Note, the Purchase Agreement or any Related Agreement (to the extent required
under such agreements).

 

4.9  Change
of Control.The
occurrence of a change in the controlling ownership of the
Borrower.

 

 

DEFAULT
RELATED PROVISIONS

 

4.11 Default
Interest Rate.
Following the occurrence and during the continuance of an Event of Default, the
Borrower shall pay interest on this Note in an amount equal to one and one half
percent (1.5%) per month, and all outstanding obligations under this Note,
including unpaid interest, shall continue to accrue such additional interest
from the date of such Event of Default until the date such Event of Default is
cured or waived. 

 

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

 

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

 

 

ARTICLE
V

MISCELLANEOUS

 

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

 

5.2 No
Shorting. The
Holder, 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 åshort salesæ of Common Stock during the
term of this Note.

 

5.3 Notices. Any
notice herein required or permitted to be given shall be in writing and shall be
deemed effectively given: (a) upon personal delivery to the party notified, (b)
when sent by confirmed telex or facsimile if sent during normal business hours
of the recipient, if not, then on the next business day, (c) five days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (d) one day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. All communications shall be sent to the Borrower at the address
provided in the Purchase Agreement executed in connection herewith, and to the
Holder at the address provided in the Purchase Agreement for such Holder, with a
copy to John E. Tucker, Esq., 825 Third Avenue, 14th Floor,
New York, New York 10022, facsimile number (212) 541-4434, or at such other
address as the Borrower or the Holder may designate by ten days advance written
notice to the other parties hereto. A Notice of Conversion shall be deemed given
when made to the Borrower pursuant to the Purchase Agreement.

 

5.4 Amendment
Provision. The
term åNoteæ and all reference thereto, as used throughout this instrument, shall
mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented, and any successor instrument
issued pursuant to Section 3.5 hereof, as it may be amended or
supplemented.

 

5.5 Assignability. This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and assigns, and may
be assigned by the Holder in accordance with the requirements of the Purchase
Agreement and upon the terms hereof. This Note shall not be assigned by the
Borrower without the consent of the Holder.

 

5.6 Governing
Law. This
Note 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 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 individual signing this Note on behalf of the Borrower agree to submit to
the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney’s fees and costs. In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of this Note. Nothing contained herein
shall be deemed or operate to preclude the Holder from bringing suit or taking
other legal action against the Borrower in any other jurisdiction to collect on
the Borrower’s obligations to Holder, to realize on any collateral or any other
security for such obligations, or to enforce a judgment or other court in favor
of the Holder.

 

5.7 Maximum
Payments. Nothing
contained herein shall be deemed to establish or require the payment of a rate
of interest or other charges in excess of the maximum permitted by applicable
law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum permitted by such law, any payments in excess of
such maximum shall be credited against amounts owed by the Borrower to the
Holder and thus refunded to the Borrower.

 

5.8 Security
Interest. The
Holder has been granted a security interest in certain assets of the Borrower
and its Subsidiaries as more fully described in the Master Security Agreement
dated as of the date hereof. 

 

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

 

5.10 Cost
of Collection. If
default is made in the payment of this Note, the Borrower shall pay to Holder
reasonable costs of collection, including reasonable attorney’s fees.

 

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

 

IN
WITNESS WHEREOF, the
Borrower has caused this Note to be signed in its name effective as of this 28th
day of February, 2005.

11

ELINEAR,
INC.

 

By:________________________________

Name:
Michael Lewis

Title:
Chief Executive Officer

WITNESS:

_______________________________

EXHIBIT
A

 

11

 

NOTICE
OF CONVERSION

(To be
executed by the Holder in order to convert all or part of the Note into Common
Stock

[Name and
Address of Holder]

The
Undersigned hereby converts $_________ of the principal due on [specify
applicable Repayment Date] under the Convertible Term Note issued by ELINEAR,
INC. dated February __, 2005 by delivery of Shares of Common Stock of ELINEAR,
INC. on and subject to the conditions set forth in Article III of such
Note.

1. Date of
Conversion   _______________________

2. Shares To
Be Delivered: _______________________

By:_______________________________

Name:_____________________________

Title:______________________________

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00079-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00079-of-00352.parquet"}]]