EXHIBIT 10.19
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 STATES
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ELINEAR, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED REVOLVING NOTE
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FOR VALUE RECEIVED, ELINEAR, INC. ("ELINEAR") a Delaware corporation,
NETVIEW TECHNOLOGIES, INC., a Texas corporation ("NETVIEW") and NEWBRIDGE
TECHNOLOGIES, INC., a Texas corporation ("NEWBRIDGE") (eLinear, NetView and
NewBridge, individually, a "BORROWER" and collectively, the "BORROWERS"),
jointly and severally, promises to pay to LAURUS MASTER FUND, LTD., c/o
Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: ▇▇▇-▇▇▇-▇▇▇▇ (the "HOLDER") or
its registered assigns, on order, the sum of FIVE MILLION DOLLARS ($5,000,000)
without duplication of any amounts owing by any Borrower to Holder under the
Minimum Borrowing Notes (as defined in the Security Agreement referred to
below), or, if different, the aggregate principal amount of all "Loans" (as such
term is defined in the Security Agreement referred to below), together with any
accrued and unpaid interest hereon, on February 23, 2007 (the "MATURITY DATE").
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Security Agreement among the Borrowers and the
Holder dated as of the date hereof (as amended, restated, modified and
supplemented from time to time, the "SECURITY AGREEMENT").
The following terms shall apply to this Note:
ARTICLE I
INTEREST & PREPAYMENTS
1.1. Interest Rate and Payments. Subject to Sections 4.3 and 6.7
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hereof, interest payable on this Note shall accrue at a rate per annum equal to
the Contract Rate. Interest shall be payable monthly in arrears commencing on
April 1, 2004 and on the first day of each consecutive calendar month thereafter
(each, an "INTEREST PAYMENT DATE").
1.2. Optional Prepayment in Cash. The Borrowers will have the
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option of prepaying this Note in full ("OPTIONAL REDEMPTION") by paying to the
Holder a sum of money equal to one hundred fifteen percent (115%) of the
principal amount of this Note 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 Security Agreement, or any
Ancillary Agreement (as defined in the Security Agreement) (the "REDEMPTION
AMOUNT") outstanding on the day written notice of redemption (the "NOTICE OF
REDEMPTION") is given to the Holder. The Notice of Redemption shall specify the
date for such Optional Redemption (the "REDEMPTION PAYMENT DATE") which date
shall not be earlier than the day after the date of the Notice of Redemption and
not later than seven (7) days after the date of the Notice of Redemption (the
"REDEMPTION PERIOD"). A Notice of Redemption shall not be effective with respect
to any portion of this Note for which the Holder has a pending election to
convert pursuant to Section 3.1, or for conversions elected to be made by the
Holder pursuant to Section 3.1 during the Redemption Period. The Redemption
Amount shall be determined as if such ▇▇▇▇▇▇'s conversion elections had been
completed immediately prior to the date of the Notice of Redemption. On the
Redemption Payment Date, the Redemption Amount must be paid in good funds to the
Holder. In the event the Borrowers fail to pay the Redemption Amount on the
Redemption Payment Date, then such Redemption Notice will be null and void.
1.3. Allocation of Principal to Minimum Borrowing Note. In the
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event that the amount due and payable hereunder should equal or exceed
$2,000,000, to the extent that the outstanding balance on any Minimum Borrowing
Note shall be less than $2,000,000 (the difference of $2,000,000 less the actual
balance of the Minimum Borrowing Note, the "Available Minimum Borrowing"), such
portion of the balance hereof as shall equal the Available Minimum Borrowing
shall be deemed to be simultaneously extinguished on the Revolving Note and
transferred to, and evidenced by, such Minimum Borrowing Note (e.g., the
Available Minimum Borrowing shall be $0).
ARTICLE II
HOLDER'S CONVERSION RIGHTS
2.1. Optional Conversion. Subject to the terms of this Article II,
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the Holder shall have the right, but not the obligation, at any time until the
Maturity Date, or thereafter during an Event of Default (as defined in Article
IV), and, subject to the limitations set forth in Section 2.2 hereof, to convert
all or any portion of the outstanding Principal Amount and/or accrued interest
and fees due and payable into fully paid and nonassessable shares of the Common
Stock at the Fixed Conversion Price. For purposes hereof, subject to Section 2.5
hereof, the "FIXED CONVERSION PRICE" means $2.91. The shares of Common Stock to
be issued upon such conversion are herein referred to as the "CONVERSION
SHARES."
2.2. Conversion Limitation. Notwithstanding anything contained
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herein to the contrary, the Holder shall not be entitled to convert pursuant to
the terms of this Note an amount that would be convertible into that number of
Conversion Shares which would exceed the difference between the number of shares
of Common Stock beneficially owned by such Holder or issuable upon exercise of
warrants held by such Holder and 4.99% of the outstanding shares of Common Stock
of eLinear. 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 Shares limitation described
in this Section 2.2 shall automatically become null and void without any notice
to any Borrower upon the
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occurrence and during the continuance beyond any applicable grace period of an
Event of Default, or upon 75 days prior notice to the Company Agent.
2.3. Mechanics of ▇▇▇▇▇▇'s Conversion. In the event that the
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Holder elects to convert this Note into Common Stock, the Holder shall give
notice of such election by delivering an executed and completed notice of
conversion ("NOTICE OF CONVERSION") to the Company Agent and such Notice of
Conversion shall provide a breakdown in reasonable detail of the Principal
Amount, accrued interest and fees that are 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 Company Agent within two (2) business days after the Conversion
Date. Each date on which a Notice of Conversion is delivered or telecopied to
the Company Agent in accordance with the provisions hereof shall be deemed a
Conversion Date (the "CONVERSION DATE"). A form of Notice of Conversion to be
employed by the Holder is annexed hereto as Exhibit A. Pursuant to the terms of
the Notice of Conversion, eLinear will issue instructions to the transfer agent
accompanied by an opinion of counsel within one (1) business day of the date of
the delivery to Company Agent of the Notice of Conversion and eLinear 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 Company Agent 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 Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Company Agent of the Notice of
Conversion. The Holder shall be treated for all purposes as the record holder
of such Common Stock, unless the Holder provides the Company Agent written
instructions to the contrary. In the event that the Holder elects to convert
this Note into Common Stock prior to there being an effective registration
statement covering the shares of common stock underlying this Note, the Holder
agrees and acknowledges that any shares delivered to the holder under this
Article 2 shall be "restricted" shares of Common Stock.
2.4. Late Payments. Each Borrower understands that a delay in the
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delivery of the shares of Common Stock in the form required pursuant to this
Article beyond the Delivery Date could result in economic loss to the Holder.
As compensation to the Holder for such loss, Borrowers agree to pay in the
aggregate late payments to the Holder for late issuance of such shares in the
form required pursuant to this Article II upon conversion of the Note, in the
amount equal to $500 per business day after the Delivery Date. Each Borrower
shall pay any payments incurred under this Section in immediately available
funds upon demand.
2.5. Adjustment Provisions. The Fixed Conversion Price and number
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and kind of shares or other securities to be issued upon conversion determined
pursuant to Section 2.1 shall be subject to adjustment from time to time upon
the happening of certain events while this conversion right remains outstanding,
as follows:
(A) Reclassification, etc. If eLinear at any time shall, by
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reclassification or otherwise, change the Common Stock into the same or a
different number of
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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.
(B) Stock Splits, Combinations and Dividends. If the shares
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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 in shares
of Common Stock, the Fixed Conversion Price shall be proportionately reduced in
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.
(C) Share Issuances. Subject to the provisions of this
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Section 3.6, if eLinear shall at any time prior to the conversion or repayment
in full of the Principal Amount issue any shares of Common Stock to a person
other than the Holder (except (i) pursuant to Subsections A or B above; (ii)
pursuant to options, warrants, or other obligations to issue shares outstanding
on the date hereof as disclosed to Holder in writing; or (iii) pursuant to
options that may be issued under any employee incentive stock option and/or any
qualified stock option plan adopted by eLinear) 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
pursuant to the formula below. For purposes hereof, the issuance of any
security of eLinear 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 eLinear issues any additional shares pursuant
to this Subsection 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 = Actual shares outstanding prior to such offering
B = Actual shares sold in the offering
C = Fixed Conversion Price
D = Offer Price
(D) Computation of Consideration. For purposes of any
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computation respecting consideration received pursuant to Subsection C above,
the following shall apply:
(a) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions, discounts or
other expenses incurred by eLinear for any underwriting of the issue or
otherwise in connection therewith;
(b) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be
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deemed to be the fair market value thereof as determined in good faith by the
Board of Directors of eLinear (irrespective of the accounting treatment
thereof); and
(c) Upon any such exercise, the aggregate consideration
received for such securities shall be deemed to be the consideration received by
eLinear for the issuance of such securities plus the additional minimum
consideration, if any, to be received by eLinear upon the conversion or exchange
thereof (the consideration in each case to be determined in the same manner as
provided in clauses (a) and (b) of this Subsection (D)).
2.6. Reservation of Shares. During the period the conversion right
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exists, eLinear 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. ELinear represents that upon issuance, such
shares will be duly and validly issued, fully paid and non-assessable. ▇▇▇▇▇▇▇
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.
ARTICLE III
EVENTS OF DEFAULT
The occurrence of any of the following events is an Event of Default
("EVENT OF DEFAULT"):
3.1. Failure to Pay Principal, Interest or other Fees. Any
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Borrower fails to pay when due any installment of principal, interest or other
fees hereon or on any other Note issued pursuant to the Security Agreement, when
due in accordance with the terms of such Note.
3.2. Breach of Covenant. Any Borrower breaches any covenant or
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other term or condition of this Note in any material respect and such breach, if
subject to cure, continues for a period of thirty (30) days after the occurrence
thereof.
3.3. Breach of Representations and Warranties. Any material
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representation or warranty of any Borrower made herein, or the Security
Agreement, or in any Ancillary Agreement shall be materially false or
misleading.
3.4. Stop Trade. An SEC stop trade order or Principal Market
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trading suspension of the Common Stock shall be in effect for 5 consecutive days
or 5 days during a period of 10 consecutive days, excluding in all cases a
suspension of all trading on a Principal Market, provided that eLinear shall not
have been able to cure such trading suspension within 30 days of the notice
thereof or list the Common Stock on another Principal Market within 60 days of
such notice. The "Principal Market" 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),
or any securities exchange or other securities market on which the Common Stock
is then being listed or traded.
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3.5. Default Under Related Agreement. The occurrence of an Event
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of Default under and as defined in the Security Agreement.
3.6. Failure to Deliver Common Stock or Replacement Note.
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ELinear's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note and Section 9 of the Security Agreement if
such failure to timely deliver Common Stock shall not be cured within two (2)
business days, or if required, eLinear is required to issue to Holder a
replacement Note, and eLinear's failure to deliver a replacement Note is not
cured within seven (7) business days.
3.7. Payment Grace Period. The Borrowers shall have a three (3)
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business day grace period to pay any monetary amounts due under this Note or the
Security Agreement or any Related Document, after which grace period a default
interest rate of five percent (5%) per annum above the then applicable interest
rate hereunder shall apply to the monetary amounts due until such amounts are
paid.
ARTICLE IV
DEFAULT PAYMENTS
4.1. Default Payment. If an Event of Default occurs, the Holder,
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at its option, may elect, in addition to all rights and remedies of Holder under
the Security Agreement and all obligations of each Borrower under the Security
Agreement, to require Borrowers to make a Default Payment ("DEFAULT PAYMENT").
The Default Payment shall be the outstanding principal amount of the Note, plus
accrued but unpaid interest, all other fees then remaining unpaid, and all other
amounts payable hereunder.
4.2. Default Payment Date and Default Notice Period. The Default
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Payment shall be due and payable on the fifth business day after an Event of
Default as defined in Article III ("DEFAULT PAYMENT DATE") has occurred and is
continuing beyond any applicable grace period. The period between date upon
which of an Event of Default has occurred and is continuing beyond any
applicable grace period and the Default Payment Date shall be the "DEFAULT
PERIOD." If during the Default Period, any Borrower cures the Event of Default,
the Event of Default will no longer exist and any additional rights the Holder
had triggered by the occurrence and continuance of an Event of Default will no
longer exist. If the Event of Default is not cured during the Default Notice
Period, all amounts payable hereunder shall be due and payable on the Default
Payment Date, all without further demand, presentment or notice, or grace
period, all of which hereby are expressly waived.
4.3. Default Interest Rate. Following the occurrence and during
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the continuance of an Event of Default, interest on this Note shall
automatically be increased by five percent (5%) per annum, and all outstanding
Obligations, including unpaid interest, shall continue to accrue interest from
the date of such Event of Default at such interest rate applicable to such
Obligations until such Event of Default is cured or waived.
4.4. Cumulative Remedies. The remedies under this Note shall be
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cumulative.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HOLDERS
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The Holder hereby represent and warrant to the Company as follows:
5.1. Investment Intent. The Holder understands that the
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Securities are "restricted securities" and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, has no present intention of distributing any of such Securities and has
no arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not limiting
the Holder's right to sell the Securities pursuant to the Registration Statement
or otherwise in compliance with applicable federal and state securities laws).
5.2. Holder Status. At the time the Holder was offered the
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Securities, it was, and at the date hereof it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
5.3. Experience of Holder. The Holder, either alone or together
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with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. The Holder is able to bear the economic
risk of an investment in the Securities and is able to afford a complete loss of
such investment.
5.4. General Solicitation. The Holder is not purchasing the
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Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
ARTICLE VI
MISCELLANEOUS
6.1. Failure or Indulgence Not Waiver. No failure or delay on the
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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.
6.2. Notices. Any notice herein required or permitted to be given
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shall be in writing and provided in accordance with the terms of the Security
Agreement.
6.3. Amendment Provision. The term "Note" and all reference
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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 as it may be amended or supplemented.
6.4. Assignability. This Note shall be binding upon each Borrower
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and its respective successors and assigns, and shall inure to the benefit of the
Holder and its successors
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and assigns, and may be assigned by the Holder in accordance with the
requirements of the Security Agreement.
6.5. Cost of Collection. If default is made in the payment of
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this Note, each Borrower shall pay the Holder hereof reasonable costs of
collection, including reasonable attorneys' fees.
6.6. Governing Law. This Note shall be governed by and construed
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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 each 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 unenforceability 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 any Borrower
in any other jurisdiction to collect on such 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 order in favor of ▇▇▇▇▇▇.
6.7. Maximum Payments. Nothing contained herein shall be deemed
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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 Borrowers to the Holder and thus refunded to the
Borrowers.
6.8. Security Interest. The Holder of this Note has been granted
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a security interest in certain assets of each Borrower more fully described in
the Security Agreement.
6.9. Construction. Each party acknowledges that its legal counsel
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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.
[Balance of page intentionally left blank; signature page follows.]
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IN WITNESS WHEREOF, each Borrower has caused this Secured Convertible
Revolving Note to be signed in its name effective as of the date first above
written.
ELINEAR, INC.
By:__________________________________
Name:
Title:
NETVIEW TECHNOLOGIES, INC.
By:__________________________________
Name:
Title:
NEWBRIDGE TECHNOLOGIES, INC.
By:__________________________________
Name:
Title:
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NOTICE OF CONVERSION
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(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Secured Convertible Revolving Note issued
by eLinear, Inc. ("eLinear"), NetView Technologies, Inc. and NewBridge
Technologies, Inc. on February ___, 2004 into Shares of Common Stock of eLinear
according to the conditions set forth in such Note, as of the date written
below.
Date of Conversion: _____________________________________________________
Conversion Price: _____________________________________________________
Shares To Be Delivered: _____________________________________________________
Signature: _____________________________________________________
Print Name: _____________________________________________________
Address: _____________________________________________________
_____________________________________________________
Holder DWAC _____________________________________________________
instructions
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