EXHIBIT 10.20
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 CONVERTIBLE MINIMUM BORROWING 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 TWO MILLION DOLLARS ($2,000,000)
without duplication of any amounts owing by any Borrower to Holder under the
Revolving Note (as defined in the Security Agreement), 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 Minimum Borrowing Note (the "Note"):
ARTICLE I
INTEREST
1.1. Interest Rate and Payments. Subject to Sections 5.3 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").
ARTICLE II
ADVANCES, BORROWERS CONVERSION RIGHTS, PAYMENTS UNDER NOTE
2.1. Mechanics of Advances. All Loans evidenced by this Note shall be
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made in accordance with the terms and provisions of the Security Agreement.
2.2. Fixed Conversion Price. For purposes hereof, subject to Section
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3.5 hereof, the "FIXED CONVERSION PRICE" means $2.91.
2.3. No Effective Registration. Notwithstanding anything to the
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contrary herein, eLinear shall be prohibited from exercising its right to repay
any amount hereunder in shares of Common Stock if at any time from the Call Date
(defined below) for such payment through the date upon which such payment is
made by delivery of certificates for shares of Common Stock if there fails to
exist an effective current Registration Statement (as defined in the
Registration Rights Agreement) covering the resale of the shares of Common Stock
to be issued, or if an Event of Default hereunder exists and is continuing,
unless such requirement is otherwise waived in writing by the Holder in whole or
in part at the Holder's option.
2.4. Optional Payments in Common Stock. Subject to Section 2.2 hereof,
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if the Borrowers elect to pay interest or prepay principal and the average
closing price of the Common Stock on the Principal Market is greater than 110%
of the Fixed Conversion Price for a period of at least five (5) consecutive
trading days, then the Company Agent may, at its sole option, provide the Holder
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written notice (a "CALL NOTICE") requiring the conversion at the Fixed
Conversion Price of all or a portion of the outstanding interest or principal of
this Note (subject to compliance with Section 2.3 and 3.2, together with accrued
interest on the amount being prepaid, as of the date set forth in such Call
Notice (the "CALL DATE"). The Call Date shall be at least ten (10) trading days
following the date of the Call Notice. On the Call Date the Company Agent shall
deliver to the Holder certificates evidencing the shares of Common Stock issued
in satisfaction of the principal and/or interest being retired. Notwithstanding
the foregoing, eLinear's right to issue shares of Common Stock in payment of
obligations under this Note shall be subject to the limitation that the number
of shares of Common Stock issued in connection with any Call Notice shall not
exceed 25% of the aggregate dollar trading volume of the Common Stock for the
ten (10) trading days immediately preceding the Call Date (as such volume is
reported by Bloomberg, L.P. If the price of the Common Stock falls below 110%
of the Fixed Conversion Price during the ten (10) trading day period immediately
preceding the Call Date, then the Holder will then be required to convert only
such amount of the Note as shall equal twenty five percent (25%) of the
aggregate dollar trading volume (as such volume is reported by Bloomberg L.P.)
for each day that the Common Stock has exceeded 110% of the then applicable
Fixed Conversion Price. ELinear shall not be permitted to give the Holder more
than one Call Notice under this Note during any 22-day period.
2.5. Optional Redemption in Cash. The Borrowers will have the 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
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(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.
ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1. Optional Conversion. Subject to the terms of this Article III, the
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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
V), and, subject to the limitations set forth in Section 3.2 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. The shares of Common Stock to be issued
upon such conversion are herein referred to as the "CONVERSION SHARES."
3.2. Conversion Limitation. Notwithstanding anything contained herein
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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 3.2 shall automatically become null and void without any notice
to any 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 Company Agent.
3.3. Mechanics of ▇▇▇▇▇▇'s Conversion. In the event that the Holder
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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
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the Holder is annexed hereto as Exhibit A. Pursuant to the terms of the Notice
of Conversion, the 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"). To the extent eLinear is not eligible to use the DWAC system,
eLinear shall give instructions to eLinear's transfer agent to deliver the
certificates representing the Conversion Shares to the Holder promptly, and in
no event later than 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 3 shall be "restricted" shares of Common Stock.
3.4. 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, each 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 III 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.
3.5. Adjustment Provisions. The Fixed Conversion Price and number and
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kind of shares or other securities to be issued upon conversion determined
pursuant to Section 2.2 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 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 of
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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
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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 Section
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3.5, 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 computation
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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 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)).
3.6. 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
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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. eLinear 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.
3.7. Registration Rights. The Holder has been granted registration
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rights with respect to the shares of Common Stock issuable upon conversion of
this Note as more fully set forth in a Registration Rights Agreement dated the
date hereof.
ARTICLE IV
EVENTS OF DEFAULT
The occurrence of any of the following events is an Event of Default
("EVENT OF DEFAULT"):
4.1. Failure to Pay Principal, Interest or other Fees. Any Borrower
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fails to pay when due any installment of principal, interest or other fees
hereon or on any other promissory note issued pursuant to the Security
Agreement, when due in accordance with the terms of such note.
4.2. Breach of Covenant. Any Borrower breaches any covenant or other
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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.
4.3. 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.
4.4. Stop Trade. An SEC stop trade order or Principal Market trading
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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.
4.5. Default Under Related Agreement. The occurrence of an Event of
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Default under and as defined in the Security Agreement and/or the Ancillary
Agreements.
4.6. Failure to Deliver Common Stock or Replacement Note. eLinear's
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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, or if required,
a replacement Note if such failure to timely deliver Common Stock shall not be
cured within two (2) business days or such failure to deliver a replacement Note
is not cured within seven (7) business days.
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4.7. 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 Ancillary Agreements, 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 V
REPRESENTATIONS AND WARRANTIES OF HOLDERS
5.1. Investment Intent. The Holder understands that the Securities are
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"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 Securities,
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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 with
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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 Securities
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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
DEFAULT PAYMENTS
6.1. Default Payment. If an Event of Default occurs, the Holder, at
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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.
6.2. 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 IV ("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
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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.
6.3. Default Interest Rate. Following the occurrence and during the
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continuance of an Event of Default, interest on this Note shall automatically be
increased to one and one half percent (1.5%) per month, 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.
6.4. Cumulative Remedies. The remedies under this Note shall be
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cumulative.
ARTICLE VII
MISCELLANEOUS
7.1. Failure or Indulgence Not Waiver. No failure or delay on the part
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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.
7.2. 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.
7.3. Amendment Provision. The term "Note" and all reference thereto,
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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.
7.4. Assignability. This Note shall be binding upon each Borrower and
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its respective 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 Security Agreement.
7.5. Cost of Collection. If default is made in the payment of this
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Note, each Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
7.6. Governing Law. This Note shall be governed by and construed in
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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
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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 ▇▇▇▇▇▇.
7.7. Maximum Payments. Nothing contained herein shall be deemed to
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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.
7.8. Security Interest. The Holder of this Note has been granted a
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security interest in certain assets of each Borrower more fully described in the
Security Agreement.
7.9. 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
Minimum Borrowing 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 Minimum Borrowing 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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