SUPPLEMENT
EXHIBIT
10.01
SUPPLEMENT
This
Supplement, dated July 14, 2005, by and between eLinear, Inc., a Delaware
corporation (the “Company”), and [___________] (the “Purchaser”), amends that
certain Securities Purchase Agreement, dated February 28, 2005, by and between
the Company and Purchaser (the “Securities Purchase Agreement”); that certain
Registration Rights Agreement, dated February 28, 2005, by and between the
Company and the Purchaser (the “Registration Rights Agreement”); and that
certain Secured Convertible Term Note, dated February 28, 2005, by the Company
in favor of Purchaser for the total principal amount of $5,000,000 (the “Note”);
the Restricted Account Side Agreement, dated February 28, 2005, by and between
the Company and Purchaser (the “Restricted Account Side Letter”, collectively,
with the Security Purchase Agreement, the Related Agreements (as defined in
the
Securities Purchase Agreement), the Note, and the Registration Rights Agreement,
the “Funding Documents”).
PREAMBLE
WHEREAS,
pursuant to the Funding Documents, the Purchaser agreed to loan the Company
a
total principal amount of $5,000,000 (“Loan Amount”), $1,140,000 was funded to
the Company at Closing and the remaining $3,860,000 was funded to the Restricted
Account (as defined in the Securities Purchase Agreement), convertible into
shares of the Company’s common stock (the “Note Shares”) at an initial fixed
conversion price of $1.00;
WHEREAS,
pursuant
to the Funding Documents, the Company agreed to register the Note
Shares;
WHEREAS,
pursuant to the Funding Documents, the Purchaser was granted a warrant to
purchase 750,000 shares the Company common stock (the “Warrant”);
WHEREAS,
pursuant to the terms of the Funding Documents, the Company filed a registration
statement with the United States Securities and Exchange Commission (“SEC”) on
March 22, 2005 (the “Registration Statement”);
WHEREAS,
the SEC
has determined that the Purchaser is not irrevocably bound to purchase the
Note
Shares attributable to the conversion of the Loan Amount held in the Restricted
Account and therefore the shares attributable to such amount may not be
registered until the Purchaser is irrevocably bound; and
WHEREAS,
the
Purchaser and the Company desire to amend the transactions contemplated by
the
Funding Documents, to allow (i) the Purchaser to release, as of the date hereof,
the sum of $3,886,603.85, representing all funds held in the Restricted Account
as of the date hereof, which funds shall be disbursed as follows: $886,603.85
will be funded to the Company, and $3,000,000 will be funded to the Purchaser
in
pre-payment of $3,000,000 of the principal amount of the Note, without incurring
any penalties or premiums; (ii) the Company to register the shares issued or
issuable upon the conversion of the Amended and Restated Note issued in
connection with this Supplement for the total principal amount of $2,106,069.44,
the Warrant Shares (as defined in the Securities Purchase Agreement), and the
shares issued or issuable upon the exercise of the warrants issued to the
Purchaser and the other investors, as of the date hereof; (iii) to provide
the
Purchaser and the other investors who entered documents having substantially
identical terms to the Funding Documents a right of first refusal; and (iv)
to
issue Purchaser warrants to purchase an aggregate 708,333 shares of Common
Stock, a form of the warrants are attached hereto as Exhibit
A
and
Exhibit
B
(collectively, the “Supplemental Warrants”).
NOW,
THEREFORE,
in
consideration of the covenants, agreements and conditions hereinafter set forth,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
| 1. |
Terms
of this Supplement.
|
1.1 Release
of Funds and Prepayment.
As of
the date hereof, the Purchaser shall release the amounts held in the Restricted
Account, of which $3,000,000 shall be transferred to the Purchaser in payment
of
$3,000,000 of the principal amount of the Note without penalties or premiums,
and the remaining amount of $886,603.85 shall be transferred to the Company
pursuant to the wire transfer instructions provided by the Company to the
Purchaser. Subsequent to the release of the funds from the Restricted Account,
the Restricted Account shall be closed and the Restricted Account Agreement
and
the Restricted Account Side Letter shall be terminated.
1.2 Warrants.
The
Company will issue and deliver to Purchaser the Supplemental Warrants.
(a)
In
connection with the issuance of the Supplemental Warrants, the Purchaser
represents and warrants that the representations contained in Section 5.3
through 5.7 of the Securities Purchase Agreement are true and correct as of
the
date hereof.
| (b) |
The
Supplemental Warrants shall contain the following
legend:
|
"THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ELINEAR, INC. THAT
SUCH
REGISTRATION IS NOT REQUIRED.”
(c) The
shares issuable pursuant to the Supplemental Warrants, if not issued by DWAC
system (as defined in the Securities Purchase Agreement), shall bear a legend
which shall be in substantially the following form until such shares are covered
by an effective registration statement filed with the SEC:
"THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ELINEAR, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
| 2. |
Waiver
and Release by the Purchaser.
|
2.1 Possible
Violation of Section 5 of the Securities Act.
The
Purchaser, its respective officers, directors, agents, affiliates, control
persons, and principal shareholders (the “Purchaser Affiliates”), hereby waive
and release the Company, its respective officers, directors, agents, affiliates,
control persons, and principal shareholders (the “Company Affiliates”), from any
and all claims, costs, expenses, liabilities, obligations, losses or damages
of
any nature (the “Losses”), incurred by or relating to any possible violation of
Section 5 of the Securities Act of 1933, as amended, that may have occurred
prior to the date hereof upon the Closing of the Securities Purchase Agreement,
the filing of the Registration Statement, or the execution of this
Supplement.
2.2 The
Registerable Securities.
The
Purchaser and the Purchaser Affiliates hereby waive and release the Company
and
the Company Affiliates from the Losses, including any fees, penalties or
liquidated damages provided for in the Registration Rights Agreement, existing
as of the date hereof, incurred by or relating to the Company’s failure to
register the Registerable Securities (as defined in the Registration Rights
Agreement prior to this Supplement) in accordance with the Funding Documents.
3.1 Defined
Terms.
Defined
terms not defined in this Section 3 shall have the meaning set forth in the
Securities Purchase Agreement.
3.2 The
first
sentence of Section 6.18 of the Securities Purchase Agreement shall be replaced
in its entirety with the following:
“6.18 Pro
Rata Requirement.
The
Company hereby agrees that if the Company takes any action or omits to take
any
action in connection with or relating to this Agreement or any of the Related
Agreements (collectively, the "Transaction Documents"), including, without
limitation, any prepayments, redemptions, repayments, conversions,
determinations as to payments in cash or stock or a combination of stock or
cash
or otherwise, then it must simultaneously take the similar action or omission,
pro rata as applicable, with respect to the documents having substantially
identical terms to the Transaction Documents issued and entered into on February
28, 2005 with certain other investors (the “Other Investors”) and which are
amended in documents having substantially identical terms to the Supplement
(the
"Other Investor Transaction Documents" and collectively with the Transaction
Documents, the "February Transaction Documents").”
3.3 Article
6
of the Securities Purchase Agreement shall be amended by adding the following
provision:
“6.20 Participation
in Future Financing."
(a) From
the
date of this Supplement until 12 months after the Effective Date (as defined
in
the Registration Rights Agreement), the Company shall not effect a financing
of
its Common Stock, or any security of the Company, or its subsidiaries, which
would entitle the holder thereof to acquire at any time Common Stock, including
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exchangeable for,
or
otherwise entitles the holder thereof to receive, Common Stock (a “Subsequent
Financing”) unless (i) the Company delivers to Purchaser a written notice at
least five (5) trading days prior to the closing of such Subsequent Financing
(the “Subsequent Financing Notice”) of its intention to effect such Subsequent
Financing; and (ii) such Purchaser shall not have notified the Company by 6:30
p.m. (New York City time) on the fifth (5th)
trading
day after the delivery of the Subsequent Financing Notice of its willingness
to
provide, subject to completion of mutually acceptable documentation, all or
part
of such financing to the Company on the same terms set forth in the Subsequent
Financing Notice. The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of proceeds
intended to be raised thereunder and attached to which shall be a term sheet
or
similar document relating thereto.
(b) Notwithstanding
the foregoing, Purchaser’s right to participate in a Subsequent Financing is
limited by (i) the rights granted to the Other Investors to participate in
the
Subsequent Financing on the same terms as Purchaser; and (ii) the rights granted
to the Purchaser and the Other Investors as a group is limited to 60% of the
aggregate financing offered in a Subsequent Financing. Therefore, Purchaser
may
participate in up to 25% (60% multiplied 41.67%, the Purchaser’s pro
rata
contribution to the aggregate amount of financing contemplated in the February
Transaction Documents); provided however, that the Company may, at its
discretion, allow the Purchaser to participate at a greater percentage.
Notwithstanding the foregoing, if no Other Investors participate in a Subsequent
Financing, Purchaser, at its sole discretion, may contribute up to 60% of the
aggregate financing offered in a Subsequent Financing.
(c) If
Purchaser fails to notify the Company of its willingness to participate in
the
Subsequent Financing, the Company may affect the Subsequent Financing on the
same material terms set forth in the Subsequent Financing Notice. If the
Subsequent Financing is not consummated for any reason on the same material
terms set forth in the Subsequent Financing Notice within 60 calendar days
after
delivery of the Subsequent Financing Notice, then the Company must provide
the
Purchaser with a new Subsequent Financing Notice, and the Purchaser will again
have the right of first refusal set forth above in this Section 6.20.
(d) Notwithstanding
the foregoing, this Section 6.20 shall not apply in respect of the issuance
of
(a) shares of Common Stock or options to employees, consultants, officers or
directors of the Company pursuant to any stock or option plan duly adopted
by a
majority of the non-employee members of the Board of Directors of the Company
or
a majority of the members of a committee of non-employee directors established
for such purpose; (b) securities upon the exercise of or conversion of any
convertible securities, options or warrants issued and outstanding on the date
of this Agreement; or (c) 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 Company or any of Company’s subsidiaries
and in which the Company 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.”
3.4 Incorporation.
The
terms of this Section 3 shall be incorporated throughout the Securities Purchase
Agreement.
4. Note.
The
Company shall issue the Purchaser an Amended and Restated Note which is attached
and incorporate herein as Exhibit
C.
The
Amended and Restated Note shall include the following changes:
4.1 Defined
Terms.
Defined
terms not defined in this Section 4 shall have the meaning set forth in the
Note.
4.2 The
Maturity date shall be February 1, 2008.
4.3 The
“Amortizing Principal Amount” shall be $2,106,069.44, which shall include (i)
$1,140,000 of the original principal amount of the Note; (ii) $860,000 of the
amounts released from the Restricted Account to the Borrower pursuant to this
Supplement; and (iii) 106,069.44, the amount of interest accrued on the
Principal Amount from April 1, 2005 until the date hereof.
4.4 The
Monthly Principal Amount shall be $67,937.72.
5. Registration
Rights Agreement.
5.1 Defined
Terms.
Defined
terms not defined in this Section 5 shall have the meaning set forth in the
Registration Rights Agreement.
5.2 Section
1
shall be amended by replacing the following definitions in their entirety with
the following:
“‘Effectiveness
Date’ means (i) with respect to the initial Registration
Statement required to be filed hereunder, a date no later than one hundred
and
five (105) days following the date of this Supplement; and (ii) with respect
to
each additional Registration Statement required to be filed hereunder, a date
no
later than sixty (60) days following the Filing Date.
‘Filing
Date’ means, with respect to (i) the Initial Registration Statement required to
be filed hereunder, a date no later than 30 days following the date of this
Supplement; and (ii) with respect to shares of Common Stock issuable to the
Holder as a result of adjustments to the Fixed Conversion Price made pursuant
to
Section 3.4 of the Secured Convertible Term Note or Section 4 of the Warrant
or
otherwise, sixty (60) days after the occurrence of such event.
‘Registrable
Securities’ means the shares of Common Stock issued or issuable upon (i) the
conversion of the Amortizing Principal Amount of the Note; (ii) the exercise
of
the Warrant; (iii) the conversion or exercise of the principal amount of the
notes and warrants issued to the Other Investors on the same terms and
conditions of the Notes and Warrant; and (iv) the exercise of the warrants,
issued by the Company as of the date of this Supplement, to purchase up to
991,667 shares of Common Stock.”
5.3 Section
2(b) of the Registration Rights Agreement shall be amended by adding the
following sentence:
“Notwithstanding
the foregoing, if the Company incurs any fees, penalties or liquidated damages
pursuant to this Section 2(b) because of any delay that is caused by the SEC’s
belief that the transaction contemplated by this Supplement is inconsistent
with
the guidance set out in the Corporation Finance Division’s guidance on PIPE
transactions (3.S.) contained in the March 1999 Supplement of the Corporation
Finance Telephone Interpretations, then the Company will only be required to
pay
the Purchaser 50% of the total fees, penalties or liquidated damages incurred
as
a result of such delay.”
5.4 Incorporation.
The
terms of this Section 5 shall be incorporated throughout the Registration Rights
Agreement.
6. Warrant.
6.1 Defined
Terms.
Defined
terms not defined in this Section 6 shall have the meaning set forth in the
Warrant
6.2 Section
14 of the Warrant shall be amended by adding the following to the end of the
sentence:
“during
the term of that certain Amended and Restated Secured Convertible Term Note,
dated July 14, 2005.”
6.3 Incorporation.
The
terms of this Section 6 shall be incorporated throughout the Warrant.
IN
WITNESS WHEREOF,
each of
the parties hereto has executed this Amendment or has caused this Amendment
to
be executed on its behalf by a representative duly authorized, all as of the
date first above set forth.
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COMPANY:
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PURCHASER:
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ELINEAR,
Inc.
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By:
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By:
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Name:
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Xxxxxxx
Xxxxx
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Name:
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Title:
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Chief
Executive Officer
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Title:
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