EXHIBIT 4.1
NETGURU, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "AGREEMENT") is made and
entered into as of December 4, 2003, by and among netGuru, Inc., a Delaware
corporation (the "COMPANY"), and Laurus Master Fund, Ltd., a Cayman Islands
company (the "PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale of a 5% Convertible Note
in an aggregate principal amount of $1,400,000 (the "NOTE"), convertible into
shares of the Company's common stock, par value $.01 per share (the "COMMON
Stock") at a fixed conversion rate of $1.30 per share of Common Stock ("FIXED
CONVERSION RATE");
WHEREAS, the Company previously borrowed $900,000 (the "PRIOR
OUTSTANDING LOAN") from the Holder pursuant to that certain $4,000,000 Secured
Convertible Note dated July 31, 2003 (the "JULY 2003 NOTE"). Such Prior
Outstanding Loan is to become an obligation of Borrower to Holder under the Note
contemplated by this Agreement with such obligation canceled under the July 2003
Note;
WHEREAS, Purchaser desires to purchase the Note on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note to Purchaser on
the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company a Note in the amount of $1,400,000 convertible in
accordance with the terms thereof into shares of the Company's Common Stock in
accordance with the terms of the Note and this Agreement. The Note purchased on
the Closing Date shall be known as the "OFFERING." A form of the Note is annexed
hereto as Exhibit A. The Note will have a Maturity Date (as defined in the Note)
twenty-four months from the date of issuance. The Note and Common Stock issuable
in payment of the Note, are referred to as the "SECURITIES."
2. FEES. On the Closing Date:
1
(a) The Company shall reimburse the Purchaser $5,000 for its
legal fees for services rendered to the Purchaser in preparation of this
Agreement and the Related Agreements.
(b) The Company will pay a closing fee in the amount of
$10,000 (the "FUND MANAGEMENT FEE") to Laurus Capital Management, L.L.C., a
Delaware limited liability company. The Fund Management Fee shall be paid on the
Closing Date. The aforementioned Fund Management Fee and legal fees will be
payable at the Closing out of funds held pursuant to a Funds Escrow Agreement to
be entered into by the Company, Purchaser and an Escrow Agent (the "FUNDS ESCROW
AGREEMENT").
3. CLOSING, DELIVERY AND PAYMENT.
3.1 CLOSING. Subject to the terms and conditions herein, the closing of
the transactions contemplated hereby (the "CLOSING"), shall take place on the
date hereof, at such time or place as the Company and Purchaser may mutually
agree (such date is hereinafter referred to as the "CLOSING DATE").
3.2 DELIVERY. Pursuant to the Funds Escrow Agreement, at the Closing,
subject to the terms and conditions hereof, the Company will deliver to the
Escrow Agent, among other things, a Note in the form attached as Exhibit A
representing the principal amount of $1,400,000 and the Purchaser will deliver
to the Escrow Agent, among other things, $500,000 less fees payable to Purchaser
as Escrow Agent as provided herein, by certified funds or wire transfer made
payable to the order of the Escrow Agent.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as of the
date of this Agreement as set forth below except as disclosed in the Company's
filings under the Securities Exchange Act of 1934 (collectively, the "EXCHANGE
ACT FILINGS"), or the Schedules hereto.
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has the corporate power and authority to
own and operate its properties and assets, to execute and deliver this
Agreement, the Warrant to be issued in connection with this Agreement, the Funds
Escrow Agreement, the Security Agreement and all other agreements referred to
herein (collectively, the "RELATED AGREEMENTS"), to issue and sell the Note and
the shares of Common Stock issuable upon conversion of the Note (the "NOTE
SHARES"), and to carry out the provisions of this Agreement and the Related
Agreements and to carry on its business as presently conducted. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so would not
have a material adverse effect on the Company or its business.
2
4.2 SUBSIDIARIES. Schedule 4.2 hereto sets forth each subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person's ownership of the outstanding stock or
other interests of such subsidiary. For the purposes of this Agreement,
"subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.
4.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, as of
November 24, 2003, consists of (i) 150,000,000 shares of Common Stock, par value
$.01 per share, 17,907,154 shares of which are issued and outstanding and (ii)
5,000,000 shares of Preferred Stock, par value $.01 per share, none of which are
issued and outstanding. The Company will at all times have authorized and
reserved a sufficient number of shares of Common Stock to provide for conversion
of the Note.
(b) Except as disclosed on Schedule 4.3, other than (i) the
shares reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
preemptive rights and rights of first refusal) to subscribe to, call or
commitment of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company (such Schedule 4.3
shall provide the exercise or conversion term, exercise or conversion price,
vesting period, holders of such options, warrants or convertible securities and
the amount granted or issued to each holder). There exists no proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Neither the
offer, issuance or sale of any of the Note , or the issuance of any of the Note
Shares , nor the consummation of any transaction contemplated hereby will result
in a change in the price or number of any securities of the Company outstanding,
under anti-dilution or other similar provisions contained in or affecting any
such securities.
(c) All issued and outstanding shares of the Company's Common
Stock (i) have been duly authorized and validly issued and are fully paid and
nonassessable and (ii) together with the offer and sale of all convertible
securities, rights, warrants, or options of the Company were issued in
compliance with all applicable state and federal laws concerning the issuance of
securities, and no stockholder has a right of rescission or damages against the
Company with respect thereto.
3
(d) The rights, preferences, privileges and restrictions of
the shares of the Common Stock are as stated in the Certificate of Incorporation
(the "CHARTER"). The Note Shares have been duly and validly reserved for
issuance. When issued in compliance with the provisions of this Agreement and
the Company's Charter, the Securities will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; PROVIDED, HOWEVER,
that the Securities may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
(e) No stock plan, stock purchase, stock option or other
agreement or understanding between the Company and any holder of any equity
securities of the Company or rights to purchase equity securities of the Company
provides for acceleration or other changes in the vesting provisions or other
terms of such agreement or understanding as the result of any merger,
consolidated sale of stock or assets, change in control or any other
transaction(s) by the Company, including the transactions contemplated
hereunder.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company necessary for the authorization of this Agreement and the
Related Agreements to which the Company, the performance of all obligations of
the Company hereunder at the Closing and, the authorization, sale, issuance and
delivery of the Note has been taken or will be taken prior to the Closing and no
further consent or authorization of the Company, its board of directors or
stockholders is required. The Agreement and the Related Agreements, when
executed and delivered and to the extent it is a party thereto, will be valid
and binding obligations of the Company enforceable in accordance with their
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, and (b) general principles of equity that
restrict the availability of equitable or legal remedies. The sale of the Note
and the subsequent conversion of the Note into Note Shares are not and will not
be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with. The Note, when executed and delivered in
accordance with the terms of this Agreement, will be valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
4.5 LIABILITIES. The Company has no material liabilities and, to the
best of its knowledge, knows of no material contingent liabilities, except
current liabilities incurred in the ordinary course of business and liabilities
disclosed in any Exchange Act Filings.
4.6 AGREEMENTS; ACTION. Except as set forth on Schedule 4.6:
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $100,000 (other than obligations of, or payments to, the
Company arising from purchase or sale agreements entered into in the ordinary
course of business), or (ii) the transfer or license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting the development, manufacture or
distribution of the Company's products or services, or (iv) indemnification by
the Company with respect to infringements of proprietary rights.
4
(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess individually or in the aggregate, of
$100,000, (iii) made any loans or advances to any person not in excess,
individually or in the aggregate, of $100,000, other than ordinary advances for
travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business. Neither the Company nor any subsidiary is in default with respect to
any indebtedness.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
4.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company, (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company) and (d) obligations listed in the Company's
financial statements or disclosed in any of its Exchange Act Filings. Except as
described above or set forth on Schedule 4.7, none of the officers, directors
or, to the best of the Company's knowledge, key employees or stockholders of the
Company or any members of their immediate families, are indebted to the Company,
individually or in the aggregate, in excess of $100,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than 1% of such company) which may
compete with the Company. Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person. Except as set forth on Schedule 4.7, the Company is
not a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
4.8 CHANGES. Since September 30, 2003, except as disclosed in any
Schedule to this Agreement or to any of the Related Agreements, there has not
been:
(a) Any change in the assets, liabilities, financial
condition, prospects or operations of the Company, other than changes in the
ordinary course of business, none of which individually or in the aggregate has
had or is reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any officer, key
employee or group of employees of the Company; (c) Any material change, except
in the ordinary course of business, in the contingent obligations of the Company
by way of guaranty, endorsement, indemnity, warranty or otherwise;
5
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect material loans made by the Company
to any stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company
is a party or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely affect the
business, assets, liabilities, financial condition, prospects or operations of
the Company; or
(n) Any arrangement or commitment by the Company to do any of
the acts described in subsection (a) through (m) above.
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have not
yet become delinquent, (b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
6
4.10 INTELLECTUAL PROPERTY.
(a) The Company owns or possesses sufficient legal rights to
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes necessary for
its business as now conducted and to the Company's knowledge as presently
proposed to be conducted (the "INTELLECTUAL PROPERTY"), without any known
infringement of the rights of others. There are no outstanding options, licenses
or agreements of any kind relating to the foregoing proprietary rights, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
(b) Except as set forth on Schedule 4.10(b), the Company has
not received any communications alleging that the Company has violated any of
the patents, trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity, nor is the Company
aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for inventions,
trade secrets or proprietary information that have been rightfully assigned to
the Company.
4.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any term of its Charter or Bylaws, or of any material provision of
any mortgage, indenture, contract, agreement, instrument or contract to which it
is party or by which it is bound or of any judgment, decree, order or writ. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Note by the Company and the other Securities by the Company each pursuant
hereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
4.12 LITIGATION. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
or any subsidiary that prevents the Company to enter into this Agreement or the
Related Agreements, or to consummate the transactions contemplated hereby or
thereby. Except as set forth on Schedule 4.12 hereto, there is no action, suit,
proceeding or investigation pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary of the Company or
any of their respective properties or assets. Neither of those items listed on
Schedule 4.12 might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for any of the
foregoing. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
7
4.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it of which the
failure to file would have a material adverse effect. All taxes shown to be due
and payable on such returns, any assessments imposed, and to the Company's
knowledge all other taxes due and payable by the Company on or before the
Closing, have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
4.14 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. The
Company is not a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company. The Company has
not received any notice alleging that any such violation has occurred. Except
for employees who have a current effective employment agreement with the
Company, no employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer, key
employee or group of employees intends to terminate his, her or their employment
with the Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 REGISTRATION RIGHTS AND VOTING RIGHTS. The Company is presently
not under any obligation, and has not granted any rights, or a party to any
agreement, to register any of the Company's presently outstanding securities or
any of its securities that may hereafter be issued. To the Company's knowledge,
no stockholder of the Company has entered into any agreement with respect to the
voting or transfer of any equity securities of the Company.
8
4.16 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the Company is
not in violation in any material respect of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which violation would materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of any of the Securities, except
such as has been duly and validly obtained or filed, or with respect to any
filings that must be made after the Closing, as will be filed in a timely
manner. The Company has all material franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would materially and adversely affect the
business, properties, prospects or financial condition of the Company.
4.17 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. No Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or, to the Company's knowledge, by
any other person or entity on any property owned, leased or used by the Company.
For the purposes of the preceding sentence, "HAZARDOUS MATERIALS" shall mean (a)
materials which are listed or otherwise defined as "HAZARDOUS" or "TOXIC" under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials, or (b)
any petroleum products or nuclear materials.
4.18 VALID OFFERING. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws. Neither the Company nor any of its affiliates, nor any
person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of the Securities.
4.19 FULL DISCLOSURE. The Company has provided the Purchaser with all
information requested by the Purchaser in connection with its decision to
purchase the Note including all information the Company believes is reasonably
necessary to make such investment decision. Neither this Agreement, the exhibits
and schedules hereto, the Related Agreements nor any other document delivered by
the Company to Purchaser or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial projections
and other estimates provided to the Purchaser by the Company were based on the
Company's experience in the industry and on assumptions of fact and opinion as
to future events which the Company, at the date of the issuance of such
projections or estimates, believed to be reasonable. As of the date hereof no
facts have come to the attention of the Company that would, in its opinion,
require the Company to revise or amplify in any material respect the assumptions
underlying such projections and other estimates or the conclusions derived
therefrom.
9
4.20 INSURANCE. The Company has general commercial, product liability,
fire and casualty insurance policies with coverage customary for companies
similarly situated to the Company in the same or similar business.
4.21 SEC REPORTS. The Common Stock of the Company is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act and the Company has
timely filed all proxy statements, reports, schedules, forms, statements and
other documents required to be filed by it under the Exchange Act. The Company
has furnished the Purchaser with copies of (i) its Annual Report on Form 10-K
for the fiscal year ended March 31, 2003 as amended and (ii) its Quarterly
Reports on Form 10-Q for the fiscal quarters ended June 30, 2003 and September
30, 2003 (collectively, the "SEC REPORTS"). Each SEC Report was, at the time of
its filing, in substantial compliance with the requirements of its respective
form and none of the SEC Reports, nor the financial statements (and the notes
thereto) included in the SEC Reports, as of their respective filing dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed) and fairly present in all material respects the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
4.22 NO MARKET MANIPULATION. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of any of the
Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued.
4.23 LISTING. The Company's Common Stock is listed for trading on the
Nasdaq SmallCap Market and satisfies all requirements for the continuation of
such listing. The Company has not received any notice that its Common Stock will
be delisted from the Nasdaq SmallCap Market or that the Common Stock does not
meet all requirements for the continuation of such listing.
10
4.24 NO INTEGRATED OFFERING. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offering of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the Securities Act which would prevent the Company from selling the
Securities pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions. Nor will the Company or any of
its affiliates or subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.
4.25 STOP TRANSFER. The Securities are restricted securities as of the date of
this Agreement. The Company will not issue any stop transfer order or other
order impeding the sale and delivery of any of the Securities at such time as
the Securities are registered for public sale or an exemption from registration
is available, except as required by federal securities laws.
4.26 DILUTION. The Company understands the nature of the
Securities being sold hereby and recognizes that they may have a potential
dilutive effect. The Company specifically acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Note is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as follows:
5.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
5.2 INVESTMENT REPRESENTATIONS. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act. The Purchaser has received or has had full access to all the information it
considers necessary or appropriate to make an informed investment decision with
respect to the Note to be purchased by it under this Agreement and the Note
Shares acquired by it upon the conversion of the Note. The Purchaser further has
had an opportunity to ask questions and receive answers from the Company
regarding the Company's business, management and financial affairs and the terms
and conditions of the Offering, the Note and the Securities, and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.
11
5.3 PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial experience
in evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. Purchaser must bear the economic risk of this investment until
the Securities are sold pursuant to (i) an effective registration statement
under the Securities Act, or (ii) an exemption from registration is available.
5.4 ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Note and
the Note Shares for Purchaser's own account for investment only, and not as a
nominee or agent and not with a view towards or for resale in connection with
their distribution.
5.5 PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that by
reason of its, or of its management's, business and financial experience,
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note and the Securities and to protect its own interests in connection with
the transactions contemplated in this Agreement, and the Related Agreements.
Further, Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Related Agreements.
5.6 ACCREDITED INVESTOR. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.7 LEGENDS.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR, IF APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK 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 OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO NETGURU, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) The Note Shares, if not issued by DWAC system (as
hereinafter defined), 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 IF 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 NETGURU, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
12
5.8 NO SHORTING. The Purchaser has not and will not and will not cause,
advise, ask or assist any person or entity, directly or indirectly, to engage in
"short sales" of the Company's Common Stock.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 STOP-ORDERS. The Company will advise the Purchaser, promptly after
it receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 LISTING. The Company will maintain the listing of its Common Stock
on the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market,
American Stock Exchange or New York Stock Exchange (a "PRINCIPAL MARKET"), and
will comply in all material respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable. The Company will
provide the Purchaser copies of all notices it receives notifying the Company of
the threatened and actual delisting of the Common Stock from any Principal
Market.
6.3 MARKET REGULATIONS. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
6.4 REPORTING REQUIREMENTS. The Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination. Within fifteen (15) days after the end of each month,
the Company will deliver to the Purchaser unaudited trial balances as at the end
of such month.
13
6.5 USE OF FUNDS. The Company agrees that it will use the proceeds of
the sale of the Note for general corporate purposes only.
6.6 ACCESS TO FACILITIES. The Company will permit any representatives
designated by the Purchaser (or any transferee of the Purchaser), upon
reasonable notice and during normal business hours, at such person's expense and
accompanied by a representative of the Company, to (a) visit and inspect any of
the properties of the Company, (b) examine the corporate and financial records
of the Company (unless such examination is not permitted by federal, state or
local law or by contract) and make copies thereof or extracts therefrom and (c)
discuss the affairs, finances and accounts of any such corporations with the
directors, officers and independent accountants of the Company.
6.7 TAXES. The Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
6.8 INSURANCE. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company; and the Company
will maintain, with financially sound and reputable insurers, insurance against
other hazards and risks and liability to persons and property to the extent and
in the manner customary for companies in similar business similarly situated as
the Company and to the extent available on commercially reasonable terms.
6.9 INTELLECTUAL PROPERTY. The Company shall maintain in full force and
effect its corporate existence, rights and franchises and all licenses and other
rights to use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.
6.10 PROPERTIES. The Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
material adverse effect.
6.11 CONFIDENTIALITY. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser, unless
expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
14
6.12 CORPORATE EXISTENCE. The Company shall maintain its corporate
existence, and will not liquidate, dissolve or effect a recapitalization,
reclassification or reorganization in any form of transaction. In addition, the
Company shall not sell all or substantially all of the Company's assets, except
in the event of a merger or consolidation or sale or transfer of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
the Related Agreements and (ii) is a publicly traded company whose common stock
is quoted or listed on a Principal Market.
6.13 REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such Securities pursuant to Rule 144(k) under the Securities Act, or (b) upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act. The Company agrees to cooperate with the
Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k)
and provide legal opinions necessary to allow such resales provided the Company
and its counsel receive reasonably requested representations from the selling
Purchaser and broker, if any.
6.14 OPINION. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel in the form annexed hereto as Exhibit B. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note.
6.15 FINANCIAL COVENANT. The Company shall not permit for any fiscal
quarter commencing April 1, 2003 the net operating cash flow deficit to be
greater than $500,000, excluding extraordinary items, as determined in
accordance with generally accepted accounting principles in the United States.
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
7.1 COMPANY INDEMNIFICATION. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.2 PURCHASER'S INDEMNIFICATION. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
15
7.3 PROCEDURES. The procedures and limitations set forth in Section 9.6
shall apply to the indemnifications set forth in Sections 7.1 and 7.2 above.
8. CONVERSION OF CONVERTIBLE NOTE.
8.1 MECHANICS OF CONVERSION.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note Shares are included
in an effective registration statement or are otherwise exempt from registration
when sold: (i) Upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue shares of the Company's Common Stock in the name of the Purchaser
(or its nominee) or such other persons as designated by the Purchaser in
accordance with Section 8.1(b) hereof and in such denominations to be specified
representing the number of Note Shares issuable upon such conversion; and (ii)
The Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Company's Common Stock and
that after the Effective Date (as hereinafter defined) the Note Shares issued
will be freely transferable subject to the prospectus delivery requirements of
the Securities Act and the provisions of this Agreement, and will not contain a
legend restricting the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or otherwise delivering
an executed and completed notice of the number of shares to be converted to the
Company (the "NOTICE OF CONVERSION"). The Purchaser will not be required to
surrender the Note until the Purchaser receives a credit to the account of the
Purchaser's prime broker through the DWAC system (as defined below),
representing the Note Shares or until the Note has been fully satisfied. Each
date on which a Notice of Conversion is telecopied or delivered to the Company
in accordance with the provisions hereof shall be deemed a "CONVERSION DATE."
The Company will cause the transfer agent to transmit the shares of the
Company's Common Stock issuable upon conversion of the Note (and a certificate
representing the balance of the Note not so converted, if requested by
Purchaser) to the Purchaser by crediting the account of the Purchaser's prime
broker with the Depository Trust Company ("DTC") through its Deposit Withdrawal
Agent Commission ("DWAC") system within three business days after receipt by the
Company of the Notice of Conversion (the "DELIVERY DATE").
(c) The Company understands that a delay in the delivery of
the Note Shares in the form required pursuant to Section 8 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the event that
the Company fails to direct its transfer agent to deliver the Note Shares to the
Purchaser via the DWAC system within the time frame set forth in Section 8.1(b)
above and the Note Shares are not delivered to the Purchaser by the Delivery
Date, as compensation to the Purchaser for such loss, the Company agrees to pay
late payments to the Purchaser for late issuance of the Note Shares in the form
16
required pursuant to Section 8 hereof upon conversion of the Note in the amount
equal to the greater of (i) $500 per business day after the Delivery Date or
(ii) the Purchaser's actual damages from such delayed delivery. The Company
shall pay any payments incurred under this Section in immediately available
funds upon demand and, in the case of actual damages, accompanied by reasonable
documentation of the amount of such damages. Such documentation shall show the
number of shares of Common Stock the Purchaser is forced to purchase (in an open
market transaction) which the Purchaser anticipated receiving upon such
conversion, and shall be calculated as the amount by which (A) the Purchaser's
total purchase price (including customary brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate principal and/or
interest amount of the Note, for which such Conversion Notice was not timely
honored.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith 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 or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to a Purchaser and thus refunded to
the Company.
8.2 MAXIMUM CONVERSION. The Purchaser shall not be entitled to convert
on a Conversion Date that amount of a Note 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 Purchaser on a Conversion Date,
and (ii) the number of shares of Common Stock issuable upon the conversion of
the Note with respect to which the determination of this proviso is being made
on a Conversion Date, which would result in beneficial ownership by the
Purchaser of more than 4.99% of the outstanding shares of Common Stock of the
Company on such Conversion Date. 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. Subject to the
foregoing, a Purchaser shall not be limited to aggregate conversions of only
4.99%. The Purchaser may void the limitation in this Section 8.3 upon 75 days
written notice to the Company. In addition, upon an Event of Default under the
Note, the conversion limitation in this Section 8.3 shall automatically become
null and void.
8.3 OPTIONAL REDEMPTION. The Company will have the option of redeeming
any outstanding principal of the Note ("OPTIONAL REDEMPTION") by paying to the
Purchaser 104% of such amount, together with accrued but unpaid interest thereon
and any and all other sums due, accrued or payable to the Purchaser arising
under this Agreement, Note or any other document delivered herewith ("REDEMPTION
AMOUNT") outstanding on the day notice of redemption ("NOTICE OF REDEMPTION") is
delivered to a Purchaser ("REDEMPTION DATE"). A Notice of Redemption may not be
given in connection with any portion of Note for which a Notice of Conversion
has been given by the Purchaser at any time before receipt of a Notice of
Redemption or given pursuant to the following sentence. The Purchaser may elect
within five (5) business days after receipt of a Notice of Redemption to give
the Company a Notice of Conversion in connection with some or all of the Note
17
principal and interest which was the subject of the Notice of Redemption. The
Redemption Amount must be paid in good funds to the Purchaser no later than the
seventh (7th) business day after the Redemption Date ("OPTIONAL REDEMPTION
PAYMENT DATE"). In the event the Company fails to pay the Redemption Amount by
the Optional Redemption Payment Date, then the Redemption Notice will be null
and void. A Notice of Redemption may be given by the Company, provided (i) no
Event of Default as described in the Note shall have occurred or be continuing;
and (ii) the Note Shares issuable upon conversion of the full outstanding Note
principal are included for unrestricted resale in a registration statement
effective as of the Redemption Date.
8.4 NASDAQ APPROVAL. The Company and the Purchaser agree that until the
Company either obtains shareholder approval of the issuance of the Securities,
or an exemption from NASDAQ's corporate governance rules as they may apply to
the Securities, and an opinion of counsel reasonably acceptable to the Purchaser
that NASDAQ's corporate governance rules do not conflict with nor may result in
a delisting of the Company's common stock from the NASDAQ National Market (the
"Approval") upon the conversion of the Notes, the Purchaser may not receive upon
conversion of the Notes more than the number of common shares greater than 19.9%
of the shares of Company's common stock outstanding on the Closing Date. The
Company covenants to obtain the Approval required pursuant to the NASDAQ's
corporate governance rules to allow conversion of all the Notes and interest
thereon upon written request of the Purchaser (the "TRIGGER DATE"). The Company
further covenants to file the preliminary proxy statement relating to the
Approval with the Commission on or before thirty days after the Trigger Date
("PROXY FILING DATE"). The Company further covenants to obtain the Approval no
later than ninety days after the Trigger Date ("APPROVAL DATE"). The Company's
failure to (i) file the proxy on or before the Proxy Filing Date; or (ii) the
Company's failure to obtain the Approval on or before the Approval Date (each
being an "APPROVAL Default") shall be deemed an Event of Default under the Note,
but only to the extent the Note and interest thereon that may not be converted
due to the Company's failure to obtain such Approval.
9. REGISTRATION RIGHTS.
9.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants the
following registration rights to the Purchaser.
(a) The Company shall file a Form S-3 registration statement
(or such other form that it is eligible to use) in order to register the
Registrable Securities for resale and distribution under the Securities Act with
the SEC by January 15, 2004 (the "FILING DATE"), and cause such registration
statement to be declared effective within 120 days of the Filing Date (the
"EFFECTIVE DATE"). The Company will register not less than a number of shares of
Common Stock in the aforedescribed registration statement that is equal to 200%
(or such lower amount as permitted or required by the SEC) of the Note Shares
issuable at the Conversion and Purchase Prices set forth in the Note, that would
be in effect on the Closing Date or the date of filing of such registration
statement (employing the price which would result in the greater number of
Shares), assuming the conversion of 100% of the principal amount of the Note
which is then outstanding ("REGISTRABLE SECURITIES"). Such registration
statement will be promptly amended or additional registration statements will be
promptly filed by the Company as necessary to register additional Company Shares
to allow the public resale of all Common Stock included in and issuable by
virtue of the Registrable Securities. No securities of the Company other than
the Registrable Securities will be included in the registration statement
described in this Section 9.1(a).
18
9.2 REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions hereof to effect the registration of the Registrable Securities
under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the Purchaser copies of all filings and SEC letters of comment;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the earlier of: (i) four years after the Closing Date, or (ii) the date on
which the Purchaser has disposed of all of the Registrable Securities covered by
such registration statement in accordance with the Purchaser's intended method
of disposition set forth in such registration statement for such period;
(c) furnish to the Purchaser such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as the Purchaser reasonably may request to facilitate
the public sale or disposition of the securities covered by such registration
statement;
(d) use its commercially reasonable efforts to register or
qualify the Purchaser's Registrable Securities covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions as the
Purchaser, provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Purchaser at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing; and
(g) make available for inspection by the Purchaser and any
attorney, accountant or other agent retained by the Purchaser, all publicly
available, non-confidential financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all publicly available, non-confidential
information reasonably requested by the attorney, accountant or agent of the
Purchaser.
19
9.3 PROVISION OF DOCUMENTS.
(a) In connection with each registration hereunder, the
Purchaser will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws.
9.4 NON-REGISTRATION EVENTS. If (i) the Registration Statement
described in Section 9.1(a) is not filed on or before the Filing Date or not
declared effective on or before the sooner of the Effective Date, or within
three business days of receipt by the Company of a communication from the SEC
that the registration statement described in Section 9.1(a) will not be
reviewed, or (ii) if the registration statement described in Section 9.1(a) is
filed and declared effective but shall thereafter cease to be effective (without
being succeeded immediately by an additional registration statement filed and
declared effective) for a period of time which shall exceed 30 days in the
aggregate per year but not more than 20 consecutive calendar days (defined as a
period of 365 days commencing on the date the Registration Statement is declared
effective) (each such event referred to in this Section 9.4 is referred to
herein as a "NON-REGISTRATION EVENT"), then, for so long as such
Non-Registration Event shall continue, the Company shall pay in cash as
Liquidated Damages to each holder of any Registrable Securities an amount equal
to one percent (1%) per month (prorated for partial periods) during the pendency
of such Non-Registration Event of the principal of the Note issued in connection
with the Offering, whether or not converted, then owned of record by such holder
or issuable as of or subsequent to the occurrence of such Non-Registration
Event. Payments to be made pursuant to this Section shall be due and payable
immediately upon demand in immediately available funds. In the event a Mandatory
Redemption Payment is demanded from the Company by the holder pursuant to
Section 8.2 of this Agreement, then the Liquidated Damages described in this
Section 9.4 shall no longer accrue on the portion of the purchase price
underlying the Mandatory Redemption Payment, from and after the date the holder
receives the Mandatory Redemption Payment. It shall also be deemed a
Non-Registration Event to the extent that all the Common Stock included in the
Registrable Securities and underlying the Securities is not included in an
effective registration statement as of and after the Effective Date at the
conversion prices in effect from and after the Effective Date.
9.5 EXPENSES. All expenses incurred by the Company in complying with
Section 9, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars,
fees of, and disbursements incurred by, one counsel for the Purchaser, and costs
of insurance are called "REGISTRATION EXPENSES". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Purchaser beyond those
included in Registration Expenses, are called "SELLING EXPENSES."
20
The Company will pay all Registration Expenses. All Selling
Expenses in connection with each registration statement under Section 9 shall be
borne by the Purchaser.
9.6 INDEMNIFICATION.
(a) In the event of a registration of any Registrable
Securities under the Securities Act pursuant to Section 9, the Company will
indemnify and hold harmless the Purchaser, and its officers, directors and each
other person, if any, who controls the Purchaser within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which the Purchaser, or such persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to Section 9, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Purchaser, and
each such person for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by the Purchaser or any such person in writing specifically for use in
any such document.
(b) In the event of a registration of the Registrable
Securities under the Securities Act pursuant to Section 9, the Purchaser will
indemnify and hold harmless the Company, and its officers, directors and each
other person, if any, who controls the Company within the meaning of the
Securities Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to Section 9, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such person for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Purchaser will be liable in any
such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished in writing to the Company by the Purchaser specifically for use in any
such document.
21
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 9.6(c) if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof; if the
indemnified party retains its own counsel, then the indemnified party shall pay
all fees, costs and expenses of such counsel, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Securities Act in any case in which
either (i) the Purchaser, or any controlling person of the Purchaser, makes a
claim for indemnification pursuant to this Section 9.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9.6 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of the Purchaser or controlling person of the Purchaser in circumstances
for which indemnification is provided under this Section 9.6; then, and in each
such case, the Company and the Purchaser will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Purchaser is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (A) the Purchaser will not
be required to contribute any amount in excess of the public offering price of
all such securities offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 10(f) of the Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company; or equity or debt issued in connection
with an acquisition of a business or assets by the Company; or the issuance by
the Company of stock in connection with the establishment of a joint venture
partnership or licensing arrangement (these exceptions hereinafter referred to
as the "EXCEPTED ISSUANCES"), the Company will not issue any securities with a
variable/floating conversion feature which are or could be (by conversion or
registration) free-trading securities (i.e. common stock subject to a
registration statement) prior to the full repayment or conversion of the Note.
22
11. SECURITY INTEREST. As a condition of Closing, the Company will grant to
the Purchaser a security interest in its assets pursuant to a Security
Agreement. The Company will also execute all such documents reasonably necessary
to memorialize and further protect the security interest described above.
12. MISCELLANEOUS.
12.1 GOVERNING LAW. This Agreement 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; provided, however that the Purchaser may choose to waive
this provision and bring an action outside the state of New York. Both parties
and the individuals executing this Agreement and other agreements on behalf of
the Company agree to submit to the jurisdiction of such courts and waive trial
by jury. In the event that any provision of this Agreement or any other
agreement delivered in connection herewith 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 any agreement.
12.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
12.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Securities from time to time.
12.4 ENTIRE AGREEMENT. This Agreement, the exhibits and schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof, including, but not limited to, the purchase
and sale of the Note and the subsequent sale of the Common Stock underlying the
Note. No party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein. The Purchaser shall not be deemed to have made any
representation or warranty to the Company other than as expressly made by the
Purchaser in Section 5 hereof. Without limiting the generality of the foregoing,
and notwithstanding any otherwise express representations and warranties made by
the Purchaser in Section 5 hereof, the Purchaser makes no representation or
warranty to the Company with respect to the timing or or the manner in which the
Company's Common Stock will be sold.
23
12.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
12.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written consent of
the Purchaser.
12.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
12.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed 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 Company at the
address as set forth on the signature page hereof, with a copy to Xxxxxxxxxx &
Xxxxx, LLP, 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxx Xxxxxxx, XX 00000, Attn:
Xxxxxx Xxxxx, Esq., facsimile number (000) 000-0000, and to the Purchaser at the
address set forth on the signature page hereto for such Purchaser, with a copy
in the case of the Purchaser to Xxxx Xxxxxx, Esq., 000 Xxxxx Xxxxxx , 00xx
Xxxxx, Xxx Xxxx, XX 00000, facsimile number (000) 000-0000, or at such other
address as the Company or the Purchaser may designate by ten days advance
written notice to the other parties hereto.
12.9 ATTORNEYS' FEES. In the event that any suit or action is
instituted with respect to this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
24
12.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
12.11 FACSIMILE SIGNATURES; COUNTERPARTS. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
12.12 BROKER'S FEES. Each party hereto represents and warrants that,
except as each party may have notified the other in writing on or prior to the
date hereof, no agent, broker, investment banker, person or firm acting on
behalf of or under the authority of such party hereto is or will be entitled to
any broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto further
agrees to indemnify each other party for any claims, losses or expenses incurred
by such other party as a result of the representation in this Section 12.12
being untrue.
12.13 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement 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 Agreement to
favor any party against the other.
25
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
NETGURU, INC. LAURUS MASTER FUND, LTD.
By:/s/ Xxxxx Grin
By:/s/ Xxxxxxx Xxx Name: XXXXX GRIN
Name: XXXXXXX XXX Address: c/o Ironshore Corporate Services Ltd.
Title: Chief Operating Officer X.X. Xxx 0000 X.X., Xxxxxxxxxx Xxxxx, Xxxxx
Address: Church Street
22700 Savi Ranch Parkway Grand Cayman, Cayman Islands
Xxxxx Xxxxx, Xxxxxxxxxx 00000
26
LIST OF EXHIBITS
Form of Offering Convertible Note Exhibit A
Form of Opinion Exhibit B
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF OPINION
