EXHIBIT 10.2
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO NETGURU, INC., THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
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FOR VALUE RECEIVED, NETGURU, INC., a Delaware corporation (hereinafter
called the "BORROWER"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o
Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the "HOLDER") or
its registered assigns or successors in interest, on order, without demand, the
sum of Two Million Dollars ($2,000,000), with any accrued and unpaid interest on
December 13, 2004 (the "Maturity Date"). Capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the Purchase
Agreement (as defined in Section 3.1(a) below).
The following terms shall apply to this Note:
ARTICLE I
INTEREST
1.1 INTEREST RATE. Interest payable on this Note shall accrue
at the annual rate of six percent (6%) and be payable in arrears commencing one
month from the date hereof and on the first business day of each consecutive
calendar month thereafter, and on the Maturity Date, accelerated or otherwise,
due and payable as described below.
1.2 PAYMENT GRACE PERIOD. The Borrower shall have a four (4)
day grace period to pay any monetary amounts due under this Note. During this
grace period, and thereafter until paid, a default interest rate of five percent
(5%) per annum above the then applicable interest rate hereunder shall apply to
the amounts owed hereunder.
ARTICLE II
AMORTIZATION
2.1 MONTHLY PAYMENTS. Subject to the terms of this Article II,
the Borrower shall repay one-twentieth of the original principal amount of this
Note (to the extent such amount has not been converted pursuant to Article III
below), together with interest accrued to date on such portion of the original
principal amount plus any and all default payments owing under the Purchase
Agreement but not previously paid (collectively the "MONTHLY AMOUNT"), in
accordance with Section 2.2 below, on the first business day of each consecutive
calendar month (each, a "REPAYMENT DATE"), beginning on the first such day which
occurs following one hundred and twenty (120) days from the date hereof;
provided, however, that if the Borrower's Registration Statement with respect to
the shares of Common Stock issuable upon conversion of this Note is declared
effective by the Securities and Exchange Commission prior to ninety (90) days
from the date hereof, then the payment the principal portion of the Monthly
Amount shall commence on the first business day of each consecutive calendar
month, beginning on the first such day which occurs following ninety (90) days
from the date hereof.
2.2 CASH OR COMMON STOCK. Subject to the terms hereof, the
Borrower has the sole option to determine whether to satisfy payment of the
Monthly Amount in full on each Repayment Date either in cash or in shares of
Common Stock, or a combination of both. The Borrower shall deliver to the Holder
a written irrevocable notice in the form of Exhibit B attached hereto electing
to pay such Monthly Amount in full on such Repayment Date in either cash or
Common Stock, or a combination of both ("REPAYMENT ELECTION NOTICE"). Such
Repayment Election Notice shall be delivered to the Holder at least twenty (20)
days prior to the applicable Repayment Date (the date of such notice being
hereinafter referred to as the "NOTICE DATE"). If such Repayment Election Notice
is not delivered within the prescribed period set forth in the preceding
sentence, then the repayment shall be made in either cash or shares of Common
Stock on the same terms hereunder at the Holder's sole option. If the Borrower
elects or is required to repay all or a portion of the Monthly Amount in cash on
a Repayment Date, then on such Repayment Date the Borrower shall pay to the
Holder an amount equal to 107% of the Monthly Amount in satisfaction of such
obligation. If the Borrower repays all or a portion of the Monthly Amount in
shares of Common Stock, the number of such shares to be issued for such
Repayment Date shall be the number determined by dividing (x) the portion of the
Monthly Amount to be paid in shares of Common Stock, by (y) the Conversion Price
(as defined herein) as of such date.
2.3 NO EFFECTIVE REGISTRATION. Notwithstanding anything to the
contrary herein, the Borrower shall be prohibited from exercising its right to
repay the Monthly Amount in shares of Common Stock (and must deliver cash in
respect thereof) on the applicable Repayment Date if at any time from the Notice
Date until the time at which the Holder receive such shares there fails to exist
an effective registration statement or an Event of Default hereunder exists or
occurs, unless otherwise waived in writing by the Holder in whole or in part at
the Holder's option.
2.4 SHARE PRICE/ISSUANCE LIMITATIONS. Notwithstanding anything
to the contrary herein, if the average closing price of the Common Stock as
reported by Xxxxxxxxx, L.P. on the Principal Market for the 10 trading days
preceding a Repayment Date was less than 110% of the Fixed Conversion Price, and
the Borrower has previously elected to pay all or a portion of the Monthly
Amount in shares of Common Stock, then, the Borrower will be permitted to pay
the Monthly Amount in cash or, at the option of the Borrower, the Holder will be
permitted to convert up to the Monthly Amount that is payable in shares of
Common Stock at a mutually agreed upon conversion price. Any part of the Monthly
Amount not converted by the Borrower into shares of Common Stock by the
following Repayment Date shall be paid by the Borrower in cash on such following
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Repayment Date. At any time during the relevant month, the Borrower has the
option to pay the Monthly Amount, or the unconverted part thereof, in cash.
2.5 DEEMED CONVERSIONS. Any repayment of the Monthly Amount in
shares of Common Stock pursuant to the terms hereof shall constitute and be
deemed a conversion of such portion of the applicable principal amount of this
Note for all purposes under this Note and the Purchase Agreement (except as
otherwise provided herein).
2.6 DEEMED OWNERSHIP. In the case of the exercise of the
conversion rights or payment of the Monthly Amount set forth herein the
conversion privilege shall be deemed to have been exercised and the shares of
Common Stock issuable upon such conversion or Repayment shall be deemed to have
been issued upon the date of receipt by the Borrower of the Notice of Conversion
or Repayment Election Notice, as the case may be. The person or entity entitled
to receive Common Stock issuable upon such conversion shall, on the date such
conversion privilege is deemed to have been exercised and thereafter, be treated
for all purposes as the record holder of such Common Stock.
ARTICLE III
CONVERSION RIGHTS
3.1. CONVERSION INTO THE BORROWER'S COMMON STOCK.
(a) Subject to the provisions set forth above, the Holder
shall have the right, but not the obligation, from and after the date hereof,
and then at any time until this Note is fully paid, to convert the principal
portion of this Note and/or interest and fees due and payable into fully paid
and nonassessable shares of common stock of the Borrower as such stock exists on
the date of issuance of this Note, or any shares of capital stock of the
Borrower into which such stock shall hereafter be changed or reclassified (the
"COMMON STOCK") at the conversion price set forth below (the "CONVERSION
PRICE"). Notwithstanding the foregoing, the Holder will not be permitted to
convert on any Conversion Date (as defined below) an amount of shares having a
dollar value exceeding 25% of the aggregate dollar trading volume during the 30
trading days preceding such Conversion Date.
Upon delivery to the Borrower of a Notice of Conversion as
described in Section 8 of the Securities Purchase Agreement entered into between
the Borrower and the Holder relating to this Note (the "PURCHASE AGREEMENT") of
the Holder's written request for conversion (the date of giving such notice of
conversion being a "CONVERSION Date"), the Borrower shall issue and deliver to
the Holder within three business days from the Conversion Date that number of
shares of Common Stock for the portion of the Note converted in accordance with
the foregoing. The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal of the Note to be converted and interest, if any, by the Fixed
Conversion Price as of the Conversion Date. In the event of any conversions of
outstanding principal amount under this Note in part pursuant to this Article
III, such conversions shall be deemed to constitute conversions of outstanding
principal amount applying to Monthly Amounts for the Repayment Dates in
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chronological order. By way of example, if the original principal amount of this
Note is $2,000,000 and the Holder converted $400,000 of such original principal
amount prior to the first Repayment Date, then (1) the principal amount of the
Monthly Amount due on the first Repayment Date would equal $0, (2) the principal
amount of the Monthly Amount due on the second Repayment Date would equal $0 and
(3) the principal amount of the Monthly Amount due on each of the remaining
Repayment Dates would be $200,000.
(b) Subject to adjustment as provided in Section 3.1(c)
hereof, the Conversion Price per share shall be $1.60 (the "FIXED CONVERSION
PRICE"). If an Event of Default has occurred and be continuing hereunder then
the Conversion Price shall be equal to the lower of (i) the Fixed Conversion
Price; or (ii) seventy percent (70%) of the average of the three lowest closing
prices for the Common Stock on NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market System, American Stock Exchange, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, the "PRINCIPAL MARKET"), or on any
securities exchange or other securities market on which the Common Stock is then
being listed or traded, for the thirty (30) trading days prior to but not
including the Conversion Date.
(c) The Conversion Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
3.1(a) and 3.1(b), shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding, as
follows:
X. Xxxxxx, Sale of Assets, etc. If the Borrower at
any time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of shares or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the number of shares of Common Stock the Holder could have acquired
immediately prior to such consolidation, merger, sale or conveyance based on the
Fixed Conversion Price or the Conversion Price, as the case may be, as of the
closing date thereof. The foregoing provision shall similarly apply to
successive transactions of a similar nature by any such successor or purchaser.
Without limiting the generality of the foregoing, the provisions of this Section
shall apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into the same
or a different number of securities of any class or classes, this Note, as to
the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the number of shares of Common Stock into which
the Note would have been convertible immediately prior to such reclassification
or other change at the Fixed Conversion Price or the Conversion Price, as the
case may be, as of the effective date for such reclassification or change.
C. Stock Splits, Combinations and Dividends. If the
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common Stock
in shares of Common Stock, the Fixed Conversion Price or the Conversion Price,
as the case may be, shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.
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D. Share Issuance. Subject to the provisions of this
Section, if the Borrower at any time shall issue any shares of Common Stock
prior to the conversion of the entire principal amount of the Note (otherwise
than as: (i) provided in Sections 3.1(c)A, 3.1(c)B or 3.1(c)C or this
subparagraph D; (ii) pursuant to warrants or options that may be granted in the
future under any option plan of the Borrower, or any employment agreement, joint
venture, credit, leasing or other financing agreement or any joint venture or
other strategic arrangement, in each case now or hereinafter entered into by the
Borrower; (iii) pursuant to any agreement entered into by the Company or any of
its subsidiaries for the acquisition of another business (whether by stock
purchase or asset purchase, merger or otherwise; or (iv) for services rendered
by consultants; ((i), (ii), (iii) and (iv) above, are hereinafter referred to as
the "EXCLUDED ISSUANCES")) for a consideration less than the Fixed Conversion
Price that would be in effect at the time of such issue, then, and thereafter
successively upon each such issue, the Fixed Conversion Price shall be reduced
as follows: (i) the number of shares of Common Stock outstanding immediately
prior to such issue shall be multiplied by the Fixed Conversion Price in effect
at the time of such issue and the product shall be added to the aggregate
consideration, if any, received by the Borrower upon such issue of additional
shares of Common Stock; and (ii) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue. The
resulting quotient shall be the adjusted Fixed Conversion Price. Except for the
Excluded Issuances for purposes of this adjustment, the issuance of any security
of the Borrower carrying the right to convert such security into shares of
Common Stock or of any warrant, right or option to purchase Common Stock shall
result in an adjustment to the Fixed Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists, the
Borrower will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Common Stock upon the full
conversion of this Note. The Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and non-assessable. The Borrower
agrees that its issuance of this Note shall constitute full authority to its
officers, agents, and transfer agents who are charged with the duty of executing
and issuing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the conversion of this Note.
3.2 METHOD OF CONVERSION. This Note may be converted by the
Holder in whole or in part as described in Section 3.1(a) hereof and the
Purchase Agreement. Upon partial conversion of this Note, a new Note containing
the same date and provisions of this Note shall, at the request of the Holder,
be issued by the Borrower to the Holder for the principal balance of this Note
and interest which shall not have been converted or paid.
3.3 REQUIRED CONVERSION. The Borrower may, at its sole option,
provide the Holder irrevocable written notice ("CALL NOTICE") requiring the
conversion of all or a portion of the Note held by such Holder as of the date
set forth in such Call Notice (the "CALL DATE"), which such date shall be at
least 30 days following the date of the Call Notice, provided a registration
statement covering resales of that number of shares of Common Stock then
issuable upon conversion of this Note pursuant to such Call Notice has been
declared effective and is available for use. The amount of Common Stock to be
issued in connection with any such conversion pursuant to a particular Call
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Notice pursuant to this Section 3.3 shall not exceed 20% of the aggregate dollar
trading volume of the Common Stock for the 22 trading days immediately preceding
the date of such Call Notice. If all of the conditions described herein have
been satisfied, no amount (either principal, interest or fees) shall be payable
after the Call Date with respect to the portion of the Note so converted and the
Borrower will cause a certificate representing the shares of Common Stock so
converted to be issued to the Holder upon receipt of a completed Notice of
Conversion as provided herein. The conversion price with respect to conversions
pursuant to this Section 3.3 shall equal the lesser of (i) the Fixed Conversion
Price and (ii) 90% of the average of the fifteen closing prices for the Common
Stock on the Principal Market during the period immediately preceding the Call
Date.
ARTICLE IV
EVENT OF DEFAULT
The occurrence of any of the following events is an Event of
Default ("EVENT OF DEFAULT"):
4.1 FAILURE TO PAY PRINCIPAL, INTEREST OR OTHER FEES. The
Borrower fails to pay any installment of principal, interest or other fees
hereon or on any other promissory note issued pursuant to the Purchase Agreement
and this Note, when due and such failure continues for a period of four (4) days
after the due date (this is the same four day period in Section 1.2 above).
4.2 BREACH OF COVENANT. The Borrower breaches any material
covenant or other term or condition of this Note or the Purchase Agreement in
any material respect and such breach, if subject to cure, continues for a period
of thirty (30) days after written notice to the Borrower from the Holder.
4.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty of the Borrower made herein, in the Purchase
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading and
shall not be cured for a period of thirty (30) days after written notice thereof
is received by the Borrower from the Holder.
4.4 RECEIVER OR TRUSTEE. The Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
4.5 JUDGMENTS. Any money judgment, writ or similar final
process shall be entered or filed against the Borrower or any of its property or
other assets for more than $250,000, and shall remain unvacated, unbonded or
unstayed for a period of ninety (90) days.
4.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower.
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4.7 STOP TRADE. An SEC stop trade order or Principal Market
trading suspension of the Common Stock for 5 consecutive days or 5 days during a
period of 10 consecutive days, excluding in all cases a suspension of all
trading on a Principal Market.
4.8 DEFAULT UNDER RELATED AGREEMENT. An Event of Default
occurs under and as defined in the Security Agreement dated as of the date
hereof between Borrower and Holder, as such agreement may be amended, modified
and supplemented from time to time.
4.9 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. The
Borrower's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note.
If an Event of Default occurs and is continuing, the Holder
may make all sums of principal, interest and other fees then remaining unpaid
hereon and all other amounts payable hereunder immediately due and payable, all
without demand, presentment or notice, or grace period, all of which hereby are
expressly waived. In the event of an acceleration, the amount due and owing to
the Holder shall be 125% of the outstanding principal amount of the Note (plus
accrued and unpaid interest and fees, if any).
ARTICLE V
MISCELLANEOUS
5.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
5.2 NOTICES. Any notice herein required or permitted to be
given shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party notified, (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day, (c) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the Borrower at the address as set forth on the signature page to the
Purchase Agreement executed in connection herewith, and to the Holder at the
address set forth on the signature page to the Purchase Agreement for such
Holder, with a copy to Xxxxxx X. Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000, facsimile number (000) 000-0000, or at such other
address as the Borrower or the Holder may designate by ten days advance written
notice to the other parties hereto. A Notice of Conversion shall be deemed given
when made to the Borrower pursuant to the Purchase Agreement.
5.3 AMENDMENT PROVISION. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.
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5.4 ASSIGNABILITY. This Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder.
5.5 GOVERNING LAW. This Note shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York; provided, however that the Holder may choose to waive
this provision and bring an action outside the state of New York. Both parties
and the individual signing this Note on behalf of the Borrower agree to submit
to the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or unenforceability of any other provision of this Note.
5.6 MAXIMUM PAYMENTS. Nothing contained herein shall be deemed
to establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.7 SECURITY INTEREST. The holder of this Note has been
granted a security interest in the assets of the Borrower more fully described
in a Security Agreement.
5.8 CONSTRUCTION. Each party acknowledges that its legal
counsel participated in the preparation of this Note and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Note to favor
any party against the other.
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its name effective as of this 13th day of December, 2002.
NETGURU, INC.
By: /S/ Xxxxx Xxxxxxxxxx
WITNESS:
/s/ Xxxxx X. Xxxxxx
XXXXX X. XXXXXX
CFO
NetGuru, Inc.
_______________________________
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NOTICE OF CONVERSION
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(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by NETGURU, INC. on
December ___, 2002 into Shares of Common Stock of NETGURU, INC. (the "Company")
according to the conditions set forth in such Note, as of the date written
below.
Date of Conversion:_____________________________________________________________
Conversion Price:_______________________________________________________________
Shares To Be Delivered:_________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________
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EXHIBIT B
FORM OF REPAYMENT ELECTION NOTICE
To: [HOLDER AT HOLDER'S ADDRESS]
Pursuant to Section 2.2 of the Note of Netguru, Inc. issued on December
__, 2002, we hereby notify you that we are irrevocably electing to repay the
outstanding Monthly Amount (as defined in the Note) due on the Repayment Date
(as defined in the Note) which occurs on ______, 20__ (CHECK ONE):
_____ In full in cash on such Repayment Date.
_____ In full in shares of the Company's Common Stock within three (3)
trading days following such Repayment Date.
_____ In part in cash in the amount of $______ on such Repayment Date,
and in part in shares of the Company's Common Stock (in the amount of ______
shares) within three (3) trading days following such Repayment Date.
_____ In shares, but the Hodler will be permitted to convert up to
the Monthly Amount that is payable in shares of Common Stock during the period
until the next Repayment Date.
Netguru, Inc.
By:
--------------------------------------
Name:
Title:
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