Exhibit 10.4
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of December 23, 2004, by and between 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 to the Purchaser of a
Convertible Term Note in the aggregate principal amount of One Million Dollars
($1,000,000) (the "Note"), which Note is convertible into shares of the
Company's common stock, $0.01 par value per share (the "Common Stock") at an
initial fixed conversion price of $1.29 per share of Common Stock ("Fixed
Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 130,000 shares of the Company's Common Stock (subject to
adjustment as set forth therein) in connection with Purchaser's purchase of the
Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant (as
defined in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant 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 aggregate principal amount of $1,000,000
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 mature on the Maturity
Date (as defined in the Note). Collectively, the Note and Warrant and Common
Stock issuable in payment of the Note, upon conversion of the Note and upon
exercise of the Warrant are referred to as the "Securities."
2. FEES AND WARRANT. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a
Warrant to purchase up to 130,000 shares of Common Stock in connection
with the Offering (the "Warrant") pursuant to Section 1 hereof. The
Warrant must be delivered on the Closing Date. A form of Warrant is
annexed hereto as Exhibit B. All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or
granted to or for the benefit of the Purchaser by the Company are
hereby also made and granted in respect of the Warrant and shares of
the Company's Common Stock issuable upon exercise of the Warrant (the
"Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company
shall pay to Laurus Capital Management, LLC, manager of Purchaser a
closing payment in an amount equal to $5,000. The foregoing fee is
referred to herein as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its
reasonable expenses (including legal fees and expenses) incurred in
connection with the preparation and negotiation of this Agreement and
the Related Agreements (as hereinafter defined), and expenses incurred
in connection with the Purchaser's due diligence review of the Company
and its Subsidiaries (as defined in Section 4.2) and all related
matters. Amounts required to be paid under this Section 2(c) will be
paid on the Closing Date and shall be $5,000 for such expenses referred
to in this Section 2(c).
(d) The Closing Payment and the expenses referred to in the
preceding clause (c) (net of deposits previously paid by the Company)
shall be paid at closing out of funds held pursuant to the Escrow
Agreement (as defined below) and a disbursement letter (the
"Disbursement Letter").
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 Escrow Agreement, at the Closing
on the Closing Date, the Company will deliver to the Purchaser, among other
things, a Note in the form attached as Exhibit A representing the principal
amount of $1,000,000 and a Warrant in the form attached as Exhibit B in the
Purchaser's name representing 130,000 Warrant Shares and the Purchaser will
deliver to the Company, among other things, the amounts set forth in the
Disbursement Letter by certified funds or wire transfer.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser as follows (which representations and
warranties are supplemented by, and subject to, the Company's filings under the
Securities Exchange Act of 1934 made prior to the date of this Agreement
(collectively, the "Exchange Act Filings"), copies of which the Purchaser has
had an opportunity to review:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. The Company has the corporate power
and authority to own and operate its properties and assets, to execute and
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deliver this (i) this Agreement, (ii) the Note and the Warrant to be issued in
connection with this Agreement, (iii) the Security Agreement dated as of the
date hereof between the Company and the Purchaser, (iv) the Registration Rights
Agreement relating to the Securities dated as of the date hereof between the
Company and the Purchaser (as amended, modified or supplemented from time to
time, the "Registration Rights Agreement"), (v) the Escrow Agreement dated as of
the date hereof among the Company, the Purchaser and the escrow agent referred
to therein, substantially in the form of Exhibit D hereto (as amended, modified
or supplemented from time to time, the "Escrow Agreement") and (vi) all other
agreements related to this Agreement and the Note and referred to herein (the
preceding clauses (ii) through (vi), 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"), to issue and sell the Warrant and the Warrant
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, except for those jurisdictions in
which the failure to do so has not had, or could not reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
business, assets, liabilities, condition (financial or otherwise), properties,
operations or prospects of the Company (a "Material Adverse Effect").
4.2 SUBSIDIARIES. Each direct and indirect Subsidiary of the
Company, the direct owner of such Subsidiary and its percentage ownership
thereof, is set forth on Schedule 4.2. For the purpose of this Agreement, a
"SUBSIDIARY" of any person or entity means (i) a corporation or other entity
whose shares of stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power only by reason
of the happening of a contingency) to elect a majority of the directors of such
corporation, or other persons or entities performing similar functions for such
person or entity, are owned, directly or indirectly, by such person or entity or
(ii) a corporation or other entity in which such person or entity owns, directly
or indirectly, more than 50% of the equity interests at such time.
4.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, as of the
date hereof, consists of 155,000,000 shares, of which 150,000,000 are
shares of Common Stock, par value $0.01 per share, 18,917,154 shares of
which are issued and outstanding, and 5,000,000 are shares of preferred
stock, par value $0.01 per share, of which no shares of preferred stock
are issued and outstanding.
(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 issued pursuant to this Agreement and the
Related Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements, or arrangements or
agreements of any kind for the purchase or acquisition from the Company
of any of its securities. Except as disclosed on Schedule 4.3, neither
the offer, issuance or sale of any of the Note or Warrant, or the
issuance of any of the Note Shares or Warrant 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.
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(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) were issued in compliance with all
applicable state and federal laws concerning the issuance of
securities.
(d) The rights, preferences, privileges and restrictions of
the shares of the Common Stock are as stated in the Company's
Certificate of Incorporation (the "Charter"). The Note Shares and
Warrant 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.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action
on the part of the Company, its officers and directors necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder and under the Related Agreements at the
Closing and, the authorization, sale, issuance and delivery of the Note and
Warrant has been taken or will be taken prior to the Closing. This 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 issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant 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.
4.5 LIABILITIES. The Company does not have any 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 or
as disclosed in any Exchange Act Filings:
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(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.
(b) Since March 31, 2004, 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 (other than
ordinary course obligations) individually in excess of $100,000 or, in
the case of indebtedness and/or liabilities individually less than
$100,000, in excess of $100,000 in the aggregate; (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.
(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. Except as set forth on
Schedule 4.7, 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 and for bonus
payments;
(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 $50,000
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
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one percent (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 March 31, 2004, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company, which, individually or in the aggregate, has had or could
reasonably be expected to have, a Material Adverse Effect;
(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;
(d) any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(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;
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(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, either individually or in the
aggregate, has had, or could reasonably be expected to have, a Material
Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be
expected to have, a Material Adverse Effect; 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. Except as set
forth on Schedule 4.9, 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. Except as set forth on Schedule 4.9, the Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
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.
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(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 (x) any term of its Charter or Bylaws, or (y) of any
provision of any indebtedness, mortgage ,indenture, contract, agreement or
instrument to which it is party or by which it is bound or of any judgment,
decree, order or writ, which violation or default, in the case of this clause
(y), has had, or could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect. 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 and thereto, 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. Except as set forth on Schedule 4.12 hereto
or disclosed in its SEC Reports, there is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company that prevents the Company from entering into this Agreement
or the Related Agreements, or from consummating the transactions contemplated
hereby or thereby, or which has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect or could
result in any change in the current equity ownership of the Company, nor is the
Company aware that there is any basis to assert 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.
4.13 TAX RETURNS AND PAYMENTS. The Company has timely filed
all tax returns (federal, state and local) required to be filed by it. All taxes
shown to be due and payable on such returns, any assessments imposed, and 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. Except as set
forth on Schedule 4.13, 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
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(b) of any deficiency in assessment or proposed judgment to
its federal, state or other taxes.
The Company has no knowledge of any liability for 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. Except as set forth on Schedule 4.14, 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. Except as disclosed in the Exchange Act
Filings or on Schedule 4.14, 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. Except as set
forth on Schedule 4.14, 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. Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, the
Company is presently not under any obligation, and has not granted any rights,
to register any of the Company's presently outstanding securities or any of its
securities that may hereafter be issued. Except as set forth on Schedule 4.15
and except as disclosed in Exchange Act Filings, to the Company's knowledge, no
stockholder of the Company has entered into any agreement with respect to the
voting of equity securities of the Company.
4.16 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the
Company is not in violation 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 has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
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obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any Related
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
could, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
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. Except as set forth on Schedule 4.17, 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.
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 and Warrant, including all information the Company believes
is reasonably necessary to make such investment decision. Neither this
Agreement, the Related Agreements nor the exhibits and schedules hereto and
thereto 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.
4.20 INSURANCE. The Company has general commercial, product
liability, fire and casualty insurance policies with coverages which the Company
believes are customary for companies similarly situated to the Company in the
same or similar business.
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4.21 SEC REPORTS. Except as set forth on Schedule 4.21, the
Company has filed all proxy statements, reports and other documents required to
be filed by it under the Securities Xxxxxxxx Xxx 0000, as amended (the "Exchange
Act"). The Company has furnished or made available to the Purchaser copies of:
(i) its Annual Report on Form 10-KSB for the fiscal year ended March 31, 2004;
and (ii) its Quarterly Reports on Form 10-QSB for the fiscal quarters ended June
30, 2004 and September 30, 2004, and the Form 8-K filings which it has made
during the fiscal year 2005 to date (collectively, the "SEC Reports"). Except as
set forth on Schedule 4.21, 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.
4.22 LISTING. The Company's Common Stock is listed for trading
on the NASDAQ SmallCap Market ("NASDAQ SC") 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 NASDAQ SC or that its Common Stock does
not meet all requirements for listing.
4.23 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 or any Related 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.
4.24 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 state and federal securities
laws.
4.25 DILUTION. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant 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.
4.26 PATRIOT ACT. The Company certifies that, to the best of
Company's knowledge, the Company has not been designated, and is not owned or
controlled, by a "suspected terrorist" as defined in Executive Order 13224. The
Company hereby acknowledges that the Purchaser seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Company hereby represents, warrants and agrees
that: (i) none of the cash or property that the Company will pay or will
11
contribute to the Purchaser has been or shall be derived from, or related to,
any activity that is deemed criminal under United States law; and (ii) no
contribution or payment by the Company to the Purchaser, to the extent that they
are within the Company's control shall cause the Purchaser to be in violation of
the United States Bank Secrecy Act, the United States International Money
Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations ceases to be true
and accurate regarding the Company. The Company agrees to provide the Purchaser
any additional information regarding the Company that the Purchaser deems
necessary or convenient to ensure compliance with all applicable laws concerning
money laundering and similar activities. The Company understands and agrees that
if at any time it is discovered that any of the foregoing representations are
incorrect, or if otherwise required by applicable law or regulation related to
money laundering or similar activities, the Purchaser may undertake appropriate
actions to ensure compliance with applicable law or regulation, including but
not limited to segregation and/or redemption of the Purchaser's investment in
the Company. The Company further understands that the Purchaser may release
confidential information about the Company and, if applicable, any underlying
beneficial owners, to proper authorities if the Purchaser, in its sole
discretion, determines that it is in the best interests of the Purchaser in
light of relevant rules and regulations under the laws set forth in subsection
(ii) above.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company as follows (such representations
and warranties do not lessen or obviate the representations and warranties of
the Company set forth in this Agreement)
5.1 NO SHORTING. The Purchaser or any of its affiliates and
investment partners has not, will not and will not cause any person or entity,
to directly engage in "short sales" of the Company's Common Stock as long as the
Note shall be outstanding.
5.2 REQUISITE POWER AND AUTHORITY. The 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.
5.3 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 of 1933, as amended (the "Securities Act"). The Purchaser confirms that it
has received or has had full access to all the information it considers
12
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it upon the conversion of the Note and
the exercise of the Warrant, respectively. The Purchaser further confirms that
it 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, the Warrant 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.
5.4 PURCHASER BEARS ECONOMIC RISK. The 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. The 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 with respect to such sale.
5.5 ACQUISITION FOR OWN ACCOUNT. The Purchaser is acquiring
the Note and Warrant and the Note Shares and the Warrant Shares for the
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.
5.6 PURCHASER CAN PROTECT ITS INTEREST. The Purchaser
represents that by reason of its, or of its management's, business and financial
experience, the Purchaser has the capacity to evaluate the merits and risks of
its investment in the Note, the Warrant and the Securities and to protect its
own interests in connection with the transactions contemplated in this
Agreement, and the Related Agreements. Further, the Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.
5.7 ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.8 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 ANY 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."
13
(b) The Note Shares and the Warrant 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
ANY APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO NETGURU, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
NETGURU, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
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.
14
6.2 LISTING. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon conversion of the Note and upon the
exercise of the Warrant on the NASDAQ SC (the "Principal Market") upon which
shares of Common Stock are listed (subject to official notice of issuance) and
shall maintain such listing so long as any other shares of Common Stock shall be
so listed. The Company will maintain the listing of its Common Stock on the
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.
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 the
Purchaser and promptly provide copies thereof to the 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.
6.5 USE OF FUNDS. The Company agrees that it will use the
proceeds of the sale of the Note and Warrant for general working capital
purposes only.
6.6 ACCESS TO FACILITIES. The Company will permit any
representatives designated by the Purchaser (or any successor 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 the Company
with the directors, officers and independent accountants of the
Company.
Notwithstanding the foregoing, the Company will not provide any material,
non-public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
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.
15
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 which the Company reasonably believes is
customary for companies in similar business similarly situated as the Company
and to the extent available on commercially reasonable terms. Excepting the
Company's workers' compensation policy, endorsements to such all insurance
policies of the Company its Subsidiaries shall name Purchaser as "co-insured" or
"additional insured" and appropriate loss payable endorsements in form and
substance satisfactory to Purchaser, naming Purchaser as loss payee, and
evidence that as to Purchaser the insurance coverage shall not be impaired or
invalidated by any act or neglect of the Company or any Subsidiary and the
insurer will provide Purchaser with at least thirty (30) days notice prior to
cancellation. The Company and each Subsidiary shall instruct the insurance
carriers that in the event of any loss thereunder, the carriers shall make
payment for such loss to the Company and/or the Subsidiary and Purchaser
jointly. In the event that as of the date of receipt of each loss recovery upon
any such insurance, the Purchaser has not declared an event of default with
respect to this Agreement or any of the Related Agreements, then the Company
shall be permitted to direct the application of such loss recovery proceeds
toward investment in property, plant and equipment that would comprise
"Collateral" secured by Purchaser's security interest pursuant to its security
agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to Purchaser. In the event that Purchaser has
properly declared an event of default with respect to this Agreement or any of
the Related Agreements, then all loss recoveries received by Purchaser upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine. Any surplus (following satisfaction of all Company obligations to
Purchaser) shall be paid by Purchaser to the Company or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by the Company
or the Subsidiary, as applicable, to Purchaser, on DEMAND.
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. The Company may disclose Purchaser's identity and
the terms of this Agreement to its current and prospective debt and equity
financing sources.
16
6.12 REQUIRED APPROVALS. For so long as twenty-five percent
(25%) of the principal amount of the Note is outstanding, the Company, without
the prior written consent of the Purchaser, shall not:
(a) (i) directly or indirectly declare or pay any dividends,
other than dividends paid to the Parent or any of its wholly-owned
Subsidiaries, (ii) issue any preferred stock that is manditorily
redeemable prior to the one year anniversary of the Maturity Date (as
defined in the Note) or (iii) redeem any of its preferred stock or
other equity interests;
(b) liquidate, dissolve or effect a material reorganization
(it being understood that in no event shall the Company dissolve,
liquidate or merge with any other person or entity (unless the Company
is the surviving entity);
(c) become subject to (including, without limitation, by way
of amendment to or modification of) any agreement or instrument which
by its terms would (under any circumstances) restrict the Company's
right to perform the provisions of this Agreement or any of the
agreements contemplated thereby; and
(d) materially alter or change the scope of the business of
the Company.
(e) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of
equipment (in excess of five percent (5%) of the fair market value of
the Company's and its Subsidiaries' assets) whether secured or
unsecured other than (x) the Company's indebtedness to the Purchaser,
(y) indebtedness set forth on SCHEDULE 6.12(e) attached hereto and made
a part hereof and any refinancings or replacements thereof on terms no
less favorable to the Purchaser than the debt being refinanced or
replaced, and (z) any indebtedness incurred in connection with the
purchase of assets in the ordinary course of business, and any
refinancings or replacements thereof on terms no less favorable to the
Purchaser than the indebtedness being refinanced or replaced; (ii)
cancel any indebtedness owing to it in excess of $50,000 in the
aggregate during any 12 month period; (iii) assume, guarantee, endorse
or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except the endorsement of
negotiable instruments by the Company for deposit or collection or
similar transactions in the ordinary course of business.
6.13 REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 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.
17
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. 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 and exercise of the Warrant.
6.15 MARGIN STOCK. The Company will not permit any of the
proceeds of the Note or the Warrant to be used directly or indirectly to
"purchase" or "carry" "margin stock" or to repay indebtedness incurred to
"purchase" or "carry" "margin stock" within the respective meanings of each of
the quoted terms under Regulation U of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect.
7. COVENANTS OF THE PURCHASER. The Purchaser covenants and agrees with
the Company as follows:
7.1 CONFIDENTIALITY. The Purchaser agrees that it will not
disclose, and will not include in any public announcement, the name of the
Company, unless expressly agreed to by the Company or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.
7.2 NON-PUBLIC INFORMATION. The Purchaser agrees not to effect
any sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
7.3 LIMITATION ON ACQUISITION OF COMMON STOCK OF THE COMPANY.
Notwithstanding anything to the contrary contained in this Agreement, any
Related Agreement, any document, instrument or agreement entered into in
connection with the transactions contemplated hereby or any document, instrument
or agreement entered into in connection with any other transaction entered into
by and between the Purchaser and the Company (and/or subsidiaries or affiliates
of the Company), the Purchaser shall not acquire stock in the Company
(including, without limitation, pursuant to a contract to purchase, by
exercising an option or warrant, by converting any other security or instrument,
by acquiring or exercising any other right to acquire, shares of stock or other
security convertible into shares of stock in the Company, or otherwise, and such
options, warrants, conversion or other rights shall not be exercisable) to the
extent such stock acquisition would cause any interest (including any original
issue discount) payable by the Company to the Purchaser not to qualify as
portfolio interest, within the meaning of Section 881(c)(2) of the Internal
Revenue Code of 1986, as amended (the "Code") by reason of Section 881(c)(3) of
the Code, taking into account the constructive ownership rules under Section
871(h)(3)(C) of the Code.
8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
18
8.1 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, any Related Agreement or in any exhibits or schedules attached hereto
or thereto; 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.
8.2 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.
9. CONVERSION OF CONVERTIBLE NOTE.
9.1 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
reasonably acceptable to the Purchaser following a request by the
Purchaser) 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 9.1(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 Effectiveness
Date (as defined in the Registration Rights Agreement) 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
19
the provisions hereof shall be deemed a "Conversion Date." Pursuant to
the terms of the Notice of Conversion, the Company will issue
instructions to the transfer agent accompanied by an opinion of counsel
within one (1) business day of the date of the delivery to the Company
of the Notice of Conversion and shall cause the transfer agent to
transmit the certificates representing the Conversion Shares to the
Holder 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 (3) 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 9 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 9.1(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 required pursuant to Section 9 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. Notwithstanding the foregoing, the Company will
not owe the Purchaser any late payments if the delay in the delivery of
the Note Shares beyond the Delivery Date is solely out of the control
of the Company and the Company is actively trying to cure the cause of
the delay. 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.
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.
10. REGISTRATION RIGHTS.
10.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
20
10.2 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 (these exceptions hereinafter
referred to as the "Excepted Issuances"), the Company will not issue any
securities with a continuously 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 (together with all accrued and unpaid interest and fees
related thereto (the "Exclusion Period").
11. MISCELLANEOUS.
11.1 GOVERNING LAW. THIS AGREEMENT AND EACH RELATED 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 AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE
COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK.
BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED
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 RELATED 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 THIS
AGREEMENT OR ANY RELATED AGREEMENT.
11.2 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.
11.3 SUCCESSORS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, 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, other than the holders of Common
Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company.
21
11.4 ENTIRE AGREEMENT. This Agreement, the Related Agreements,
the exhibits and schedules hereto and thereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and 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.
11.5 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.
11.6 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.
(c) The obligations of the Purchaser and the rights of the
Company under this Agreement may be waived only with the written
consent of the Company.
11.7 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, or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 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) three (3) business days after having been sent by
registered or certified mail, return receipt requested, postage
prepaid; or
(d) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written
verification of receipt.
All communications shall be sent as follows:
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IF TO THE COMPANY, TO: NetGuru, Inc.
00000 Xxxx Xxxxx Xxxxxxx
Xxxxx Xxxxx XX 00000
Attention: Chief Financial Officer
Facsimile: (000) 000-0000
WITH A COPY TO:
Xxxxxxxxxx & Xxxxx, LLP
00000 Xxxxxxxx Xxxx., Xxxxx 000
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxx Xxxxx, Esq.
Facsimile: (000) 000-0000
IF TO THE PURCHASER, TO: Laurus Master Fund, Ltd.
M&C Corporate Services Limited
X.X. Xxx 000 XX
Xxxxxx Xxxxx
Xxxxxx Xxxx
South Church Street
Grand Cayman, Cayman Islands
Facsimile: 000-000-0000
WITH A COPY TO:
Xxxx X. Xxxxxx, Esq.
000 Xxxxx Xxxxxx 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 000-000-0000
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in 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.
11.10 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.
11.11 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.
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11.12 BROKER'S FEES. Except as set forth on Schedule 11.12
hereof, Each party hereto represents and warrants that 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 11.12 being untrue.
11.13 CONSTRUCTION. Each party acknowledges that its legal
counsel participated in the preparation of this Agreement and the Related
Agreements 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.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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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: By:
---------------------------- -----------------------
Name: Name:
---------------------------- -----------------------
Title: Title:
---------------------------- -----------------------
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