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.
SECURED CONVERTIBLE NOTE
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., X.X. Xxx 0000 G.T., Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the "HOLDER") or
its registered assigns, on order, without demand, the sum of FOUR MILLION
DOLLARS ($4,000,000), or such other amount as may be due and owing from time to
time by Borrower to Holder pursuant to the terms of the Security Agreement (as
hereafter defined) (the "PRINCIPAL AMOUNT"), together with any accrued and
unpaid interest, on July 31, 2006 (the "MATURITY DATE").
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in the Security Agreement between the Borrower
and the Holder dated the date hereof (as amended, modified and supplemented from
time to time, the "SECURITY AGREEMENT").
The following terms shall apply to this Note:
ARTICLE I
INTEREST
1.1. INTEREST RATE. Subject to Section 1.2 hereof, interest on this
Note shall be payable at the Contract Rate in accordance with the terms of the
Security Agreement.
1.2. DEFAULT RATE. Following the occurrence and during the continuance
of an Event of Default, interest on this Note shall be payable at the Default
Rate.
ARTICLE II
ADVANCES UNDER NOTE
2.1. MECHANICS OF ADVANCES. All Revolving Credit Advances evidenced by
this Note shall be made in accordance with the terms and provisions of the
Security Agreement.
2.2 PAYMENT OF OBLIGATIONS IN COMMON STOCK. At any time after the date
hereof that the Borrower shall have an effective registration statement covering
2,300,000 shares of its Common Stock to be issued upon the conversion of this
Note, the Borrower may elect to prepay any Obligation, or a portion thereof
using such registered shares of Common Stock. The Company shall deliver to the
Holder a written irrevocable notice in the form of Exhibit A attached hereto
("PAYMENT ELECTION NOTICE") stating which portion of the Obligations it is
electing to pay (the "PAYMENT AMOUNT"). Such Payment Election Notice shall be
delivered to the Holder at least ten (10) days prior to the date upon which the
Borrower desires to prepay any Obligation (the date of such notice being
hereinafter referred to as the "PAYMENT DATE").
2.3 COMMON STOCK PAYMENT RESTRICTIONS. If the closing price of the
Common Stock as reported by Bloomberg, L.P. on the Principal Market for all of
the 10 trading days preceding a Payment Date is at least 110% of the then
applicable Fixed Conversion Price the number of such shares to be delivered by
the Company in respect of such Payment Amount shall be determined by dividing
(x) the Payment Amount by (y) the then applicable Fixed Conversion Price. If the
closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for any of the 10 trading days preceding a Payment Date was
less than 110% of the then applicable Fixed Conversion Price, instead of the
Company delivering the required number of shares of Common Stock on the Payment
Date, the Holder shall convert an amount equal to the Payment Amount at a
conversion price equal to the greater of (i) the then applicable Fixed
Conversion Price and (ii) 85% of the average of the three (3) lowest closing
prices during the thirty (30) trading days immediately preceding the date upon
which the Company delivered the Payment Election Notice. Any part of Payment
Amount not converted into shares of Common Stock shall remain an Obligation of
the Company.
2.4 NO EFFECTIVE REGISTRATION. Notwithstanding anything to the contrary
herein, the Company shall be prohibited from exercising its right to prepay any
of the Obligations in shares of Common Stock on the applicable Repayment Date if
at any time from the Payment Date until the time at which the Holder receives
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.
ARTICLE III
CONVERSION RIGHTS
3.1. OPTIONAL CONVERSION. Subject to the terms of this Article III, the
Holder shall have the right, but not the obligation, at any time until the
Maturity Date or thereafter during an Event of Default (as defined in Article
V), to convert all or any portion of the outstanding Principal Amount and/or
accrued interest and fees due and payable into fully paid and nonassessable
shares of Common Stock at the conversion price set forth in Section 3.2 (the
"CONVERSION PRICE"). The shares of Common Stock to be issued upon such
conversion are herein referred to as the "CONVERSION SHARES."
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3.2. CONVERSION PRICE. Subject to adjustment as provided in Section 3.6
hereof, the Conversion Price per share shall be $1.30 (the "FIXED CONVERSION
PRICE"). For every $1 million of conversions made hereunder, the Fixed
Conversion Price shall thereafter be adjusted upward to equal 110% of the volume
weighted average closing price for the five (5) trading days prior to the last
day of the period during which such $1 million has been converted.
3.3. CONVERSION LIMITATION. Notwithstanding anything contained herein
to the contrary, the Holder shall not be entitled to convert, nor shall the
Borrower be permitted to require the Holder to accept, pursuant to the terms of
this Note an amount that would be convertible into that number of Conversion
Shares which would exceed the difference between the number of shares of Common
Stock beneficially owned by such holder or issuable upon exercise of warrants
held by such holder and 4.99% of the outstanding shares of Common Stock of the
Borrower. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The Holder may void the Conversion Share
limitation described in this Section 3.3 upon 75 days prior notice to the
Borrower, or without any notice requirement upon an Event of Default.
3.4. MECHANICS OF CONVERSION. In the event that the Holder elects to
convert this Note into Common Stock, the Holder shall give notice of such
election by delivering an executed and completed notice of conversion ("NOTICE
OF CONVERSION") to the Borrower and such Notice of Conversion shall provide a
breakdown in reasonable detail of the amount of Principal Amount, accrued
interest and fees that are being converted. On each Conversion Date (as
hereinafter defined) and in accordance with its Notice of Conversion, the Holder
shall make the appropriate reduction to the Principal Amount, accrued interest
and fees as entered in its records. Each date on which a Notice of Conversion is
delivered or telecopied to the Borrower in accordance with the provisions hereof
shall be deemed a Conversion Date (the "CONVERSION DATE"). A form of Notice of
Conversion that may be employed by the Holder is annexed hereto as Exhibit B.
The Borrower will cause the transfer agent to transmit the certificates
representing the Conversion Shares to the Holder by crediting the account of the
Holder's designated broker with the Depository Trust Corporation ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
business days after receipt by the Borrower of the Notice of Conversion (the
"DELIVERY DATE").
In the case of the exercise of the conversion rights set forth herein
the conversion privilege shall be deemed to have been exercised and the
Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Borrower of the Notice of Conversion. The
Holder shall be treated for all purposes as the record holder of such Common
Stock, unless the Holder provides the Borrower written instructions to the
contrary.
3.5. LATE PAYMENTS. The Borrower understands that a delay in the
delivery of the shares of Common Stock in the form required pursuant to this
Article beyond the Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Borrower agrees to pay late
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payments to the Holder for late issuance of the such shares in the form required
pursuant to this Article III upon conversion of the Note, in the amount equal to
$500 per business day after the Delivery Date. The Borrower shall pay any
payments incurred under this Section in immediately available funds upon demand.
3.6. ADJUSTMENT PROVISIONS. The Fixed Conversion Price and number and
kind of shares or other securities to be issued upon conversion determined
pursuant to Sections 3.1 and 3.2, shall be subject to adjustment from time to
time upon the happening of certain events while this conversion right remains
outstanding, as follows:
A. RECLASSIFICATION, ETC. If 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 Amount and accrued interest thereon, shall thereafter be deemed
to evidence the right to purchase an adjusted number of such securities and kind
of securities as would have been issuable as the result of such change with
respect to the Common Stock immediately prior to such reclassification or other
change.
B. STOCK SPLITS, COMBINATIONS AND DIVIDENDS. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Fixed Conversion Price shall be proportionately reduced in
case of subdivision of shares or stock dividend or proportionately increased in
the case of combination of shares, in each such case by the ratio which the
total number of shares of Common Stock outstanding immediately after such event
bears to the total number of shares of Common Stock outstanding immediately
prior to such event.
C. SHARE ISSUANCES. Subject to the provisions of this Section
3.6, if the Borrower shall at any time prior to the conversion or repayment in
full of the Principal Amount issue any shares of Common Stock to a person other
than the Holder (otherwise than (i) pursuant to Subsections A or B above or this
subsection C; (ii) pursuant to options, warrants, or other obligations to issue
shares outstanding on the date hereof as disclosed to Holder in writing; (iii)
pursuant to options that may be issued under any employee incentive stock option
and/or any qualified stock option plan adopted by the Borrower for a
consideration per share (the "OFFER PRICE") less than the Fixed Conversion Price
in effect at the time of such issuance, then the Fixed Conversion Price shall be
immediately reset to such lower Offer Price; or (iv) 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 (v) for services rendered by consultants; ((i), (ii), (iii) (iv)
and (v) above, are hereinafter referred to as the "EXCLUDED ISSUANCES")). For
purposes hereof, the issuance of any security of the Borrower convertible into
or exercisable or exchangeable for Common Stock shall result in an adjustment to
the Fixed Conversion Price only upon the conversion, exercise or exchange of
such securities.
D. COMPUTATION OF CONSIDERATION. For purposes of any
computation respecting consideration received pursuant to Subsection C above,
the following shall apply:
(a) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions, discounts or
other expenses incurred by the Borrower for any underwriting of the issue or
otherwise in connection therewith;
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(b) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Borrower (irrespective
of the accounting treatment thereof); and
(c) in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the consideration received
by the Borrower for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Borrower upon the conversion or
exchange thereof (the consideration in each case to be determined in the same
manner as provided in clauses (a) and (b) of this Subsection (D)).
3.7. RESERVATION OF SHARES. Except as otherwise provided in the
Securities Agreement, 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.
3.8. REGISTRATION RIGHTS. The Holder has been granted registration
rights with respect to the shares of Common Stock issuable upon conversion of
this Note as more fully set forth in a Registration Rights Agreement dated the
date hereof.
3.9. REQUIRED CONVERSION. In the event that the Common Stock trades on
the Principal Market at a price greater than 110% of the Fixed Conversion Price
for a period of at least five (5) consecutive trading days, then the Borrower
may, at its sole option, provide the Holder irrevocable written notice ("CALL
NOTICE") requiring the conversion at the Fixed Conversion Price of all or a
portion of the Note held by the Holder (subject to the limitation provided for
in Section 3.3) as of the date set forth in such Call Notice (the "CALL DATE").
The Call Date shall be at least eleven (11) trading days following the date of
the Call Notice, provided a registration statement covering resales of that
number of Conversion Shares provided for in the Call Notice has been declared
effective and is available for use. The number of Conversion Shares to be issued
in connection with any such conversion pursuant to a particular Call Notice
pursuant to this Section 3.9 shall not exceed 25% of the aggregate dollar
trading volume of the Common Stock for the eleven (11) trading days immediately
preceding the Call Date. If the price of the Common Stock falls below 110% of
the Conversion Price during the eleven (11) trading day period preceding the
Call Date, then the Holder will be required to convert only such amount of the
Note pursuant to such Call Notice as will equal twenty five percent (25%) of the
aggregate dollar trading volume for each day during such 11 day period that the
closing price of the Common Stock was greater than one hundred ten percent
(110%) of the then applicable Fixed Conversion Price. The Company shall not be
permitted to give the Investor more than one notice during any twenty-two (22)
day period.
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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 Security Agreement, when due;
or fails to make any payment, when due, arising from the occurrence of an
Overadvance PROVIDED, HOWEVER, the Borrower shall have ten (10) days to cure any
such failure.
4.2. BREACH OF COVENANT. The Borrower breaches any covenant or other
term or condition of this Note in any material respect and such breach, if
subject to cure, continues for a period of thirty (30) days after the occurrence
thereof.
4.3. BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty of the Borrower made herein, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith shall be false or misleading; provided, however, the Borrower shall
have thirty (30) business days to cure such failure.
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 for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower;
provided, however, that where such action is instituted against the Borrower but
is dismissed within thirty (30) days after the filing of such petition, this
provision shall not apply to such action.
4.7. STOP TRADE. An SEC stop trade order or Principal Market trading
suspension of the Common Stock for five (5) consecutive trading days or five (5)
days during a period of 10 consecutive trading days, excluding in all cases a
suspension of all trading on a Principal Market.
4.8. DEFAULT UNDER RELATED AGREEMENT. The occurrence of an Event of
Default under and as defined in the Security Agreement.
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ARTICLE V
DEFAULT PAYMENT
5.1. DEFAULT PAYMENT. If an Event of Default occurs, the Holder, at its
option, may elect, in addition to all rights and remedies of Holder under the
Security Agreement and all obligations of Borrower under the Security Agreement,
to require the Borrower to make a Default Payment ("DEFAULT PAYMENT"). The
Default Payment shall be 105% of the outstanding principal amount of the Note,
plus accrued but unpaid interest, all other fees then remaining unpaid, and all
other amounts payable hereunder. The Default Payment shall be applied first to
any fees due and payable to the Holder, then to accrued and unpaid interest due
on the Note and then to the principal balance of the Note.
5.2. DEFAULT PAYMENT DATE AND DEFAULT NOTICE PERIOD. The Default
Payment shall be due and payable on the fifteenth (15th) calendar day after the
date written notice is sent from the Holder to the Borrower of an Event of
Default as defined in Article IV ("DEFAULT PAYMENT DATE"). The period between
the date of the written notice from the Holder to the Borrower of an Event of
Default and the Default Payment Date shall be the "DEFAULT NOTICE PERIOD." If
during the Default Notice Period, the Borrower cures the Event of Default, the
Event of Default will no longer exist and any rights the Holder had pertaining
to the Event of Default will no longer exist. If the Event of Default is not
cured during the Default Notice Period, all amounts payable hereunder shall be
due and payable on the Default Payment Date, all without further demand,
presentment or notice, or grace period, all of which hereby are expressly
waived.
5.3. CUMULATIVE REMEDIES. The remedies under this Note shall be
cumulative.
ARTICLE VI
MISCELLANEOUS
6.1. 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.
6.2. NOTICES. Any notice herein required or permitted to be given shall
be in writing and provided in accordance with the terms of the Security
Agreement.
6.3. 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.
6.4. 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.
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6.5. COST OF COLLECTION. If default is made in the payment of this
Note, the Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
6.6. 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. 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. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court order in favor of Holder.
6.7. 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.
6.8. SECURITY INTEREST. The holder of this Note has been granted a
security interest in certain assets of the Borrower more fully described in the
Security Agreement.
6.9. 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 31st day of July, 2003.
NETGURU, INC.
By: /s/ XXXXX XXXXXXXXXX
-------------------------------
WITNESS:
/S/ XXXXX XXXXXX
-----------------------------
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EXHIBIT A
---------
PAYMENT ELECTION NOTICE
EXHIBIT B
---------
NOTICE OF CONVERSION
--------------------
(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 ____________ on [ ]
___, 2003 into Shares of Common Stock of ____________ (the "Borrower") 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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