EXHIBIT 10.1
NETGURU, INC.
SECURITIES PURCHASE AGREEMENT
DECEMBER 13, 2002
TABLE OF CONTENTS
PAGE
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1. AGREEMENT TO SELL AND PURCHASE.............................................1
2. FEES AND WARRANT...........................................................1
3. CLOSING, DELIVERY AND PAYMENT..............................................2
3.1 Closing.....................................................2
3.2 Delivery....................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................2
4.1 Organization, Good Standing and Qualification...............2
4.2 Subsidiaries................................................3
4.3 Capitalization; Voting Rights...............................3
4.4 Authorization; Binding Obligations..........................4
4.5 Liabilities.................................................5
4.6 Agreements; Action..........................................5
4.7 Obligations to Related Parties..............................5
4.8 Changes.....................................................6
4.9 Title to Properties and Assets; Liens, Etc..................7
4.10 Intellectual Property.......................................7
4.11 Compliance with Other Instruments...........................7
4.12 Litigation..................................................8
4.13 Tax Returns and Payments....................................8
4.14 Employees...................................................8
4.15 Registration Rights and Voting Rights.......................9
4.16 Compliance with Laws; Permits...............................9
4.17 Environmental and Safety Laws...............................9
4.18 Valid Offering.............................................10
4.19 Full Disclosure............................................10
4.20 Insurance..................................................10
4.21 SEC Reports................................................10
4.22 No Market Manipulation.....................................11
4.23 Listing....................................................11
4.24 No Integrated Offering.....................................11
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4.25 Stop Transfer..............................................11
4.26 Dilution...................................................11
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS..........................11
5.1 Requisite Power and Authority..............................11
5.2 Investment Representations.................................12
5.3 Purchaser Bears Economic Risk..............................12
5.4 Acquisition for Own Account................................12
5.5 Purchaser Can Protect Its Interest.........................12
5.6 Accredited Investor........................................12
5.7 Legends....................................................12
5.8 No Shorting................................................12
6. COVENANTS OF THE COMPANY..................................................14
6.1 Stop-Orders................................................14
6.2 Listing....................................................14
6.3 Market Regulations.........................................14
6.4 Reporting Requirements.....................................14
6.5 Use of Funds...............................................14
6.6 Access to Facilities.......................................14
6.7 Taxes......................................................15
6.8 Insurance..................................................15
6.9 Intellectual Property......................................15
6.10 Properties.................................................15
6.11 Confidentiality............................................15
6.12 Corporate Existence........................................16
6.13 Reissuance of Securities...................................16
6.14 Opinion....................................................16
6.15 Financial Covenant.........................................16
7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION.........16
7.1 Company Indemnification....................................16
7.2 Purchaser's Indemnification................................16
7.3 Procedures.................................................16
8. CONVERSION OF CONVERTIBLE NOTE............................................17
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8.1 Mechanics of Conversion....................................17
8.2 Maximum Conversion.........................................18
8.3 Optional Redemption........................................18
8.4 Nasdaq Approval............................................18
9. REGISTRATION RIGHTS.......................................................19
9.1 Registration Rights Granted................................19
9.2 Registration Procedures....................................20
9.3 Provision of Documents.....................................21
9.4 Non-Registration Events....................................21
9.5 Expenses...................................................22
9.6 Indemnification and Contribution...........................22
10. OFFERING RESTRICTIONS....................................................24
11. SECURITY INTEREST........................................................24
12. MISCELLANEOUS............................................................24
12.1 Governing Law..............................................24
12.2 Survival...................................................24
12.3 Successors and Assigns.....................................25
12.4 Entire Agreement...........................................25
12.5 Severability...............................................25
12.6 Amendment and Waiver.......................................25
12.7 Delays or Omissions........................................25
12.8 Notices....................................................25
12.9 Attorneys' Fees............................................26
12.10 Titles and Subtitles.......................................26
12.11 Counterparts...............................................26
12.12 Broker's Fees..............................................26
12.13 Construction...............................................26
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NETGURU, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "AGREEMENT") is made
and entered into as of December 13, 2002, by and among netGuru, Inc., a Delaware
corporation (the "COMPANY"), and Laurus Master Fund, Ltd., a Cayman Islands
company (the "PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale of a 6% Convertible Note
in an aggregate principal amount of $2,000,000 (the "NOTE"), convertible into
shares of the Company's common stock, par value $.01 per share (the "COMMON
STOCK") at a fixed conversion rate of $1.60 per share of Common Stock ("FIXED
CONVERSION RATE");
WHEREAS, the Company wishes to issue a warrant (the "WARRANT") to the
Purchaser to purchase shares of the Company's Common Stock in connection with
Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and Warrant 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 amount of $2,000,000 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 have a Maturity Date (as defined in the Note)
twenty-four months from the date of issuance. Collectively, the Note and Warrant
(as defined in Section 2) 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:
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(a) The Company will issue and deliver to the
Purchaser a Warrant to purchase 200,000 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) The Company shall reimburse the Purchaser for its
reasonable legal fees for services rendered to the Purchaser in preparation of
this Agreement and the Related Agreements, and expenses in connection with the
Purchaser's due diligence review of the Company and relevant matters, which such
amount shall not exceed $12,500, including $5,000 which the Company has
previously paid.
(c) The Company will pay a cash fee in the amount of
ten percent (10%) of the aggregate gross purchase price to be paid to the
Company from the sale of Note in the Offering (the "FUND MANAGEMENT FEE") to
Laurus Capital Management, L.L.C., a Delaware limited liability company. The
Fund Management Fee must be paid on the Closing Date. The aforementioned Fund
Management Fee and legal fees will be payable at the Closing out of funds held
pursuant to a Funds Escrow Agreement to be entered into by the Company,
Purchaser and an Escrow Agent (the "FUNDS ESCROW AGREEMENT").
3. CLOSING, DELIVERY AND PAYMENT.
3.1 CLOSING. Subject to the terms and conditions herein, the
closing of the transactions contemplated hereby (the "CLOSING"), shall take
place on the date hereof, at such time or place as the Company and Purchaser may
mutually agree (such date is hereinafter referred to as the "CLOSING DATE").
3.2 DELIVERY. Pursuant to the Funds Escrow Agreement, at the
Closing, subject to the terms and conditions hereof, the Company will deliver to
the Escrow Agent, among other things, a Note in the form attached as Exhibit A
representing the principal amount of $2,000,000 and a Common Stock Purchase
Warrant in the form attached as Exhibit B in the Purchaser's name representing
200,000 Warrant Shares and the Purchaser will deliver to the Escrow Agent, among
other things, $2,000,000, by certified funds or wire transfer made payable to
the order of the Escrow Agent.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as
of the date of this Agreement as set forth below except as disclosed in the
Company's filings under the Securities Exchange Act of 1934 (collectively, the
"EXCHANGE ACT FILINGS"), or the Schedules hereto.
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4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has the corporate power and authority
to own and operate its properties and assets, to execute and deliver this
Agreement, the Warrant to be issued in connection with this Agreement, the Funds
Escrow Agreement, the Security Agreement and all other agreements referred to
herein (collectively, the "RELATED AGREEMENTS"), to issue and sell the Note and
the shares of Common Stock issuable upon conversion of the Note (the "NOTE
SHARES"), 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 in which the nature of its activities and of its properties (both
owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business.
4.2 SUBSIDIARIES. Schedule 4.2 hereto sets forth each
subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership of the
outstanding stock or other interests of such subsidiary. For the purposes of
this Agreement, "subsidiary" shall mean any corporation or other entity of which
at least a majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.
4.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, as
of November 8, 2002, consists of (i) 150,000,000 shares of Common Stock, par
value $.01 per share, 17,405,150 shares of which are issued and outstanding and
(ii) 5,000,000 shares of Preferred Stock, par value $.01 per share, none of
which are issued and outstanding. The Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock to provide for
conversion of the Note and exercise of the Warrants.
(b) Except as disclosed on Schedule 4.3, other than
(i) the shares reserved for issuance under the Company's stock option plans; and
(ii) shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
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preemptive rights and rights of first refusal) to subscribe to, call or
commitment of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company (such Schedule 4.3
shall provide the exercise or conversion term, exercise or conversion price,
vesting period, holders of such options, warrants or convertible securities and
the amount granted or issued to each holder). There exists no proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Neither the
offer, issuance or sale of any of the Note or 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.
(c) All issued and outstanding shares of the
Company's Common Stock (i) have been duly authorized and validly issued and are
fully paid and nonassessable and (ii) together with the offer and sale of all
convertible securities, rights, warrants, or options of the Company were issued
in compliance with all applicable state and federal laws concerning the issuance
of securities, and no stockholder has a right of rescission or damages against
the Company with respect thereto.
(d) The rights, preferences, privileges and
restrictions of the shares of the Common Stock are as stated in the Certificate
of Incorporation (the "CHARTER"). The Note Shares 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.
(e) No stock plan, stock purchase, stock option or
other agreement or understanding between the Company and any holder of any
equity securities of the Company or rights to purchase equity securities of the
Company provides for acceleration or other changes in the vesting provisions or
other terms of such agreement or understanding as the result of any merger,
consolidated sale of stock or assets, change in control or any other
transaction(s) by the Company, including the transactions contemplated
hereunder.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action
on the part of the Company necessary for the authorization of this Agreement and
the Related Agreements to which the Company, the performance of all obligations
of the Company hereunder at the Closing and, the authorization, sale, issuance
and delivery of the Note and Warrant has been taken or will be taken prior to
the Closing and no further consent or authorization of the Company, its board of
directors or stockholders is required. The Agreement and the Related Agreements,
when executed and delivered and to the extent it is a party thereto, will be
valid and binding obligations of the Company enforceable in accordance with
their terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, and (b) general principles of equity that
restrict the availability of equitable or legal remedies. The sale of the Note
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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. The Note and the Warrant, when executed and
delivered in accordance with the terms of this Agreement, will be valid and
binding obligations of the Company, enforceable in accordance with their
respective terms.
4.5 LIABILITIES. The Company has no material liabilities and,
to the best of its knowledge, knows of no material contingent liabilities,
except current liabilities incurred in the ordinary course of business and
liabilities disclosed in any Exchange Act Filings.
4.6 AGREEMENTS; ACTION. Except as set forth on Schedule 4.6:
(a) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or to its knowledge by which it is bound
which may involve (i) obligations (contingent or otherwise) of, or payments to,
the Company in excess of $100,000 (other than obligations of, or payments to,
the Company arising from purchase or sale agreements entered into in the
ordinary course of business), or (ii) the transfer or license of any patent,
copyright, trade secret or other proprietary right to or from the Company (other
than licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting the development, manufacture or
distribution of the Company's products or services, or (iv) indemnification by
the Company with respect to infringements of proprietary rights.
(b) The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess individually or in the
aggregate, of $100,000, (iii) made any loans or advances to any person not in
excess, individually or in the aggregate, of $100,000, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business. Neither the Company nor any subsidiary is in
default with respect to any indebtedness.
(c) For the purposes of subsections (a) and (b)
above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.
4.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations
of the Company to officers, directors, stockholders or employees of the Company
other than (a) for payment of salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company, (c) for other
standard employee benefits made generally available to all employees (including
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stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company) and (d) obligations listed in the Company's
financial statements or disclosed in any of its Exchange Act Filings. Except as
described above or set forth on Schedule 4.7, none of the officers, directors
or, to the best of the Company's knowledge, key employees or stockholders of the
Company or any members of their immediate families, are indebted to the Company,
individually or in the aggregate, in excess of $100,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than 1% of such company) which may
compete with the Company. Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person. Except as set forth on Schedule 4.7, the Company is
not a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
4.8 CHANGES. Since September 30, 2002, except as disclosed in
any Schedule to this Agreement or to any of the Related Agreements, there has
not been:
(a) Any change in the assets, liabilities, financial
condition, prospects or operations of the Company, other than changes in the
ordinary course of business, none of which individually or in the aggregate has
had or is reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any officer,
key employee or group of employees of the Company;
(c) Any material change, except in the ordinary
course of business, in the contingent obligations of the Company by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties,
business or prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or
of a material debt owed to it;
(f) Any direct or indirect material loans made by the
Company to any stockholder, employee, officer or director of the Company, other
than advances made in the ordinary course of business;
(g) Any material change in any compensation
arrangement or agreement with any employee, officer, director or stockholder;
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(h) Any declaration or payment of any dividend or
other distribution of the assets of the Company;
(i) Any labor organization activity related to the
Company;
(j) Any debt, obligation or liability incurred,
assumed or guaranteed by the Company, except those for immaterial amounts and
for current liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the
Company is a party or by which it is bound which may materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company;
(m) Any other event or condition of any character
that, either individually or cumulatively, has or may materially and adversely
affect the business, assets, liabilities, financial condition, prospects or
operations of the Company; or
(n) Any arrangement or commitment by the Company to
do any of the acts described in subsection (a) through (m) above.
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company
has good and marketable title to its properties and assets, and good title to
its leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have not
yet become delinquent, (b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
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) Except as set forth on Schedule 4.10(b), the
Company has not received any communications alleging that the Company has
violated any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity, nor
is the Company aware of any basis therefor.
(c) The Company does not believe it is or will be
necessary to utilize any inventions, trade secrets or proprietary information of
any of its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to the Company.
4.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its Charter or Bylaws, or of any material
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order or writ. The execution, delivery and performance of and compliance
with this Agreement and the Related Agreements to which it is a party, and the
issuance and sale of the Note by the Company and the other Securities by the
Company each pursuant hereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with
or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties.
4.12 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any subsidiary that prevents the Company to enter into
this Agreement or the Related Agreements, or to consummate the transactions
contemplated hereby or thereby. Except as set forth on Schedule 4.12 hereto,
there is no action, suit, proceeding or investigation pending or, to the
knowledge of the Company, threatened, against or involving the Company, any
subsidiary of the Company or any of their respective properties or assets.
Neither of those items listed on Schedule 4.12 might result, either individually
or in the aggregate, in any material adverse change in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or any change in
the current equity ownership of the Company, nor is the Company aware that there
is any basis for any of the foregoing. The Company is not a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
4.13 TAX RETURNS AND PAYMENTS. The Company has timely filed
all tax returns (federal, state and local) required to be filed by it of which
the failure to file would have a material adverse effect. All taxes shown to be
due and payable on such returns, any assessments imposed, and to the Company's
knowledge all other taxes due and payable by the Company on or before the
Closing, have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
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4.14 EMPLOYEES. The Company has no collective bargaining
agreements with any of its employees. There is no labor union organizing
activity pending or, to the Company's knowledge, threatened with respect to the
Company. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
plan or agreement. To the Company's knowledge, no employee of the Company, nor
any consultant with whom the Company has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company. The Company has
not received any notice alleging that any such violation has occurred. Except
for employees who have a current effective employment agreement with the
Company, no employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer, key
employee or group of employees intends to terminate his, her or their employment
with the Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 REGISTRATION RIGHTS AND VOTING RIGHTS. The Company is
presently not under any obligation, and has not granted any rights, or a party
to any agreement, to register any of the Company's presently outstanding
securities or any of its securities that may hereafter be issued. To the
Company's knowledge, no stockholder of the Company has entered into any
agreement with respect to the voting or transfer of any equity securities of the
Company.
4.16 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the
Company is not in violation in any material respect of any applicable statute,
rule, regulation, order or restriction of any domestic or foreign government or
any instrumentality or agency thereof in respect of the conduct of its business
or the ownership of its properties which violation would materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company. No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement and the issuance of any of the
Securities, except such as has been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed in
a timely manner. The Company has all material franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would materially and adversely affect the
business, properties, prospects or financial condition of the Company.
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4.17 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation. No Hazardous Materials (as defined below) are used
or have been used, stored, or disposed of by the Company or, to the Company's
knowledge, by any other person or entity on any property owned, leased or used
by the Company. For the purposes of the preceding sentence, "HAZARDOUS
MATERIALS" shall mean (a) materials which are listed or otherwise defined as
"HAZARDOUS" or "TOXIC" under any applicable local, state, federal and/or foreign
laws and regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials, or (b) any petroleum products or nuclear materials.
4.18 VALID OFFERING. Assuming the accuracy of the
representations and warranties of the Purchaser contained in this Agreement, the
offer, sale and issuance of the Securities will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
and will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws. Neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities.
4.19 FULL DISCLOSURE. The Company has provided the Purchaser
with all information requested by the Purchaser in connection with its decision
to purchase the Note and Warrant, including all information the Company believes
is reasonably necessary to make such investment decision. Neither this
Agreement, the exhibits and schedules hereto, the Related Agreements nor any
other document delivered by the Company to Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated hereby
or thereby, contain any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances in which they are made, not misleading.
Any financial projections and other estimates provided to the Purchaser by the
Company were based on the Company's experience in the industry and on
assumptions of fact and opinion as to future events which the Company, at the
date of the issuance of such projections or estimates, believed to be
reasonable. As of the date hereof no facts have come to the attention of the
Company that would, in its opinion, require the Company to revise or amplify in
any material respect the assumptions underlying such projections and other
estimates or the conclusions derived therefrom.
4.20 INSURANCE. The Company has general commercial, product
liability, fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company in the same or similar business.
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4.21 SEC REPORTS. The Common Stock of the Company is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act and the
Company has timely filed all proxy statements, reports, schedules, forms,
statements and other documents required to be filed by it under the Exchange
Act. The Company has furnished the Purchaser with copies of (i) its Annual
Report on Form 10-K for the fiscal year ended March 31, 2002 as amended and (ii)
its Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30, 2002
and September 30, 2002,(collectively, the "SEC REPORTS"). Each SEC Report was,
at the time of its filing, in substantial compliance with the requirements of
its respective form and none of the SEC Reports, nor the financial statements
(and the notes thereto) included in the SEC Reports, as of their respective
filing dates, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Reports comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed) and fairly present in all material
respects the financial position of the Company and its subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
4.22 NO MARKET MANIPULATION. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock of the Company to facilitate the sale or resale of
any of the Securities being offered hereby or affect the price at which any of
the Securities being offered hereby may be issued.
4.23 LISTING. The Company's Common Stock is listed for trading
on the Nasdaq National Market and satisfies all requirements for the
continuation of such listing. The Company has not received any notice that its
Common Stock will be delisted from the Nasdaq National Market or that the Common
Stock does not meet all requirements for the continuation of such listing.
4.24 NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions. Nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
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4.25 STOP TRANSFER. The Securities are restricted securities
as of the date of this Agreement. The Company will not issue any stop transfer
order or other order impeding the sale and delivery of any of the Securities at
such time as the Securities are registered for public sale or an exemption from
registration is available, except as required by federal securities laws.
4.26 DILUTION. The Company understands the nature of the
Securities being sold hereby and recognizes that they may have a potential
dilutive effect. The Company specifically acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Note 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.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as
follows:
5.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Related Agreements have been or
will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except (a)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
and (b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.2 INVESTMENT REPRESENTATIONS. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act. The Purchaser has received or has had full access to all the information it
considers necessary or appropriate to make an informed investment decision with
respect to the Note 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
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.
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5.3 PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment until the Securities are sold pursuant to (i) an effective
registration statement under the Securities Act, or (ii) an exemption from
registration is available.
5.4 ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Note and Warrant and the Note Shares and the Warrant Shares for Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
5.5 PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents
that by reason of its, or of its management's, business and financial
experience, Purchaser has the capacity to evaluate the merits and risks of its
investment in the Note, 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, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the Related Agreements.
5.6 ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.7 LEGENDS.
(a) The Note shall bear substantially the following
legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR, IF APPLICABLE, STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO NETGURU, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Note Shares 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:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF
APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO NETGURU, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(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 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."
5.8 NO SHORTING. The Purchaser has not and will not and will
not cause, advise, ask or assist any person or entity, directly or indirectly,
to engage in "short sales" of the Company's Common Stock.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 STOP-ORDERS. The Company will advise the Purchaser,
promptly after it receives notice of issuance by the Securities and Exchange
Commission (the "SEC"), any state securities commission or any other regulatory
authority of any stop order or of any order preventing or suspending any
offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
6.2 LISTING. The Company will maintain the listing of its
Common Stock on the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ
National Market, American Stock Exchange or New York Stock Exchange (a
"PRINCIPAL MARKET"), and will comply in all material respects with the Company's
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reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company will provide the Purchaser copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market.
6.3 MARKET REGULATIONS. The Company shall notify the SEC, NASD
and applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
6.4 REPORTING REQUIREMENTS. The Company will timely file with
the SEC all reports required to be filed pursuant to the Exchange Act and
refrain from terminating its status as an issuer required by the Exchange Act to
file reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination. Within fifteen (15) days after the end
of each month, the Company will deliver to the Purchaser unaudited trial
balances as at the end of such month.
6.5 USE OF FUNDS. The Company agrees that it will use the
proceeds of the sale of the Note and Warrant for general corporate purposes
only.
6.6 ACCESS TO FACILITIES. The Company will permit any
representatives designated by the Purchaser (or any transferee of the
Purchaser), upon reasonable notice and during normal business hours, at such
person's expense and accompanied by a representative of the Company, to (a)
visit and inspect any of the properties of the Company, (b) examine the
corporate and financial records of the Company (unless such examination is not
permitted by federal, state or local law or by contract) and make copies thereof
or extracts therefrom and (c) discuss the affairs, finances and accounts of any
such corporations with the directors, officers and independent accountants of
the Company.
6.7 TAXES. The Company will promptly pay and discharge, or
cause to be paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon the income, profits,
property or business of the Company; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.
6.8 INSURANCE. The Company will keep its assets which are of
an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily insured
against by companies in similar business similarly situated as the Company; and
the Company will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar business
similarly situated as the Company and to the extent available on commercially
reasonable terms.
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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.
6.12 CORPORATE EXISTENCE. The Company shall maintain its
corporate existence, and will not liquidate, dissolve or effect a
recapitalization, reclassification or reorganization in any form of transaction.
In addition, the Company shall not sell all or substantially all of the
Company's assets, except in the event of a merger or consolidation or sale or
transfer of all or substantially all of the Company's assets, where the
surviving or successor entity in such transaction (i) assumes the Company's
obligations hereunder and the Related Agreements and (ii) is a publicly traded
company whose common stock is quoted or listed on a Principal Market.
6.13 REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such Securities pursuant to Rule 144(k) under the Securities Act, or (b) upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act. The Company agrees to cooperate with the
Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k)
and provide legal opinions necessary to allow such resales provided the Company
and its counsel receive reasonably requested representations from the selling
Purchaser and broker, if any.
6.14 OPINION. On the Closing Date, the Company will deliver to
the Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel in the form annexed hereto as Exhibit C. 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 FINANCIAL COVENANT. The Company shall not permit for any
fiscal quarter commencing April 1, 2003 the net operating cash flow deficit to
be greater than $500,000, excluding extraordinary items, as determined in
accordance with generally accepted accounting principles in the United States.
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7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
7.1 COMPANY INDEMNIFICATION. The Company agrees to indemnify,
hold harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.2 PURCHASER'S INDEMNIFICATION. Purchaser agrees to
indemnify, hold harmless, reimburse and defend the Company and each of the
Company's officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon (i) any misrepresentation by Purchaser or breach of any warranty by
Purchaser in this Agreement or in any exhibits or schedules attached hereto or
any Related Agreement; or (ii) any breach or default in performance by Purchaser
of any covenant or undertaking to be performed by Purchaser hereunder, or any
other agreement entered into by the Company and Purchaser relating hereto.
7.3 PROCEDURES. The procedures and limitations set forth in
Section 9.6 shall apply to the indemnifications set forth in Sections 7.1 and
7.2 above.
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8. CONVERSION OF CONVERTIBLE NOTE.
8.1 MECHANICS OF CONVERSION.
(a) Provided the Purchaser has notified the Company
of the Purchaser's intention to sell the Note Shares and the Note Shares are
included in an effective registration statement or are otherwise exempt from
registration when sold: (i) Upon the conversion of the Note or part thereof, the
Company shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel) to assure that the Company's transfer
agent shall issue shares of the Company's Common Stock in the name of the
Purchaser (or its nominee) or such other persons as designated by the Purchaser
in accordance with Section 8.1(b) hereof and in such denominations to be
specified representing the number of Note Shares issuable upon such conversion;
and (ii) The Company warrants that no instructions other than these instructions
have been or will be given to the transfer agent of the Company's Common Stock
and that after the Effective Date (as hereinafter defined) the Note Shares
issued will be freely transferable subject to the prospectus delivery
requirements of the Securities Act and the provisions of this Agreement, and
will not contain a legend restricting the resale or transferability of the Note
Shares.
(b) Purchaser will give notice of its decision to
exercise its right to convert the Note or part thereof by telecopying or
otherwise delivering an executed and completed notice of the number of shares to
be converted to the Company (the "NOTICE OF CONVERSION"). The Purchaser will not
be required to surrender the Note until the Purchaser receives a credit to the
account of the Purchaser's prime broker through the DWAC system (as defined
below), representing the Note Shares or until the Note has been fully satisfied.
Each date on which a Notice of Conversion is telecopied or delivered to the
Company in accordance with the provisions hereof shall be deemed a "CONVERSION
DATE." The Company will cause the transfer agent to transmit the shares of the
Company's Common Stock issuable upon conversion of the Note (and a certificate
representing the balance of the Note not so converted, if requested by
Purchaser) to the Purchaser by crediting the account of the Purchaser's prime
broker with the Depository Trust Company ("DTC") through its Deposit Withdrawal
Agent Commission ("DWAC") system within three business days after receipt by the
Company of the Notice of Conversion (the "DELIVERY DATE").
(c) The Company understands that a delay in the
delivery of the Note Shares in the form required pursuant to Section 8 hereof
beyond the Delivery Date could result in economic loss to the Purchaser. In the
event that the Company fails to direct its transfer agent to deliver the Note
Shares to the Purchaser via the DWAC system within the time frame set forth in
Section 8.1(b) above and the Note Shares are not delivered to the Purchaser by
the Delivery Date, as compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late issuance of the Note
Shares in the form required pursuant to Section 8 hereof upon conversion of the
Note in the amount equal to the greater of (i) $500 per business day after the
Delivery Date or (ii) the Purchaser's actual damages from such delayed delivery.
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand and, in the case of actual damages, accompanied by
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reasonable documentation of the amount of such damages. Such documentation shall
show the number of shares of Common Stock the Purchaser is forced to purchase
(in an open market transaction) which the Purchaser anticipated receiving upon
such conversion, and shall be calculated as the amount by which (A) the
Purchaser's total purchase price (including customary brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (B) the aggregate
principal and/or interest amount of the Note, for which such Conversion Notice
was not timely honored.
(d) Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum amount permitted by such law, any payments in excess of such maximum
shall be credited against amounts owed by the Company to a Purchaser and thus
refunded to the Company.
8.2 MAXIMUM CONVERSION. The Purchaser shall not be entitled to
convert on a Conversion Date that amount of a Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Purchaser on a
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Note with respect to which the determination of this proviso
is being made on a Conversion Date, which would result in beneficial ownership
by the Purchaser of more than 4.99% of the outstanding shares of Common Stock of
the Company on such Conversion Date. For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. Subject to
the foregoing, a Purchaser shall not be limited to aggregate conversions of only
4.99%. The Purchaser may void the limitation in this Section 8.3 upon 75 days
written notice to the Company. In addition, upon an Event of Default under the
Note, the conversion limitation in this Section 8.3 shall automatically become
null and void.
8.3 OPTIONAL REDEMPTION. The Company will have the option of
redeeming any outstanding principal of the Note ("OPTIONAL REDEMPTION") by
paying to the Purchaser 120% of such amount, together with accrued but unpaid
interest thereon and any and all other sums due, accrued or payable to the
Purchaser arising under this Agreement, Note or any other document delivered
herewith ("REDEMPTION AMOUNT") outstanding on the day notice of redemption
("NOTICE OF REDEMPTION") is delivered to a Purchaser ("REDEMPTION DATE"). A
Notice of Redemption may not be given in connection with any portion of Note for
which a Notice of Conversion has been given by the Purchaser at any time before
receipt of a Notice of Redemption or given pursuant to the following sentence.
The Purchaser may elect within five (5) business days after receipt of a Notice
of Redemption to give the Company a Notice of Conversion in connection with some
or all of the Note principal and interest which was the subject of the Notice of
Redemption. The Redemption Amount must be paid in good funds to the Purchaser no
later than the seventh (7th) business day after the Redemption Date ("OPTIONAL
REDEMPTION PAYMENT DATE"). In the event the Company fails to pay the Redemption
Amount by the Optional Redemption Payment Date, then the Redemption Notice will
be null and void. A Notice of Redemption may be given by the Company, provided
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(i) no Event of Default as described in the Note shall have occurred or be
continuing; and (ii) the Note Shares issuable upon conversion of the full
outstanding Note principal are included for unrestricted resale in a
registration statement effective as of the Redemption Date.
8.4 NASDAQ APPROVAL. The Company and the Purchaser agree that
until the Company either obtains shareholder approval of the issuance of the
Securities, or an exemption from NASDAQ's corporate governance rules as they may
apply to the Securities, and an opinion of counsel reasonably acceptable to the
Purchaser that NASDAQ's corporate governance rules do not conflict with nor may
result in a delisting of the Company's common stock from the NASDAQ National
Market (the "APPROVAL") upon the conversion of the Notes, the Purchaser may not
receive upon conversion of the Notes more than the number of common shares
greater than 19.9% of the shares of Company's common stock outstanding on the
Closing Date. The Company covenants to obtain the Approval required pursuant to
the NASDAQ's corporate governance rules to allow conversion of all the Notes and
interest thereon upon written request of the Purchaser (the "TRIGGER DATE"). The
Company further covenants to file the preliminary proxy statement relating to
the Approval with the Commission on or before thirty days after the Trigger Date
("PROXY FILING DATE"). The Company further covenants to obtain the Approval no
later than ninety days after the Trigger Date ("APPROVAL DATE"). The Company's
failure to (i) file the proxy on or before the Proxy Filing Date; or (ii) the
Company's failure to obtain the Approval on or before the Approval Date (each
being an "APPROVAL DEFAULT") shall be deemed an Event of Default under the Note,
but only to the extent the Note and interest thereon that may not be converted
due to the Company's failure to obtain such Approval.
9. REGISTRATION RIGHTS.
9.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants the
following registration rights to the Purchaser.
(a) The Company shall file a Form S-3 registration
statement (or such other form that it is eligible to use) in order to register
the Registrable Securities for resale and distribution under the Securities Act
with the SEC within 30 days of the Closing Date (the "FILING DATE"), and cause
such registration statement to be declared effective within 120 days of the
Closing Date (the "EFFECTIVE DATE"). The Company will register not less than a
number of shares of Common Stock in the aforedescribed registration statement
that is equal to the Warrant Shares and 200% (or such lower amount as permitted
or required by the SEC) of the Note Shares issuable at the Conversion and
Purchase Prices set forth in the Note and Warrant, respectively, that would be
in effect on the Closing Date or the date of filing of such registration
statement (employing the price which would result in the greater number of
Shares), assuming the conversion of 100% of the principal amount of the Note
which is then outstanding, and at least one share of Common Stock for each
common share issuable upon exercise of the Warrant ("REGISTRABLE SECURITIES").
Such registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 9.1(a).
-20-
9.2 REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions hereof to effect the registration of the Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the Purchaser copies of all filings and SEC letters of comment;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the earlier of: (i) six months after the latest exercise period of the
Warrant; (ii) four years after the Closing Date, or (iii) the date on which the
Purchaser has disposed of all of the Registrable Securities covered by such
registration statement in accordance with the Purchaser's intended method of
disposition set forth in such registration statement for such period;
(c) furnish to the Purchaser such number of copies of
the registration statement and the prospectus included therein (including each
preliminary prospectus) as the Purchaser reasonably may request to facilitate
the public sale or disposition of the securities covered by such registration
statement;
(d) use its commercially reasonable efforts to
register or qualify the Purchaser's Registrable Securities covered by such
registration statement under the securities or "blue sky" laws of such
jurisdictions as the Purchaser, provided, however, that the Company shall not
for any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Purchaser at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing; and
(g) make available for inspection by the Purchaser
and any attorney, accountant or other agent retained by the Purchaser, all
publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the attorney, accountant or
agent of the Purchaser.
-21-
9.3 PROVISION OF DOCUMENTS.
(a) In connection with each registration hereunder,
the Purchaser will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws.
9.4 NON-REGISTRATION EVENTS. If (i) the Registration Statement
described in Section 9.1(a) is not filed on or before the Filing Date or not
declared effective on or before the sooner of the Effective Date, or within
three business days of receipt by the Company of a communication from the SEC
that the registration statement described in Section 9.1(a) will not be
reviewed, or (ii) if the registration statement described in Section 9.1(a) is
filed and declared effective but shall thereafter cease to be effective (without
being succeeded immediately by an additional registration statement filed and
declared effective) for a period of time which shall exceed 30 days in the
aggregate per year but not more than 20 consecutive calendar days (defined as a
period of 365 days commencing on the date the Registration Statement is declared
effective) (each such event referred to in this Section 9.4 is referred to
herein as a "NON-REGISTRATION EVENT"), then, for so long as such
Non-Registration Event shall continue, the Company shall pay in cash as
Liquidated Damages to each holder of any Registrable Securities an amount equal
to one percent (1%) per month for the first 45 days and two percent (2%) per
month thereafter (prorated for partial periods) during the pendency of such
Non-Registration Event of the principal of the Note issued in connection with
the Offering, whether or not converted, then owned of record by such holder or
issuable as of or subsequent to the occurrence of such Non-Registration Event.
Payments to be made pursuant to this Section shall be due and payable
immediately upon demand in immediately available funds. In the event a Mandatory
Redemption Payment is demanded from the Company by the holder pursuant to
Section 8.2 of this Agreement, then the Liquidated Damages described in this
Section 9.4 shall no longer accrue on the portion of the purchase price
underlying the Mandatory Redemption Payment, from and after the date the holder
receives the Mandatory Redemption Payment. It shall also be deemed a
Non-Registration Event to the extent that all the Common Stock included in the
Registrable Securities and underlying the Securities is not included in an
effective registration statement as of and after the Effective Date at the
conversion prices in effect from and after the Effective Date.
9.5 EXPENSES. All expenses incurred by the Company in
complying with Section 9, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the NASD, transfer taxes, fees of
transfer agents and registrars, fees of, and disbursements incurred by, one
counsel for the Purchaser, and costs of insurance are called "REGISTRATION
EXPENSES". All underwriting discounts and selling commissions applicable to the
sale of Registrable Securities, including any fees and disbursements of any
special counsel to the Purchaser beyond those included in Registration Expenses,
are called "SELLING EXPENSES."
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The Company will pay all Registration Expenses. All
Selling Expenses in connection with each registration statement under Section 9
shall be borne by the Purchaser.
9.6 INDEMNIFICATION.
(a) In the event of a registration of any Registrable
Securities under the Securities Act pursuant to Section 9, the Company will
indemnify and hold harmless the Purchaser, and its officers, directors and each
other person, if any, who controls the Purchaser within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which the Purchaser, or such persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to Section 9, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Purchaser, and
each such person for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by the Purchaser or any such person in writing specifically for use in
any such document.
(b) In the event of a registration of the Registrable
Securities under the Securities Act pursuant to Section 9, the Purchaser will
indemnify and hold harmless the Company, and its officers, directors and each
other person, if any, who controls the Company within the meaning of the
Securities Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to Section 9, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such person for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Purchaser will be liable in any
such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished in writing to the Company by the Purchaser specifically for use in any
such document.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
-23-
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 9.6(c) and shall only relieve it from any liability which it may have to
such indemnified party under this Section 9.6(c) if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 9.6(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof; if the indemnified party retains its own counsel, then the
indemnified party shall pay all fees, costs and expenses of such counsel,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the Securities Act in any
case in which either (i) the Purchaser, or any controlling person of the
Purchaser, makes a claim for indemnification pursuant to this Section 9.6 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 9.6 provides for indemnification
in such case, or (ii) contribution under the Securities Act may be required on
the part of the Purchaser or controlling person of the Purchaser in
circumstances for which indemnification is provided under this Section 9.6;
then, and in each such case, the Company and the Purchaser will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that the
Purchaser is responsible only for the portion represented by the percentage that
the public offering price of its securities offered by the registration
statement bears to the public offering price of all securities offered by such
registration statement, provided, however, that, in any such case, (A) the
Purchaser will not be required to contribute any amount in excess of the public
offering price of all such securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company; or equity or debt issued in connection
with an acquisition of a business or assets by the Company; or the issuance by
-24-
the Company of stock in connection with the establishment of a joint venture
partnership or licensing arrangement (these exceptions hereinafter referred to
as the "EXCEPTED ISSUANCES"), the Company will not issue any securities with a
variable/floating conversion feature which are or could be (by conversion or
registration) free-trading securities (i.e. common stock subject to a
registration statement) prior to the full repayment or conversion of the Note.
11. SECURITY INTEREST. As a condition of Closing, the Company will
grant to the Purchaser a security interest in its assets pursuant to a Security
Agreement. The Company will also execute all such documents reasonably necessary
to memorialize and further protect the security interest described above.
12. MISCELLANEOUS.
12.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York; provided, however that the Purchaser may choose to waive
this provision and bring an action outside the state of New York. Both parties
and the individuals executing this Agreement and other agreements on behalf of
the Company agree to submit to the jurisdiction of such courts and waive trial
by jury. In the event that any provision of this Agreement or any other
agreement delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
12.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
12.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Securities from time to time.
12.4 ENTIRE AGREEMENT. This Agreement, the exhibits and
schedules hereto, the Related Agreements and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
-25-
between the parties with regard to the subjects hereof, including, but not
limited to, the purchase and sale of the Note and the subsequent sale of the
Common Stock underlying the Note. No party shall be liable or bound to any other
in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein. The Purchaser shall not be
deemed to have made any representation or warranty to the Company other than as
expressly made by the Purchaser in Section 5 hereof. Without limiting the
generality of the foregoing, and notwithstanding any otherwise express
representations and warranties made by the Purchaser in Section 5 hereof, the
Purchaser makes no representation or warranty to the Company with respect to the
timing or the manner in which the Company's Common Stock will be sold.
12.5 SEVERABILITY. In case any provision of the Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
12.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only
upon the written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of
the Purchaser under this Agreement may be waived only with the written consent
of the Purchaser.
12.7 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement or the
Related Agreements, shall impair any such right, power or remedy, nor shall it
be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
12.8 NOTICES. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party to be notified, (b) when sent by confirmed facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof, with a copy to
____________________, facsimile number _____________, and to the Purchaser at
the address set forth on the signature page hereto for such Purchaser, with a
copy in the case of the Purchaser to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at
such other address as the Company or the Purchaser may designate by ten days
advance written notice to the other parties hereto.
12.9 ATTORNEYS' FEES. In the event that any suit or action is
instituted with respect to this Agreement, the prevailing party in such dispute
-26-
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.
12.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
12.11 FACSIMILE SIGNATURES; COUNTERPARTS. This Agreement may
be executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
12.12 BROKER'S FEES. Each party hereto represents and warrants
that, except as each party may have notified the other in writing on or prior to
the date hereof, no agent, broker, investment banker, person or firm acting on
behalf of or under the authority of such party hereto is or will be entitled to
any broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto further
agrees to indemnify each other party for any claims, losses or expenses incurred
by such other party as a result of the representation in this Section 12.12
being untrue.
12.13 CONSTRUCTION. Each party acknowledges that its legal
counsel participated in the preparation of this Agreement and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.
-27-
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: LAURUS MASTER FUND, LTD.
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Name:
Title: PRESIDENT Address: c/o Ironshore Corporate Services Ltd.
Address: ▇.▇. ▇▇▇ ▇▇▇▇ G.T., Queensgate House,
22700 Savi Ranch Parkway South Church Street
Yorba Linda, California 92887 Grand Cayman, Cayman Islands
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LIST OF EXHIBITS
Form of Offering Convertible Note Exhibit A
Form of Warrant Exhibit B
Form of Opinion Exhibit C
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted.
2. The Company has the requisite corporate power and authority
to execute, deliver and perform its obligations under the Agreement and Related
Agreements. All corporate action on the part of the Company and its officers,
directors and stockholders necessary for (i) the authorization of the Agreement
and Related Agreements to which each is a party, and the performance of all
obligations of the Company thereunder at the Closing, and (ii) the
authorization, sale, issuance and delivery of the Securities pursuant to the
Agreement and the Related Agreements has been taken. The Note Shares and the
Warrant Shares, when issued pursuant to and in accordance with the terms of the
Agreement and upon delivery, shall be validly issued and outstanding, fully paid
and non assessable.
3. The execution, delivery and performance of the Agreement,
the Note or the Related Agreements by the Company and the consummation of the
transactions contemplated by any thereof, will not, with or without the giving
of notice or the passage of time or both:
(a) Violate the provisions of the Charter or bylaws
of the; or
(b) To the best of such counsel's knowledge, violate
any judgment, decree, order or award of any court binding upon
the Company.
4. The Agreement and Related Agreements to which each is a
party constitute and the Note, upon their issuance will constitute, valid and
legally binding obligations of the Company, and are enforceable against the
Company in accordance with their respective 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.
5. The sale of the Note and the subsequent conversion of the
Note into Note Shares are not subject to any preemptive rights or, to such
counsel's knowledge, rights of first refusal that have not been properly waived
or complied with. The sale of the Warrant and the subsequent exercise of the
Warrant for Warrant Shares are not subject to any preemptive rights or, to such
counsel's knowledge, rights of first refusal that have not been properly waived
or complied with.
6. Assuming the accuracy of the representations and warranties
of the Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act. To the best of such counsel's knowledge, neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
C-1
indirectly made any offers or sales of any security or solicited any offers to
buy and security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions.
7. There is no action, suit, proceeding or investigation
pending or, to the best of such counsel's knowledge, currently threatened
against the Company that prevents the right of the Company to enter into this
Agreement or any of the Related Agreements, or to consummate the transactions
contemplated thereby. To the best of such counsel's knowledge, 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; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
C-2