Securities Purchase Agreement - netGuru Inc. and Elliott Associates LP
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT ("AGREEMENT") dated as of March 8, 2000
between netguru, inc., a Delaware corporation f/k/a Research Engineers, Inc.
(the "COMPANY"), and Elliott Associates, L.P., a Delaware limited partnership,
and Westgate International, L.P., a Cayman Islands limited partnership
(individually and collectively, the "INVESTOR").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the
Investor, and the Investor wishes to purchase from the Company, an aggregate of
12,000 shares of the Company's Series A Cumulative Convertible Preferred Stock,
liquidation preference $1,000 per share (all of such shares being the "PREFERRED
SHARES"), having the rights, designations and preferences set forth in the
Certificate of Designations (the "CERTIFICATE") in the form of EXHIBIT A
attached hereto, on the terms and conditions set forth herein and Warrants (the
"WARRANTS"), in the form of EXHIBIT B attached hereto to purchase Common Shares
(as defined below); and
WHEREAS, the Preferred Shares will be convertible into shares
("COMMON SHARES") of common stock, par value $0.01, of the Company ("COMMON
STOCK"), pursuant to the terms of the Certificate, and the Investor will have
registration rights with respect to the Common Shares issuable upon conversion
of the Preferred Shares and exercise of the Warrants, pursuant to the terms of
that certain Registration Rights Agreement to be entered into between the
Company and the Investor substantially in the form of EXHIBIT C hereto
("REGISTRATION RIGHTS AGREEMENT");
NOW, THEREFORE, in consideration of the foregoing premises and
the covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
-------------------------------------
Section 1.1 ISSUANCE OF PREFERRED SHARES AND WARRANTS. Upon the
following terms and conditions, the Company shall issue and sell to the
Investor, and the Investor shall purchase from the Company, the number of
Preferred Shares and Warrants indicated next to the Investor's name on SCHEDULE
I attached hereto.
Section 1.2 PURCHASE PRICE. The purchase price for the Preferred Shares
and Warrants to be acquired by the Investor (the "PURCHASE PRICE") shall be the
Purchase Price set forth next to the Investor's name on SCHEDULE I.
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Section 1.3 THE CLOSING.
(a) Subject to the fulfillment or waiver of the conditions set forth in
Article V hereof, the purchase and sale of the Preferred Shares and Warrants
shall take place at a closing (the "CLOSING"), on or about March 8, 2000 or such
other date as the Investor and the Company may agree upon (the "CLOSING DATE").
(b) FORM OF PAYMENT. Each Investor shall pay their respective purchase
price for the Preferred Shares and Warrants by wire transfer to the account
designated pursuant to the Escrow Agreement by and among the Company, each
Investor, and the escrow agent ("ESCROW AGENT") designated therein in the form
attached hereto as EXHIBIT D (the "ESCROW AGREEMENT"), upon delivery by the
Company to the Escrow Agent of the applicable Preferred Shares and Warrants, all
in accordance with the terms of the Escrow Agreement, and upon satisfaction of
the other conditions to the Closing. In addition, each party shall deliver all
documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to the Closing.
Section 1.4 ADDITIONAL FINANCING.
(a) At the option of the Investor, the Investor may purchase additional
shares of Common Stock (the "OPTION SHARES") for a purchase price per share
equal to the Fixed Price (as defined in, and as may be adjusted pursuant to, the
Certificate) for an aggregate purchase price of up to Six Million U.S. Dollars
($6,000,000).
(b) This option may be exercised in whole or in part, at any time and
from time to time commencing 120 days after the Closing Date until one year
after such 120th day (the "EXERCISE PERIOD"). Upon delivery of a notice by the
Investor exercising its option hereunder ("Option Notice"), the Company shall be
obligated to sell, issue and deliver to the Investor, and the Investor shall be
obligated to purchase, the Option Shares specified in the option exercise
notice, subject to the terms of this Section 1.4. Closing of any such purchase
and sale (each an "OPTION CLOSING") shall take place in the same manner as the
Closing. At the Option Closing, the Company shall deliver certificates
evidencing the Option Shares being purchased against the payment of the purchase
price therefor, which Option Closing shall occur within three (3) Trading Days
of delivery of the Option Notice by Investor. The Registration Rights Agreement
shall apply to the Option Shares as provided therein. In the event that the
Option Shares are not registered as required in the Registration Rights
Agreement, the Investor shall have the right to exercise the option contained
herein through a cashless exercise, in which case the number of Option Shares to
be issued hereunder shall be computed using the following formula:
X = Y X (A-B)
---------
A
where: X = the number of Option Shares to be issued to the Investor;
Y = the number of Option Shares to be exercised under this
Section 1.4;
A = the Market Value (defined below) of one share of Common
Stock; and
B = the Fixed Price (as adjusted).
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As used herein, "MARKET VALUE" refers to the closing bid price of the
Common Stock (as reported by Bloomberg, L.P.) on the day before the
Option Notice is delivered to the Company. Notwithstanding the
foregoing definition, if the Common Stock is not listed on a national
securities exchange or quoted in the Nasdaq System at the time said
Option Notice is submitted to the Company, the Market Value of the
Common Stock shall be as reasonably determined in good faith by the
Board of Directors of the Company and such Investor, unless the Company
shall become subject to a merger, acquisition, or other consolidation
pursuant to which the Company is not the surviving entity, in which
case the Market Value of the Common Stock shall be deemed to be the
value received by the Company's common shareholders pursuant to the
Company's acquisition (subject to subsection (e) below).
(c) During the Exercise Period, if the Option Shares have been and
continue to be registered with the SEC pursuant to the Registration Rights
Agreement, the Company has not completed a bona fide public offering (as defined
in the Certificate) and the requirements of subsection (d) below have been met,
the Company shall have the right, upon 30 Trading Days' prior written notice
(the "TERMINATION NOTICE") and subject to the terms of this subsection (c) and
subsection (d) below, to notify the Investor that it must exercise the option
contained in this Section 1.4 within 30 Trading Days (as defined in the
Certificate) or the option will expire at the end of such 30 Trading Day period
("TERMINATE DATE"). The right to issue a Termination Notice and to terminate the
option herein contained in the foregoing sentence will only be available if the
closing bid price (as reported by the Bloomberg financial network) of the Common
Stock recorded on the Principal Market (as defined herein) exceeds 160% of the
Closing Price (as defined in the Certificate) for the 20 consecutive Trading
Days (as defined in the Certificate) immediately preceding delivery of the
Termination Notice and at all times thereafter through the Termination Date. In
the event that the closing bid price of the Common Stock recorded on the
Principal Market falls below 160% of the Closing Price at any time before the
Termination Date, any Termination Notice in effect shall become null and void,
and the Investors' option rights pursuant to Section 1.4(a) above shall
continue; PROVIDED, HOWEVER, that the Company shall again have the right to
deliver a Termination Notice if the closing bid price of the Common Stock
recorded on the Principal Market thereafter exceeds 160% of the Closing Price
for the 20 consecutive Trading Days pursuant to the terms of this Section 1.4(c)
and Section 1.4(d) below.
(d) Notwithstanding anything contained in Section 1.4 (c) above, the
right of the Company to terminate the Investors' option to purchase Option
Shares pursuant to subsection 1.4 (c) above shall terminate if any of the
following shall occur or have occurred or be continuing:
(A) there is a lack of Effective Registration (as
defined below) during the Exercise Period; (B) there is not a
sufficient amount of Common Stock available for conversion of all
outstanding Preferred Shares, exercise of all Warrants and issuance of
all Option Shares, (C) for any other reason the Corporation refuses or
announces its refusal to honor conversion of Preferred Shares, exercise
of all Warrants and issuance of all Option Shares, other than for
failure to comply with the notice and delivery requirements of Section
5(a) of the Certificate; or (D) for any other reason there is a
suspension or restriction in the ability of holders of Preferred Shares
or Warrants to sell Common Shares received upon conversion or exercise,
respectively, pursuant to the prospectus included in the Registration
Rights Agreement.
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For purposes of the preceding paragraph, a lack of Effective
Registration shall be deemed to have occurred at any time the Common
Shares issuable upon conversion of the Preferred Shares, exercise of
the Warrants or exercise of the option hereunder are not legally
capable of being sold on an Approved Market (as defined below) pursuant
to an effective registration statement and deliverable prospectus.
Notwithstanding the preceding provisions of this
subsection, the Company shall have no right to terminate the option to
purchase Option Shares hereunder unless each of the following
conditions has been satisfied or exists at all times during the 20
consecutive Trading Days immediately preceding delivery of the
Termination Notice and at all times thereafter through the Termination
Date, each of which shall be a condition precedent to any such
termination:
(i) no material default or breach exists which has
not been cured, and no event shall have occurred which
constitutes (or would constitute with notice or the passage of
time or both) a material default or breach of this Agreement
(including without limitation any breach of Sections 2.1(ff)
or 3.16 hereof), the Registration Rights Agreement, the
Warrants or the Certificate, which has not been cured;
(ii) none of the events described in clauses (i)
through (iv) of Section 2(b) of the Registration Rights
Agreement shall have occurred and be continuing;
(iii) the Registration Statement (as defined in the
Registration Rights Agreement) is effective and holders have
received unlegended certificates representing Option Shares
(to the extent the option has been exercised) and Common
Shares with respect to all conversions for which Conversion
Notices have been given and with respect to all exercises of
the Warrants for which Notices of Exercise have been given;
and
(iv) the Company and its subsidiaries on a
consolidated basis has assets with a net realizable fair
market value exceeding its liabilities and is able to pay all
its debts as they become due in the ordinary course of
business, and the Company is not subject to any liquidation,
dissolution or winding up of its affairs, or any bankruptcy,
insolvency or similar proceeding.
(e) All of the provisions contained in Sections 5(c), 5(d), 5(e), 5(f),
5(g), 5(h), 5(j), 5(k) and 8 of the Certificate shall apply to the Option Shares
and the option hereunder and exercise thereof MUTATIS MUTANDIS instead of
Preferred Shares and conversion thereof.
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(f) (i) Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by the Investor upon
exercise of the option contained herein pursuant to the terms hereof shall not
exceed a number that, when added to the total number of shares of Common Stock
deemed beneficially owned by such Investor (other than by virtue of the
ownership of securities or rights to acquire securities that have limitations on
the Investor's right to convert, exercise or purchase similar to the limitation
set forth herein), together with all shares of Common Stock deemed beneficially
owned by the Investor's "affiliates" (as defined in Rule 144 of the Act)
("Aggregation Parties") that would be aggregated for purposes of determining
whether a group under Section 13(d) of the Securities Exchange Act of 1934 as
amended, exists, would exceed 9.99% of the total issued and outstanding shares
of the Common Stock (the "Restricted Ownership Percentage"); provided that (w)
each Investor shall have the right at any time and from time to time to reduce
its Restricted Ownership Percentage immediately upon notice to the Corporation
and (x) each Investor shall have the right (subject to waiver) at any time and
from time to time, to increase its Restricted Ownership Percentage immediately
in the event of the announcement as pending or planned, of a transaction or
event referred to in Section 5(m) of the Certificate.
(ii) Each time (a "Covenant Time") the Investor or an
Aggregation Party makes a Triggering Acquisition (as defined below) of shares of
Common Stock (the "Triggering Shares"), the Investor will be deemed to covenant
that it will not, during the balance of the day on which such Triggering
Acquisition occurs, and during the 61-day period beginning immediately after
that day, acquire additional shares of Common Stock pursuant to
rights-to-acquire existing at that Covenant Time, if the aggregate amount of
such additional shares so acquired (without reducing that amount by any
dispositions) would exceed (x) 9.99% of the number of shares of Common Stock
outstanding at that Covenant Time (including the Triggering Shares) minus (y)
the number of shares of Common Stock actually owned by the Investor at that
Covenant Time (regardless of how or when acquired, and including the Triggering
Shares). A "Triggering Acquisition" means the giving of an Option Notice or any
other acquisition of Common Stock by the Investor or an Aggregation Party;
provided, however, that with respect to the giving of such Option Notice, if the
associated issuance of shares of Common Stock does not occur, such event shall
cease to be a Triggering Acquisition and the related covenant under this
paragraph shall terminate. At each Covenant Time, the Investor shall be deemed
to waive any right it would otherwise have to acquire shares of Common Stock to
the extent that such acquisition would violate any covenant given by the
Investor under this paragraph. Notwithstanding anything to the contrary in the
Transaction Documents, in the event of a conflict between any covenant given
under this paragraph and any obligation of the Investor to exercise it option
for Option Shares pursuant to the Transaction Documents, the former shall
supersede the latter, and the latter shall be reduced accordingly. For the
avoidance of doubt:
(A) The covenant to be given pursuant to this paragraph will
be given at every Covenant Time and shall be calculated based
on the circumstances then in effect. The making of a covenant
at one Covenant Time shall not terminate or modify any prior
covenants.
(B) The Investor may therefore from time to time be subject to
multiple such covenants, each one having been made at a
different Covenant Time, and some possibly being more
restrictive than others. The Investor must comply with all
such covenants then in effect.
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(iii) Notwithstanding anything contained herein to the
contrary, the number of shares of Common Stock issuable by the Company and
acquirable by the Investor under this Option shall not exceed 2,645,093 shares
of Common Stock, subject to appropriate adjustment for stock splits, stock
dividends, or other similar recapitalizations affecting the Common Stock (the
"Maximum Common Stock Issuance"), unless the issuance of shares hereunder in
excess of the Maximum Common Stock Issuance shall first be approved by the
Company's shareholders in accordance with applicable law and the By-laws and
Articles of Incorporation of the Company. The Company agrees that if at any
point in time (the "Trigger Date") the number of Common Shares issued pursuant
to conversion of the Preferred Shares and exercise of the Warrants, together
with the number of Common Shares issued and issuable pursuant to the option
contained herein and the number of Common Shares that would then be issuable by
the Company in the event of conversion of all the Preferred Shares and exercise
of all the Warrants then outstanding, would exceed the Maximum Common Stock
Issuance but for this Section 1.4(f), then the Company shall promptly call a
shareholders meeting to obtain shareholder approval for the issuance of Common
Shares hereunder in excess of the Maximum Common Stock Issuance.
Section 1.5 WARRANTS EXCHANGE. The Company agrees that within ten (10)
business days after the Exercise Price under the Warrants has been determined or
adjusted pursuant to the terms thereof or of the Transaction Documents, it shall
deliver to each Investor (or then holder of Warrants) new Warrants in
substitution of the Warrants issued on the Closing Date or thereafter which are
identical in all respects except that the then fixed Exercise Price under the
Warrants shall be appropriately specified in the Warrants, and the Warrants
shall specify the fixed number of Warrant Shares into which the Warrants are
then exercisable. Such changes are intended not as amendments to the Warrants
but only as clarification of the foregoing numbers for convenience purposes, and
such changes shall not affect any provisions concerning adjustments to the
Exercise Price or number of Warrant Shares contained therein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to the Investor as of
the date hereof, the Closing Date and the date of any Option Closing:
(a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE EFFECT. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the State of Delaware and has the requisite corporate power to own
its properties and to carry on its business as now being conducted. The Company
does not have any subsidiaries other than the subsidiaries listed on SCHEDULE
2.1(A) attached hereto ("SUBSIDIARIES"). Except where specifically indicated to
the contrary, all references in this Agreement to subsidiaries shall be deemed
to refer to all direct and indirect subsidiaries of the Company. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
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owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "MATERIAL
ADVERSE EFFECT" means any adverse effect on the business, operations,
properties, prospects or financial condition of the Company and its
subsidiaries, if any, and which is (either alone or together with all other
adverse effects) material to the Company and its Subsidiaries, if any, taken as
a whole, and any material adverse effect on the transactions contemplated under
this Agreement, the Certificate and the Registration Rights Agreement, or any
other agreement or document contemplated hereby or thereby.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Certificate, the Registration Rights Agreement, the Warrants and the Escrow
Agreement ("TRANSACTION DOCUMENTS") and to issue the Preferred Shares and Option
Shares and the Warrants in accordance with the terms hereof, (ii) the execution
and delivery of this Agreement, the Registration Rights Agreement, the Warrants
and the Escrow Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including the issuance of the
Preferred Shares, the Option Shares and Warrants and the resolutions contained
in the Certificate, have been duly authorized by all necessary corporate action,
and no further consent or authorization of the Company or its Board of Directors
(or any committee or subcommittee thereof) or stockholders is required, (iii)
this Agreement, the Registration Rights Agreement, the Warrants and the Escrow
Agreement have been duly executed and delivered by the Company, (iv) this
Agreement, the Certificate, the Registration Rights Agreement, the Warrants and
the Escrow Agreement constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except (A) as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application, and (B) to the extent the
indemnification provisions contained in this Agreement and the Registration
Rights Agreement may be limited by applicable federal or state securities laws
and (v) the Preferred Shares, the Warrants, the Common Shares issuable upon the
conversion and/or exercise thereof and the Option Shares have been duly
authorized and, upon issuance thereof and payment therefor in accordance with
the terms of this Agreement, the Preferred Shares, the Warrants, the Common
Shares issuable upon the conversion and/or exercise thereof and the Option
Shares will be validly issued, fully paid and non-assessable, free and clear of
any and all liens, claims and encumbrances.
(c) CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company consists of (i) 20,000,000 shares of Common Stock, of which as of
the date hereof, 13,225,466 shares are issued and outstanding, 2,020,928 shares
are issuable and reserved for issuance pursuant to the Company's stock option
and purchase plans and committed pursuant to pending acquisitions, and 345,000
shares are issuable and reserved for issuance pursuant to securities exercisable
or exchangeable for, or convertible into, shares of Common Stock, and (ii)
5,000,000 shares of preferred stock, of which as of the date hereof, no shares
are currently designated other than the Preferred Shares designated pursuant to
the Certificate and no shares are issued and outstanding. All of such
outstanding shares have been, or upon issuance will be, validly issued, fully
paid and nonassessable. As of the date hereof, except as disclosed in SCHEDULE
2.1(C), (i) no shares of the Company's capital stock are subject to preemptive
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rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company, (ii) there are no outstanding debt securities, (iii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the Securities Act of 1933, as amended ("SECURITIES ACT" or "1933 ACT") (except
the Registration Rights Agreement and except as set forth on SCHEDULE 2.1(C)),
(v) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries, (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Preferred Shares, the Option Shares or the Warrants as described
in this Agreement, the Certificate or the Warrants and (vii) the Company does
not have any stock appreciation rights or "phantom stock" plans or agreements or
any similar plan or agreement. The Company has furnished to the Investor true
and correct copies of the Company's Certificate of Incorporation, as amended and
as in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the
Company's By-laws, as in effect on the date hereof (the "BY-LAWS"), and the
terms of all securities convertible or exchangeable into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
(d) ISSUANCE OF SHARES. Upon issuance in accordance with this Agreement
and the Certificate, the Preferred Shares, Option Shares, Warrants and Common
Shares will be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof.
(e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby and issuance of the Preferred
Shares, the Option Shares, the Warrants and the Common Shares underlying the
Preferred Shares or the Warrants will not (i) result in a violation of the
Certificate of Incorporation, any certificate of designations, preferences and
rights of any outstanding series of preferred stock of the Company or the
By-laws; (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and state
securities laws and regulations and the rules and regulations of the Nasdaq
National Market ("PRINCIPAL MARKET") or principal securities exchange or trading
market on which the Common Stock is traded or listed) applicable to the Company
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or any of its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected. Neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, (x) its
certificate of incorporation, any certificate of designations, preferences and
rights of any outstanding series of preferred stock or By-laws or their
organizational charter or by-laws, respectively, (y) any material contract,
agreement, mortgage, indebtedness, indenture, instrument, or (z) any judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, the non-compliance with which (in the case of (z) only), would
be material to the Company or its Subsidiaries or interfere with the performance
of its obligations under the Transaction Documents. Except as specifically
contemplated by this Agreement and as required under the 1933 Act, the Company
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court, governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under, or contemplated by, the Transaction Documents or the issuance
of the Preferred Shares, the Option Shares, the Warrants and the Common Shares
underlying the Preferred Shares or the Warrants in accordance with the terms
hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company complies with and is not in violation of the listing requirements of the
Principal Market as in effect on the date hereof and on each of the Closing
Dates and is not aware of any facts which would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future.
(f) SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 1998, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC DOCUMENTS"). The
Company has delivered to the Investor or its representatives true and complete
copies of any SEC Documents that were not filed electronically via EDGAR. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, 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 exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2.2(b) of this Agreement, contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstance under which they
are or were made, not misleading. Neither the Company nor any of its
Subsidiaries or any of their officers, directors, employees or agents have
provided the Investor with any material, nonpublic information which was not
publicly disclosed prior to the date hereof.
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(g) ABSENCE OF CERTAIN CHANGES. Since December 31, 1998 there has been
no adverse change or adverse development in the business, properties, assets,
operations, financial condition, prospects, liabilities or results of operations
of the Company or its Subsidiaries which has had or, to the knowledge of the
Company or its Subsidiaries, is reasonably likely to have a Material Adverse
Effect. The Company has not taken any steps, and does not currently expect to
take any steps, to seek protection pursuant to any bankruptcy law nor does the
Company or its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
(h) ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
except which individually and in the aggregate, respectively, would be
reasonably likely to result in liability to the Company in excess of $50,000 and
$100,000, respectively.
(i) ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby, and any advice given by
the Investor or any of its respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated hereby and
thereby is merely incidental to the Investor's purchase of the Preferred Shares.
The Company further represents to the Investor that the Company's decision to
enter into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
(j) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES.
No event, liability, development or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, prospects, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly disclosed.
(k) NO INSIDE INFORMATION. The Company has not provided and, the
Company shall not provide, any Investor with any non-public information.
(l) 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 this offering of
Preferred Shares, Option Shares and Warrants to the Investor to be integrated
with prior offerings by the Company for purposes of the 1933 Act or any
applicable shareholder approval provisions, including, without limitation, under
the rules and regulations of the Principal Market or other Approved Market, nor
will the Company or any of its Subsidiaries take any action or steps that would
cause the offering of the Preferred Shares or Option Shares to be integrated
with other offerings.
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(m) EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries
is involved in any labor dispute nor, to the knowledge of the Company or any of
its Subsidiaries, is any such dispute threatened, the effect of which would be
reasonably likely to result in a Material Adverse Effect. Neither the Company
nor any of its Subsidiaries is a party to a collective bargaining agreement. The
Company and its Subsidiaries believe that relations between the Company and its
Subsidiaries and their respective employees are good. No executive officer (as
defined in Rule 501(f) of the 1933 Act) whose departure would be adverse to the
Company has notified the Company that such officer intends to leave the Company
or otherwise terminate such officer's employment with the Company.
(n) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. None of the Company's trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights have expired or terminated,
or are expected to expire or terminate within two (2) years from the date of
this Agreement. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, trade secret or other similar rights
of others, or of any such development of similar or identical trade secrets or
technical information by others, and there is no claim, action or proceeding
being made or brought against, or to the Company's knowledge, being threatened
against, the Company or its Subsidiaries regarding trademarks, trade name
rights, patents, patent rights, inventions, copyrights, licenses, service names,
service marks, service mark registrations, trade secrets or other infringement.
The Company and its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all of their intellectual
properties.
(o) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (I) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where such noncompliance or
failure to receive permits, licenses or approvals referred to in clauses (i),
(ii) or (iii) above could have, individually or in the aggregate, a Material
Adverse Effect.
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(p) TITLE. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in SCHEDULE 2.1(P) or such as do not
materially and adversely affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or any
of its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(q) INSURANCE. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries taken as a whole.
(r) REGULATORY PERMITS. The Company and its Subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities, necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(s) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(t) FOREIGN CORRUPT PRACTICES ACT. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; directly or indirectly made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
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(u) TAX STATUS. The Company and each of its Subsidiaries has made or
filed all United States federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject and
(i) has paid all taxes and other governmental assessments and charges, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (ii) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes claimed to be due by the taxing authority of any jurisdiction, and
the Company is not aware of any basis for any such claim.
(v) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents
filed on EDGAR at least thirty (30) Trading Days prior to the date hereof and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on SCHEDULE 2.1(C), none of the officers, directors or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
(w) DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Common Shares issuable upon exercise of the option contained in
Section 1.4 hereof and upon conversion of Preferred Shares and exercise of the
Warrants purchased pursuant to this Agreement will increase in certain
circumstances. The Company further acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation (x) to issue Option Shares upon exercise of the option contained in
Section 1.4 hereof and (y) to issue Common Shares upon conversion of Preferred
Shares and exercise of the Warrants purchased pursuant to this Agreement, is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other shareholders of the Company.
(x) APPLICATION OF TAKEOVER PROTECTIONS. There are no anti-takeover
provisions contained in the Company's Certificate of Incorporation or otherwise
which will be triggered as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the Common
Shares and the Investor's ownership of the Common Shares.
(y) RIGHTS PLAN. Neither the Company nor any of its Subsidiaries has
adopted a shareholder or rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company. The Company confirms that no provision of such plan will, under any
present or future circumstances, delay, prevent or interfere with the
performance of any of the Company's obligations under the Transaction Documents
and such plan will not be "triggered" by such performance.
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(z) MARKET CAPITALIZATION. As of the date hereof, the aggregate market
value of the voting common equity of the Company held by non-affiliates of the
Company is greater than $150 million.
(aa) OBLIGATIONS ABSOLUTE. Each of the Company and the Investor agrees
that, subject only to the conditions, qualifications and exceptions (if any)
specifically set forth in the Transaction Documents, its obligations under the
Transaction Documents are unconditional and absolute. Except to the extent (if
any) specifically set forth in the Transaction Documents, each party's
obligations thereunder are not subject to any right of set off, counterclaim,
delay or reduction.
(bb) ISSUANCE OF COMMON SHARES. The Common Shares and Option Shares are
duly authorized and reserved for issuance and, upon conversion of Preferred
Shares in accordance with the Certificate, purchase of the Option Shares or
exercise of the Warrants in accordance with the terms thereof, such Common
Shares will be validly issued, fully paid and non-assessable, free and clear of
any and all liens, claims and encumbrances, and entitled to be traded on the
Principal Market or the New York Stock Exchange or the American Stock Exchange,
or the Nasdaq small cap market (collectively with the Principal Market, the
"APPROVED MARKETS"), and the holders of such Common Shares shall be entitled to
all rights and preferences accorded to a holder of Common Stock. As of the date
of this Agreement, the outstanding shares of Common Stock are currently listed
on the Principal Market.
(cc) FORM S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) for secondary
offerings on Form S-3 (as in effect on the date of this Agreement) under the
1933 Act and rules promulgated thereunder, and Form S-3 (as in effect on the
date of this Agreement) is permitted to be used for the transactions
contemplated hereby under the 1933 Act and rules promulgated thereunder.
(dd) BROKERS. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company or the Investor relating to this Agreement or the
transactions contemplated hereby, except for the broker's fee of Shoreline
Pacific Institutional Finance, the Institutional Division of Financial West
Group ("Shoreline"), which shall be paid by the Company out of the Closing
proceeds.
(ee) NAME CHANGE. The Company's name was changed from "Research
Engineers, Inc." to "netguru, inc." as of February 25, 2000, and such corporate
name change has not had nor will have any affect on the rights, assets,
interests, obligations or liabilities of the Company or affect in any way the
representations and warranties herein pertaining to the Company (which apply to
the Company under both of such names).
(ff) INTERRA GLOBAL LIMITED. The Company has entered into an agreement
with Interra Global Limited of India ("Interra") and Interra's equity interest
holders pursuant to which the Company will directly or indirectly acquire at
least 73% of Interra by May 31, 2000 (the "Interra Transaction"). Such agreement
is in full force and effect and enforceable by the Company, and a copy of such
agreement (together with any amendments thereto or documents relating thereto)
has been furnished to the Investors to the extent requested by them. Upon and
following the Interra Transaction, Interra will continue to own an Internet
Service Provider ("ISP") license covering all of India pursuant to a Category A
unrestricted license by the Ministry of Telecommunications, Government of India.
The Company is currently effectively serving in a management and/or policy
making capacity for Interra's India ISP business.
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Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The
Investor hereby makes the following representations and warranties to the
Company as of the date hereof, the Closing Date and the date of any Option
Closing:
(a) ACCREDITED INVESTOR STATUS; SOPHISTICATED INVESTOR. The Investor is
an "accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the 1933 Act. The Investor has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
investment in the Preferred Shares, Option Shares, the Warrants and Common
Shares.
(b) INFORMATION. The Investor and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company which have been requested and materials relating to the offer and
sale of the Preferred Shares, the Option Shares, the Warrants and Common Shares
which have been requested by the Investor. The Investor and its advisors, if
any, have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigations conducted by the
Investor or its advisors, if any, or its representatives shall modify, amend or
affect the Investor's right to rely on the Company's representations and
warranties contained in Section 2.1 above. The Investor understands that its
investment in the Preferred Shares, the Option Shares, the Warrants and Common
Shares involves a high degree of risk. The Investor has sought such accounting,
legal and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Preferred Shares, the
Option Shares, the Warrants and Common Shares.
(c) NO GOVERNMENTAL REVIEW. The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Preferred Shares,
the Option Shares, the Warrants and Common Shares or the fairness or suitability
of the investment in the Preferred Shares, the Warrants and Common Shares nor
have such authorities passed upon or endorsed the merits of the offering of the
Preferred Shares, the Option Shares, the Warrants and Common Shares.
(d) LEGENDS. The Company shall issue certificates for the Preferred
Shares, the Option Shares, the Warrants and Common Shares to the Investor
without any legend except as described in Article VI below. The Investor
covenants that, in connection with any transfer of Common Shares by the Investor
pursuant to the registration statement contemplated by the Registration Rights
Agreement, it will comply with the applicable prospectus delivery requirements
of the 1933 Act, provided that copies of a current prospectus relating to such
effective registration statement are or have been supplied to the Investor.
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(e) AUTHORIZATION; ENFORCEMENT. Each of this Agreement, the
Registration Rights Agreement and the Escrow Agreement have been duly and
validly authorized, executed and delivered on behalf of the Investor and is a
valid and binding agreement of the Investor enforceable against the Investor in
accordance with their terms, subject as to enforceability to general principles
of equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies. The Investor has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement and the
Escrow Agreement and each other agreement entered into by the parties hereto in
connection with the transactions contemplated by this Agreement.
(f) RESIDENCY. The Investor is a resident of the jurisdiction indicated
on SCHEDULE I.
(g) NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Escrow Agreement by the
Investor and the consummation by the Investor of the transactions contemplated
hereby and thereby will not result in a violation of the certificate of
incorporation, by-laws or other documents of organization of the Investor.
(h) INVESTMENT REPRESENTATION. The Investor is purchasing the Preferred
Shares (and, if applicable, the Option Shares) and the Warrants for its own
account and not with a view to distribution in violation of any securities laws.
The Investor has been advised and understands that neither the Preferred Shares,
the Option Shares, the Warrants nor the shares of Common Stock issuable upon
conversion or exercise thereof have been registered under the 1933 Act or under
the "blue sky" laws of any jurisdiction and may be resold only if registered
pursuant to the provisions of the 1933 Act or if an exemption from registration
is available, except under circumstances where neither such registration nor
such an exemption is required by law. The Investor has been advised and
understands that the Company, in issuing the Preferred Shares, the Option Shares
and Warrants, is relying upon, among other things, the representations and
warranties of the Investor contained in this Section 2.2 in concluding that such
issuance is a "private offering" and is exempt from the registration provisions
of the 1933 Act.
(i) RULE 144. The Investor understands that there is no public trading
market for the Preferred Shares, or the Warrants, that none is expected to
develop, and that the Preferred Shares and Warrants must be held indefinitely
unless and until such Preferred Shares, Warrants or Common Shares received upon
conversion or exercise thereof are registered under the 1933 Act or an exemption
from registration is available. The Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the 1933 Act.
(j) BROKERS. The Investor has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company or the Investor relating to this Agreement or the
transactions contemplated hereby except for the broker's fee of Shoreline which
shall be paid by the Company out of the Closing proceeds.
(k) RELIANCE BY THE COMPANY. The Investor understands that the
Preferred Shares, Option Shares and Warrants are being offered and sold in
reliance on a transactional exemption from the registration requirements of
Federal and state securities laws and that the Company is relying upon the truth
and accuracy of the representations, warranties, agreements, acknowledgments and
understandings of the Investor set forth herein in order to determine the
applicability of such exemptions and the suitability of the Investor to acquire
the Preferred Shares, Option Shares and Warrants.
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ARTICLE III
COVENANTS
---------
Section 3.1 REGISTRATION AND LISTING; EFFECTIVE REGISTRATION. Until
such time as no Preferred Shares or Warrants are outstanding and the option to
purchase the Option Shares has expired, the Company will cause the Common Stock
to continue at all times to be registered under Sections 12(b) or (g) of the
Exchange Act, will comply in all material respects with its reporting and filing
obligations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and will not take any action or file any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such reporting and filing obligations. Until such time as no Preferred Shares or
Warrants are outstanding and the option to purchase the Option Shares has
expired, the Company shall continue the listing or trading of the Common Stock
on the Principal Market or one of the other Approved Markets and comply in all
material respects with the Company's reporting, filing and other obligations
under the bylaws or rules of the Approved Market on which the Common Stock is
listed. The Company shall cause the Common Shares and Option Shares to be listed
on the Principal Market or one of the other Approved Markets no later than the
effectiveness of the registration of the Common Shares under the Act, and shall
continue such listing(s) on one of the Approved Markets, for so long as any
Preferred Shares or Warrants are outstanding and the option to purchase the
Option Shares has not expired.
Section 3.2 CERTIFICATES ON CONVERSION. Upon any conversion by the
Investor (or then holder of Preferred Shares) of the Preferred Shares pursuant
to the Certificate, the Company shall issue and deliver to the Investor (or
holder) within three (3) trading days of the conversion date a new certificate
or certificates for the number of Preferred Shares which the Investor (or
holder) has not yet elected to convert but which are evidenced in part by the
certificate(s) submitted to the Company in connection with such conversion (with
the denominations of such new certificate(s) designated by the Investor or
holder).
Section 3.3 REPLACEMENT CERTIFICATES. The certificate(s) representing
the Preferred Shares held by any Investor (or then holder) may be exchanged by
the Investor (or such holder) at any time and from time to time for certificates
with different denominations representing an equal aggregate number of Preferred
Shares, as requested by the Investor (or such holder) upon surrendering the
same. No service charge will be made for such registration or transfer or
exchange.
Section 3.4 SECURITIES COMPLIANCE. The Company shall notify the SEC and
the Principal Market, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Certificate, the Warrants and the
Registration Rights 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 Preferred Shares, Option
Shares and Warrants hereunder and the Common Shares issuable upon conversion or
exercise thereof.
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Section 3.5 NOTICES. The Company agrees to provide all holders of
Preferred Shares and Warrants with copies of all notices and information,
including without limitation notices and proxy statements in connection with any
meetings, that are provided to the holders of shares of Common Stock,
contemporaneously with the delivery of such notices or information to such
Common Stock holders.
Section 3.6 USE OF PROCEEDS. The Company agrees that the net proceeds
received by the Company from the sale of the Preferred Shares or Option Shares
hereunder and payment of the exercise price of the Warrants shall be used for
legally permitted corporate purposes and at least Six Million U.S. Dollars
($6,000,000) of such net proceeds shall be used to fund the creation of
infrastructure for an ISP network in India.
Section 3.7 RESERVATION OF SHARES; STOCK ISSUABLE UPON CONVERSION.
(a) The Company shall reserve all authorized but unissued Series A
Cumulative Convertible Preferred Stock for issuance to the Investor pursuant to
the terms of this Agreement.
(b) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, issuance of the Option Shares
and exercise of the Warrants, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all Preferred
Shares, issuance of all the Option Shares and exercise of all of the Warrants,
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all the then outstanding
Preferred Shares and all of the then outstanding Warrants and issuance of all of
the Option Shares, the Company will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose, including without
limitation engaging in best efforts to obtain the requisite shareholder approval
and taking the actions described in the Certificate. Without in any way limiting
the foregoing, the Company agrees to reserve and at all times keep available
solely for purposes of conversion of Preferred Shares , issuance of the Option
Shares and exercise of the Warrants, such number of authorized but unissued
shares of Common Stock that is at least equal to 200% of the number of Common
Shares issuable upon conversion of all Preferred Shares, issuance of all Option
Shares and exercise of all of the Warrants, computed as if all Preferred Shares
are convertible at the then Conversion Price (as defined in the Certificate),
all Warrants are exercisable at the then Exercise Price (as defined in the
Warrants), and the option pursuant to Section 1.4 hereof is exercisable in full
at the then Fixed Price. If at any time the number of authorized but unissued
shares of Common Stock is not sufficient to effect such issuance, conversion, or
exercise, respectively, up to the Maximum Common Stock Issuance (as defined in
Section 3.16 below), of the Option Shares, all the then outstanding Preferred
Shares and the Warrants, the Investor shall be entitled to, INTER ALIA, the
redemption rights provided in the Registration Rights Agreement.
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Section 3.8 BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article V of this Agreement.
Section 3.9 FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
with respect to the Preferred Shares, the Option Shares, the Warrants and Common
Shares, as required under Regulation D and to provide a copy thereof to the
Investor promptly after such filing. The Company shall, on or before the Closing
Date, take such action as the Company shall have reasonably determined is
necessary to qualify the Preferred Shares, the Option Shares, the Warrants and
Common Shares for sale to the Investor under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Investor on or prior to the Closing Date; provided, however, that the Company
shall not be required in connection therewith to register or qualify as a
foreign corporation in any jurisdiction where it is not now so qualified or to
take any action that would subject it to service of process in suits or
taxation, in each case, in any jurisdiction where it is not now so subject.
Section 3.10 PUBLICITY. The Company shall, immediately upon the
Closing, issue a press release with respect to such transactions, in the form of
press release attached as Exhibit E hereto.
Section 3.11 SHAREHOLDER RIGHTS PLAN. None of the acquisitions of
Preferred Shares, Option Shares, Warrants or Common Shares nor the deemed
beneficial ownership of shares of Common Stock prior to, or the acquisition of
such shares pursuant to, the conversion of Preferred Shares or Option Shares or
exercise of the Warrants will in any event under any circumstances trigger the
poison pill provisions of any stockholders' rights or similar agreements, or a
substantially similar occurrence under any successor or similar plan.
Section 3.12 FINANCIAL INFORMATION. The Company agrees to send the
following to the Investor for so long as any Preferred Shares or Warrants are
outstanding or the option to purchase Option Shares has not expired: (i) on the
same day as the release thereof, facsimile or e-mail copies of all press
releases issued by the Company or any of its Subsidiaries; and (ii) copies of
any notices and other information made available or given to the shareholders of
the Company generally, contemporaneously with the making available or giving
thereof to the shareholders.
Section 3.13 TRANSACTIONS WITH AFFILIATES. The Company agrees that any
transaction or arrangement between it or any of its subsidiaries and any
affiliate or employee of the Company shall be effected on an arms' length basis
in accordance with customary commercial practice and, except with respect to
grants of options and stock to service providers, including employees, shall be
approved by a majority of the Company's outside directors.
Section 3.14 RIGHT OF FIRST REFUSAL ON FUTURE FINANCINGS. The Company
agrees that for a period of one year immediately following the Closing Date, the
Investors shall have a right of first refusal with respect to all non-public
capital raising transactions as set forth in this Section 3.14. The Company
shall give advance written notice to the Investors prior to any offer or sale of
any of its equity securities or any securities convertible into or exchangeable
or exercisable for such securities in a non-public capital raising transaction
("Financing Transaction"). The Investors shall have ten (10) business days from
receipt of such notice to deliver a written notice to the Company that one or
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more of such Investors elects to exercise its right of first refusal with
respect to the entire issuance or a part thereof. If, subsequent to the Company
giving notice to the Investors hereunder, the terms and conditions of the
proposed Financing Transaction are changed in any way, the Company shall be
required to provide a new notice to the Investors hereunder and the Investors
shall have the right of refusal again to purchase all or a portion of the
securities in the offering on such changed terms and conditions as provided
hereunder. In such event, if such other Financing Transaction provides for
non-cash consideration, in whole or in part, from such other potential
investor(s), the Investors shall still have the right to participate in the
Financing Transaction as provided herein, provided that cash or cash equivalents
may be substituted by the Investors for such non-cash consideration. This right
of first refusal shall continue even if the Investors elect not to participate
in one or more Financing Transactions.
Section 3.15 NO CONVERTIBLE SECURITIES. For so long as Preferred Shares
are outstanding and for so long as the Exercise Period has not expired or been
terminated with respect to the Option Shares, the Company shall not, without the
prior written consent of the Investors (a) sell or issue any of the Company's or
any of its Subsidiaries preferred stock or any other securities convertible,
exercisable or exchangeable into shares of Common Stock or preferred stock, or
any rights, options or warrants to purchase any shares of its Common Stock, (b)
issue or sell or agree to issue or sell any securities in a MFN Transaction (as
defined below), or (c) issue or sell or agree to issue or sell any securities in
a Variable Rate Transaction (as defined below), in each case other than shares
or options issued pursuant to (i) the Company's current or future employee,
director or bona fide consultant option plans, (ii) the exercise of options,
warrants or rights outstanding on the date of this Agreement and listed in the
Company's most recent periodic report filed under the 1934 Act, (iii)
arrangements with all the holders of Preferred Shares, (iv) an underwriting
agreement, to one or more underwriters in connection with a bona fide public
offering (as defined in the Certificate), (v) strategic acquisitions of other
entities by the Company which engage in businesses related or complementary to
the Company's business, or (vi) an investment in the Company by another entity
which engages in business(es) related or complementary to the Company's
business. The term "MFN Transaction" shall mean a transaction in which the
Company issues or sells any securities in a capital raising transaction or
series of related transactions (the "New Offering") which grants to an investor
(the "New Investor") the right to receive additional shares (including without
limitation as a result of a lower conversion, exchange or exercise price) based
upon subsequent transactions of the Company on terms more favorable than those
granted to such New Investor in such New Offering. The term "Variable Rate
Transaction" shall mean a transaction in which the Company issues or sells (a)
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (x) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
Common Stock at any time after the initial issuance of such debt or equity
securities, or (y) with a fixed conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock (but excluding standard stock split anti-dilution provisions),
or (b) any securities of the Company pursuant to an "equity line" structure
which provides for the sale, from time to time, of securities of the Company
which are registered for resale pursuant to the 1933 Act.
<PAGE>
Page 21
Section 3.16 INTERRA GLOBAL LIMITED. The Company agrees that, at all
times during the period ("Interra Period") commencing June 30, 2000 and
continuing thereafter for so long as Preferred Shares are outstanding and for so
long as the Exercise Period has not expired or been terminated with respect to
the Option Shares (a) the Company shall directly or indirectly own at least 73%
of the equity interest in Interra, (b) Interra shall own and maintain a Category
A unrestricted license issued by the Ministry of Telecommunications, Government
of India, enabling Interra to own and operate an ISP business covering all of
India, (c) Interra shall operate such ISP business, and (d) the Company shall
directly or indirectly have and maintain full management and policy making
control of Interra and such ISP business. If at any time and from time to time
there is an announcement or public disclosure that the transactions or events
described in the foregoing clauses (a) through (d) will not occur or will not
longer be in effect, or if at any time during the Interra Period there shall be
any breach of the foregoing clauses (a) through (d), then the Conversion Price
(as defined in the Certificate) shall be adjusted downward as provided in the
Certificate (and such adjustment shall not be reversed in the case of any cure
of such breach). In addition to and not in lieu of such Conversion Price
adjustment, in the event that at any time during the Interra Period there shall
be any breach of the foregoing clauses (a) through (d), the Investors shall have
the right, at any time and from time to time during any such breach, to sell any
or all of its Preferred Shares to the Company at the Mandatory Purchase Price
(as defined in the Registration Rights Agreement).
ARTICLE IV
TRANSFER AGENT INSTRUCTIONS.
----------------------------
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of the Investor or its respective nominee(s), for the
Common Shares in such amounts as specified from time to time by the Investor to
the Company upon delivery of a conversion or exercise notice (the "IRREVOCABLE
TRANSFER AGENT INSTRUCTIONS"). The Company warrants that no instruction relating
to the Common Shares other than the Irrevocable Transfer Agent Instructions
referred to in this Article IV will be given by the Company to its transfer
agent and that the Common Shares shall be freely transferable on the books and
records of the Company as contemplated by Article VI below when the legend
referred to therein may be removed. Nothing in this Article IV shall affect in
any way the Investor's obligations and agreements set forth in Section 2.2(d) to
comply with all applicable prospectus delivery requirements, if any, upon resale
of the Common Shares. The Company shall instruct its transfer agent to issue one
or more certificates in such name and in such denominations as specified by the
Investor and without any restrictive legends. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Investor by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that the Investor shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
<PAGE>
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ARTICLE V
CONDITIONS TO CLOSINGS
----------------------
Section 5.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
SELL THE PREFERRED SHARES AND WARRANTS. The obligation hereunder of the Company
to issue and/or sell the Preferred Shares and the Warrants to the Investor at
the Closing and to issue and/or sell the Option Shares to the Investor at an
Option Closing is subject to the satisfaction, at or before the Closing, or
Option Closing, as the case may be, of each of the applicable conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Investor will be true and correct in all
material respects as of the date when made and as of the Closing Date, or the
date of the Option Closing, as the case may be, as though made at that time.
(b) PERFORMANCE BY THE INVESTOR. The Investor shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Investor at or prior to the Closing, or Option Closing, as the case may be,
including payment of the purchase price set forth on SCHEDULE I hereto in the
case of the Closing and payment of the applicable consideration, in the case of
an Option Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement or the Certificate.
(d) CERTIFICATE. The Investor shall have delivered a certificate to the
Company certifying that the representations and warranties of the Investor
contained in Section 2.2 are true and correct in all material respects as of the
Closing Date in the case of a Closing, and as the date of the Option Closing, in
the case of an Option Closing.
Section 5.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTOR TO
PURCHASE THE PREFERRED SHARES. The obligation hereunder of the Investor to
acquire and pay for the Preferred Shares at the Closing is subject to the
satisfaction, at or before the Closing, of each of the applicable conditions set
forth below. These conditions are for the Investor's benefit and may be waived
by the Investor at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which shall be true and correct in all material respects as of such date).
<PAGE>
Page 23
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing, including, without limitation, delivery
of certificates representing the Preferred Shares and Warrants issued to
Investor.
(c) NASDAQ TRADING. From the date hereof to the Closing Date, trading
in the Company's Common Stock shall not have been suspended by the SEC and
trading in securities generally as reported by the Principal Market (or other
Approved Market) shall not have been suspended or limited, and the Common Stock
shall be listed on the Principal Market or another Approved Market.
(d) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement, the Warrants, the Registration Rights Agreement or the Certificate.
The NASD shall not have objected or indicated that it may object to the
consummation of any of the transactions contemplated by this Agreement.
(e) OPINION OF COUNSEL. At the Closing, the Investor shall have
received an opinion of counsel to the Company in the form attached hereto as
EXHIBIT F and such other opinions, certificates and documents as the Investor or
their counsel shall reasonably require incident to the Closing.
(f) REGISTRATION RIGHTS AGREEMENT. The Company and the Investor shall
have executed and delivered the Registration Rights Agreement in the form and
substance of EXHIBIT C attached hereto.
(g) OFFICER'S CERTIFICATE. The Company shall have delivered to the
Investor a certificate in form and substance satisfactory to the Investor and
the Investor's counsel, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, incumbency of signing officers, and the
true, correct and complete nature of the Certificate of Incorporation, By-Laws,
good standing and authorizing resolutions of the Company.
(h) CERTIFICATE. The Certificate shall have been accepted for filing by
the Secretary of State of the State of Delaware and a stamped copy thereof shall
have been provided to the Investor's counsel.
(i) MISCELLANEOUS. The Company shall have delivered to the Investor
such other documents relating to the transactions contemplated by this Agreement
or the Investor or its counsel may reasonable request.
ARTICLE VI
LEGEND AND STOCK
----------------
Upon payment therefor as provided in this Agreement, the Company will
issue one or more certificates representing the Preferred Shares, the Option
Shares and Warrants in the name the Investor or its designees and in such
denominations to be specified by the Investor prior to (or from time to time
subsequent to) Closing or Option Closing. Each certificate representing the
<PAGE>
Page 24
Preferred Shares or Warrants, the Option Shares and any Common Shares issued
upon conversion or exercise thereof, prior to such Common Shares being
registered under the 1933 Act for resale or available for resale under Rule 144
under the 1933 Act, shall be stamped or otherwise imprinted with a legend
substantially in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER OR SALE
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Preferred Shares, Option Shares
or Warrants without the legend set forth above at such time as (i) the holder
thereof is permitted to dispose of such Preferred Shares or Warrants, the Option
Shares and/or Common Shares issuable upon conversion of the Preferred Shares or
exercise of the Warrants pursuant to Rule 144 under the Act, or (ii) such
Preferred Shares are sold to a purchaser or purchasers who (in the opinion of
counsel to the seller or such purchaser(s), in form and substance reasonably
satisfactory to the Company and its counsel) are able to dispose of such shares
publicly without registration under the Act, or (iii) such securities have been
registered under the 1933 Act.
Prior to the Registration Statement (as defined in the
Registration Rights Agreement) being declared effective, any Option Shares and
any Common Shares issued pursuant to conversion of Preferred Shares or exercise
of the Warrants shall bear a legend in the same form as the legend indicated
above; provided that such legend shall be removed from the Option Shares and
Common Shares and the Company shall issue new certificates without such legend
if (i) the holder has sold or disposed of such Common Shares pursuant to Rule
144 under the 1933 Act, or the holder is permitted to dispose of such Common
Shares pursuant to Rule 144(k) under the 1933 Act, (ii) such Common Shares are
registered for resale under the 1933 Act, or (iii) such Common Shares are sold
to a purchaser or purchasers who (in the opinion of counsel to the seller or
such purchaser(s), in form and substance reasonably satisfactory to the Company
and it counsel) are able to dispose of such shares publicly without registration
under the 1933 Act. Upon such Registration Statement becoming effective, the
Company agrees to promptly, but no later than three (3) business days
thereafter, issue new certificates representing such Common Shares without such
legend. Any Common Shares issued after the Registration Statement has become
effective shall be free and clear of any legends, transfer restrictions and stop
orders. Notwithstanding the removal of such legend, the Investor agrees to sell
the Common Shares represented by the new certificates in accordance with the
applicable prospectus delivery requirements (if copies of a current prospectus
are provided to the Investor by the Company) or in accordance with an exemption
from the registration requirements of the 1933 Act.
Nothing herein shall limit the right of any holder to pledge
these securities pursuant to a bona fide margin account or lending arrangement
entered into in compliance with law, including applicable securities laws.
<PAGE>
Page 25
ARTICLE VII
TERMINATION
-----------
Section 7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Investor.
Section 7.2 OTHER TERMINATION. This Agreement may be terminated by
action of the Board of Directors of the Company or by the Investor at any time
if the Closing shall not have been consummated by the fifth business day
following the date of this Agreement; provided, however, that the party (or
parties) prepared to close shall retain its (or their) right to sue for any
breach by the other party (or parties).
ARTICLE VIII
INDEMNIFICATION
---------------
In consideration of the Investor's execution and delivery of
the this Agreement and the Registration Rights Agreement and acquiring the
Preferred Shares hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Investor and all of its partners, officers,
directors, employees, members and direct or indirect investors and any of the
foregoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "INDEMNITEES") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate or document contemplated hereby or thereby, (b) any breach
of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate or document contemplated hereby
or thereby, (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party and arising out of or resulting from (i) the
execution, delivery, performance, breach by the Company or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Preferred Shares or (iii) the status of the Investor or holder of the
Preferred Shares, Option Shares or Warrants as the Investor in the Company and
(d) the enforcement of this Section. Notwithstanding the foregoing, Indemnified
Liabilities shall not include any liability of any Indemnitee arising solely out
of such Indemnitee's willful misconduct or fraudulent action(s). To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Article VIII
shall be the same as those set forth in Section 6 (other than Section 6(b)) of
the Registration Rights Agreement, including, without limitation, those
procedures with respect to the settlement of claims and Company's right to
assume the defense of claims.
<PAGE>
Page 26
ARTICLE IX
GOVERNING LAW, MISCELLANEOUS.
-----------------------------
Section 9.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY
OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER
OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR
DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT
IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER
THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY
JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE
VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER
JURISDICTION. EACH PARTY HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY.
Section 9.2 COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
Section 9.3 HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
<PAGE>
Page 27
Section 9.4 SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
Section 9.5 ENTIRE AGREEMENT; AMENDMENTS; WAIVERS.
(a) This Agreement supersedes all other prior oral or written
agreements between the Investor, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein (including the other Transaction
Documents) contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Investor, and no provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.
(b) The Investor may at any time elect, by notice to the
Company, to waive (whether permanently or temporarily, and subject to such
conditions, if any, as the Investor may specify in such notice) any of its
rights under any of the Transaction Documents to acquire shares of Common Stock
from the Company, in which event such waiver shall be binding against the
Investor in accordance with its terms; PROVIDED, however, that the voluntary
waiver contemplated by this sentence may not reduce the Investor's obligations
to the Company under the Transaction Documents.
Section 9.6 NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing, must be delivered by (i) courier, mail or hand
delivery OR (ii) facsimile, and will be deemed to have been delivered upon
receipt. The addresses and facsimile numbers for such communications shall be:
If to the Company:
netguru, inc.
22700 Savi Ranch Parkway
Yorba Linda, California 92887
Telephone: (714) 974-2500
Facsimile: (714) 974-4771
Attention: Jyoti Chatterjee
With a copy to:
Larry A. Cerutti
Rutan & Tucker, LLP
611 Anton Boulevard, Fourteenth Floor
P.O. Box 1950
Costa Mesa, CA 92626
Telephone: (714) 641-5100
Facsimile: (714) 546-9035
<PAGE>
Page 28
If to the Transfer Agent:
American Stock Transfer and Trust Company
40 Wall Street
46th Floor
New York, New York 10005
Attention: Barry Rosenthal
If to the Investor:
Elliott Associates, L.P.
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Telephone: 212-506-2999
Facsimile: 212-974-2093 and (212) 586-9467
Attention: Brett Cohen
and
Westgate International, L.P.
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Telephone: 212-506-2999
Facsimile: 212-974-2093 and (212) 586-9467
Attention: Brett Cohen
With a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Telephone: 212-986-6000
Facsimile: 212-986-8866
Attention: Stephen M. Schultz
Each party shall provide five (5) days prior written notice to the
other party of any change in address, telephone number or facsimile number.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a nationally recognized overnight delivery service, shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
<PAGE>
Page 29
Section 9.7 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, including any Permitted
Assignee (as defined below). The Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Investor, including by merger or consolidation. The Investor may assign some or
all of its rights hereunder to any assignee of the Preferred Shares, Warrants,
Option Shares or Common Shares who is an Accredited Investor, as defined in Rule
501(a) under the 1933 Act (in each case, a "PERMITTED ASSIGNEE"); PROVIDED,
however, that any such assignment shall not release the Investor from its
obligations hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption. Notwithstanding
anything to the contrary contained in the Transaction Documents, the Investor
shall be entitled to pledge the Preferred Shares, Option Shares, Warrants or
Common Shares in connection with a bona fide margin account.
Section 9.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9 SURVIVAL. The representations, warranties and agreements of
the Company and the Investor contained in the Agreement shall survive each of
the Closing and Option Closing.
Section 9.10 FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 9.11 PLACEMENT AGENT. The Investor and the Company each
acknowledges and warrants that it has not engaged any placement agent in
connection with the sale of the Preferred Shares, the Option Shares and the
Warrants other than Shoreline, whose fees will be paid exclusively by the
Company. The Company and the Investor shall each be responsible for the payment
of any other fees or commissions of placement agents or brokers engaged,
directly or indirectly, by the Company or the Investor, respectively, in
connection with the purchase of the Preferred Shares, the Option Shares and the
Warrants by the Investor. The Company and the Investor shall pay, and hold the
other party harmless against, any liability, loss or expense (including, without
limitation, reasonable attorneys' fees and out-of-pocket expenses) arising in
connection with any such claim.
Section 9.12 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
Section 9.13 REMEDIES. The Investor and each Permitted Assignee shall
have all rights and remedies set forth in this Agreement and the Registration
Rights Agreement and all rights and remedies which such holders have been
granted at any time under any other agreement or contract and all of the rights
which such holders have under any law. Any person having any rights under any
provision of this Agreement or the Registration Rights Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement or the Registration Rights Agreement and to exercise all other rights
granted by law. The Investor and each Permitted Assignee without prejudice may
withdraw, revoke or suspend its pursuit of any remedy at any time prior to its
complete recovery as a result of such remedy.
<PAGE>
Page 30
Section 9.14 PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to the Investor hereunder or under the Registration Rights
Agreement or the Investor enforces or exercises its rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
Section 9.15 DAYS. Unless the context refers to "business days" or
"Trading Days", all references herein to "days" shall mean calendar days.
Section 9.16 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything
to the contrary contained in (and without limiting any similar provisions of)
the Transaction Documents, wherever the Investor exercises a right, election,
demand or option under a Transaction Document and the Company does not fully
perform its related obligations within the periods therein provided, then the
Investor in its sole discretion may rescind or withdraw from time to time any
relevant notice, demand or election in whole or in part without prejudice to its
future actions and rights.
* * * * *
[SIGNATURE PAGE FOLLOWS]
<PAGE>
Page 31
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed as of the date and year first above written.
COMPANY: INVESTOR:
NETGURU, INC. WESTGATE INTERNATIONAL, L.P.
By: MARTLEY INTERNATIONAL, INC.,
as attorney-in-fact
By: /s/ Jyoti Chatterjee By: /s/ Paul E. Singer
------------------------------ ------------------------------
Name: Jyoti Chatterjee Name: Paul E. Singer
Title: President Title: President
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul E. Singer
------------------------------
Name: Paul E. Singer
Title: General Partner
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Page 32
LIST OF SCHEDULES
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Schedule 2.1(a) Subsidiaries
Schedule 2.1(c) Capitalization
Schedule 2.1(p) Title
Schedule I Investors
LIST OF EXHIBITS
----------------
EXHIBIT A Certificate of Designation
EXHIBIT B Warrant
EXHIBIT C Registration Rights Agreement
EXHIBIT D Escrow Agreement
EXHIBIT E Form of Press Release
EXHIBIT F Opinion of Counsel
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Page 33
<TABLE>
SCHEDULE I
JURISDICTION OF NUMBER OF NUMBER OF DOLLAR AMOUNT OF
INVESTOR ORGANIZATION PREFERRED SHARES WARRANTS PURCHASE PRICE OPTION SHARES
-------- ------------ ---------------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Elliott Associates, L.P. Delaware, U.S.A. 6,000 45,000 $6,000,000 $3,000,000
Westgate International, L.P. Cayman Islands, B.W.I. 6,000 45,000 $6,000,000 $3,000,000
</TABLE>