Document:

exv10w1

 

Exhibit 10.1

PATENT LICENSE AGREEMENT

     This Patent License Agreement (this “Agreement”) is made by and between
the Board of Regents (“Board”) of The University of Texas System, an agency of
the State of Texas, whose address is 201 West 7th Street, Austin, Texas 78701
(“System”), through its component institution, The University of Texas Medical
Branch at Galveston, having a business address at 301 University Blvd.,
Galveston, Texas 77555 (“University”) and Chrysalis Biotechnology, Inc., a
Delaware corporation (“Licensee”), having a principal place of business located
at 2200 Market, Suite 600, Galveston, Texas 77550.

RECITALS

     A. WHEREAS, Board owns certain Patent Rights and Technology Rights related
to Licensed Subject Matter, which were developed at University, and some of
which are jointly owned with Monsanto;

     B. WHEREAS, Monsanto exclusively licensed its joint ownership in certain
of the Patent Rights to Board on May 15, 1991 pursuant to a license agreement
as set forth in Exhibit 1 attached hereto (the “Monsanto Agreement”), Monsanto
granted Board the right to grant sublicenses to third parties pursuant to the
Monsanto Agreement, and Board has filed for recordation of the Monsanto
Agreement with the United States Patent and Trademark Office to further
associate the Monsanto Agreement with certain of the Patent Rights jointly
owned with Monsanto in the United States;

     C. WHEREAS, Board desires to have the Licensed Subject Matter developed
and used for the benefit of Licensee, Board, and the public;

     D. WHEREAS, Licensee was formed to develop and commercially exploit the
Licensed Subject Matter;

     E. WHEREAS, Licensee and Board are parties to a previous Patent License
Agreement dated November 10, 1995, (as amended on March 30, 2000 and August 30,
2000) (“Previous License Agreement”) which this Agreement replaces;

     F. WHEREAS, pursuant to the Previous License Agreement, Board also granted
Licensee a sublicense in the rights granted from Monsanto to Board pursuant to
the Monsanto Agreement; and

     G. WHEREAS, Licensee has represented to Board, to induce Board to enter
into this Agreement, that Licensee is contemplating the sale of substantially
all its assets to OrthoLogic Corp., a Delaware corporation (“OLGC”), pursuant
to an Asset Purchase Agreement and Plan of Reorganization (the “Purchase
Agreement”), by and between Licensee and OLGC.

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     NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the adequacy and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. AMENDMENT. This Agreement amends and restates the Previous License
Agreement in its entirety. The Recitals set forth above are material to and
form part of this Agreement.

2. EFFECTIVE DATE. This Agreement shall be effective as of the Closing Date
(as defined in the Purchase Agreement), (the “Effective Date”).

3. DEFINITIONS. As used in this Agreement, the following terms shall have the
meanings indicated:

     "Carney” shall mean Darrell H. Carney, Ph.D.

     "Confidential Information” shall mean this Agreement, the contents of this
Agreement and all non-public or proprietary information of a party disclosed by
such party or its officers, representatives, agents, or employees to the other
party in connection with the performance of this Agreement. Subject to
exceptions set forth in Section 14.1(c) herein, such information shall be
Confidential Information if it would ordinarily be treated as confidential by
the disclosing party or would ordinarily be considered information of a
confidential nature in the industry, whether or not specifically marked as
such.

     "Effective Date” is defined in Section 2 above.

     "Licensed Field” shall mean all fields of use.

     "Licensed Process” shall mean any process which is covered in whole or in
part by an issued, unexpired valid claim contained in the Patent Rights.

     "Licensed Product” shall mean any product, component, or material which is
covered in whole or in part by an issued, unexpired, valid claim contained in
the Patent Rights.

     "Licensed Subject Matter” shall mean inventions and discoveries covered by
Patent Rights or Technology Rights within the Licensed Field.

     "Licensed Territory” shall mean the entire world.

     "Monsanto” shall mean Monsanto Company, a Delaware corporation, or the
party having legal ownership (through a merger, acquisition, or other
acquisition from Monsanto) of the Monsanto Agreement and the patent rights
described therein.

     "Net Sales” shall mean the gross revenues received by Licensee (and its
Sublicensees) from the Sale of each Licensed Product or Licensed Process, less
sales and use taxes actually paid, import and export duties actually paid,
outbound transportation prepaid or allowed,

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shipping insurance, amounts allowed or credited due to returns (not to
exceed the original billing or invoice amount), wholesale and cash discounts
actually granted and charges and portions of charges disallowed by third party
payors or care managers; provided, that if a Licensed Product is sold in
combination with other items (whether as part of the Sale of a combination
product, package, system, kit or tray or otherwise) at a unit price, whether
formulated or packaged together or separately, “Net Sales” shall mean the “Net
Sales” of such combination multiplied by (i) a fraction, A/A+B, where A is the
average selling price (“ASP”) of the Licensed Product when sold separately and
B is the ASP of the other items when sold separately, or (ii) if the ASP of the
Licensed Product or the other items are not available, a fraction determined by
the mutual agreement of the parties, which represents the proportionate
economic value of the Licensed Product relative to the proportionate economic
value contributed by the other items.

     "Patent Rights” shall mean any and all of Board’s rights in, to and under:

     (a) the patents and patent applications listed in Exhibit 2, as
updated from time to time pursuant to Section 5.4 hereof, and any and all
inventions and discoveries by University relating to TP508 Technology
conceived or reduced to practice prior to and during the two-year period
following the Effective Date, but shall not include any new technology
rights, described in Section 5.5 hereof, until such time as Licensee
elects to add such new technology rights pursuant to such Section 5.5;

     (b) all divisions, continuations, continuations-in-part,
registrations, reissues, reexaminations or extensions of any type and
corresponding foreign applications with respect to any of the
applications and patents described in the foregoing paragraph and which
relate to the manufacture, use or sale of TP508 Technology other than any
applications and patents in respect of new technology added to Licensed
Subject Matter pursuant to Section 5.5; and

     (c) the Monsanto Agreement and the licensed patent rights
thereunder.

     "Sale or Sold” shall mean the sale, transfer or disposition of a Licensed
Product or royalty-bearing use of a Licensed Process for value to a party other
than Licensee or a Subsidiary.

     "Sublicensee” shall mean any third party to whom Licensee has granted a
sublicense under the Patent Rights to make and sell Licensed Products or use a
Licensed Process.

     "Subsidiary” shall mean any business entity more than fifty percent (50%)
owned by Licensee, any business entity which owns more than fifty percent (50%)
of Licensee, or any business entity that is more than fifty percent (50%) owned
by a business entity that owns more than fifty percent (50%) of Licensee.

     "Technology Rights” shall mean Board’s and University’s rights in any
technical information, know-how, process, procedure, composition, method,
formula, protocol, technique, software, design, drawing or data relating to
Licensed Field, whether or not covered by Patent Rights, which relate to TP508
Technology, which are necessary to practice the inventions

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covered by the Patent Rights, and are made or developed by Carney or any
University employee working under the supervision or direction of Carney, prior
to or within two years after the Effective Date.

     "Term” shall have the meaning given to it in Section 7.1 of this
Agreement.

     “TP508 Technology” shall mean (i) any and all subject matter claimed in
Patent Rights; and (ii) peptides which bind to and/or stimulate a thrombin
receptor, compositions which contain such peptides, methods of producing such
peptides, detecting such peptides, and utilizing such peptides diagnostically
and/or therapeutically, including, but not limited to, thrombin derived
polypeptides, agonists or antagonists of the proteolytically or
non-proteolytically activated thrombin receptor or receptors or agonists and
antagonists of other cellular effects activated by proteolytic or
non-proteolytic thrombin interactions and which are made or developed by Carney
or any University employee working under the supervision or direction of
Carney.

     "University” is defined in the first paragraph of this Agreement.

4. WARRANTIES; SUPERIOR-RIGHTS; COVENANTS

     4.1 Except for the rights, if any, of the Government of the United States,
as set forth in Section 4.2, Board represents and warrants that it is the owner
of the entire right, title, and interest in and to the Licensed Subject Matter,
subject only to Monsanto’s rights under the Monsanto Agreement, and that it has
the exclusive right to grant licenses thereunder and has not granted licenses
thereunder to any other entity other than Licensee. The representations and
warranties of this Section 4.1 apply only to Patent Rights and Technology
Rights, but shall not apply to (i) any subject matter independently developed
by or rights of third parties who have no affiliation with or obligation to
assign rights or subject matter to the Board or University or (ii) any
purported assignment by Carney (or other named inventor) in violation of
his/her obligations under the University intellectual property policies.

     4.2 Licensee understands, acknowledges and agrees that: (i) the Licensed
Subject Matter may have been developed under a funding agreement with the
Government of the United States of America and, if so, that the Government may
have certain rights relative thereto; (ii) THIS AGREEMENT IS EXPLICITLY MADE
SUBJECT TO THE GOVERNMENT’S RIGHTS UNDER ANY SUCH AGREEMENT AND ANY APPLICABLE
LAW OR REGULATION; and (iii) to the extent that there is a conflict between any
such agreement, applicable law or regulation and this Agreement, the terms of
such Government agreement, applicable law or regulation shall prevail.

     4.3 Licensee understands, acknowledges and agrees that: (i) Board, by this
Agreement, makes no representation as to the operability or fitness for any
use, safety, efficacy, ability to obtain regulatory approval, patentability,
and/or breadth of the Licensed Subject Matter; and (ii) Board, by this
Agreement, also makes no representation as to whether there are any patents now
held, or which will be held, by others or by Board in the Licensed Field, nor
does Board make any representation that the inventions, products, processes, or
machines

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contained in Patent Rights do not infringe any other patents now held or
that will be held by others or by Board.

     4.4 Licensee, by execution hereof, acknowledges, covenants and agrees that
it has not been induced in any way by Board, System, University or its
employees to enter into this Agreement, and further warrants and represents
that (i) it has conducted sufficient due diligence with respect to all items
and issues pertaining to this Article 4 and all other matters pertaining to
this Agreement; and (ii) Licensee has adequate knowledge and expertise, or has
utilized knowledgeable and expert consultants, to adequately conduct the due
diligence and evaluate the risks inherent herein.

     4.5 Each of Board, acting by and through University, and University
represents, warrants and covenants that:

     (a) the Monsanto Agreement is in full force and effect and has not
been amended or modified and (i) to the knowledge of Board and
University, Board is in compliance with all its obligations thereunder in
respect of all obligations to be performed by Board and Board shall
remain in compliance with all its obligations thereunder to be performed
by Board prior to the potential assignment thereof to Licensee in
accordance with Section 6.2(c) hereof and; (ii) to the knowledge of Board
and University, each party other than Board and University is in
compliance with all its obligations thereunder and does not presently
plan to terminate or have the right to terminate such agreement; (iii)
such agreement is enforceable against Board in accordance with its terms
and, to the knowledge of Board and University, against each other party;
and (iv) Board and University shall take such action within the power of
Board and University as may be necessary to keep such agreement in full
force and effect; and

     (b) it has the power and actual authority to enter into and perform
its obligations under this Agreement, and this Agreement has been duly
authorized, executed and delivered by it and is enforceable against it in
accordance with its terms.

     4.6 The Board acknowledges that all material conditions of the Previous
License Agreement have been either satisfied by Licensee or are waived by Board
and that Licensee is not in breach of any term therein. Licensee acknowledges
that all material conditions of the Previous License Agreement have been either
satisfied by Board or are waived by Licensee and that Board is not in breach of
any term therein. Notwithstanding the foregoing, nothing in this Section 4.4
shall be construed as a waiver or modification by any party of any conditions,
rights or obligations set forth in this Agreement.

     4.7 Upon written request by either party, Licensee and Board shall
promptly update Exhibit 2 attached hereto to include all patent applications
and patents that are then within the Patent Rights.

5. LICENSE

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     5.1 Board hereby grants and agrees to grant to Licensee a royalty-bearing,
exclusive license under Licensed Subject Matter to manufacture, have
manufactured, sell, offer for Sale, import and use Licensed Product and
Licensed Process within the Licensed Territory within the Licensed Field;
provided, however:

     (a) Board and University and their respective employees, agents and
representatives may publish their own scientific findings from research
related to Licensed Subject Matter, but only in accordance with the
procedures set forth in Section 14.2; and

     (b) Board may use any information contained in the Licensed Subject
Matter generated by the University, other than Confidential Information,
for non-commercial research, including care of University patients,
teaching, applying for funding and other educational purposes.

     5.2 Licensee shall have the right to extend the license granted herein to
any Subsidiary provided that such Subsidiary consents to be bound by this
Agreement to the same extent as Licensee, including, but not limited to, the
provisions set forth under Article 6 hereof, and Licensee provides notification
to the Board of any such extension of the license herein to a Subsidiary. Any
such extension shall not be deemed to be a sublicense hereunder and shall not
be subject to the sublicense royalty payment obligations under Section 6.1(b).

     5.3 Licensee shall have the right to grant sublicenses consistent with
this Agreement provided that Licensee shall at all times be responsible for the
operations of its Sublicensees pursuant to such sublicense as if such
operations were carried out by Licensee, including the timely payment of
royalties to Board whether or not Sublicensee has timely paid royalties owed to
Licensee pursuant to such sublicense. Within thirty (30) days of execution,
modification, or termination of a sublicense by Licensee, Licensee further
agrees to deliver to Board a true and correct copy of such sublicense granted
by Licensee, and any modification or termination thereof.

     5.4 Licensee shall have sole discretion whether to file and over the
filing and prosecution of patent applications relating to the Licensed Subject
Matter, and shall be responsible for all costs related to filing, prosecuting,
and maintaining the Patent Rights. Licensee shall update Exhibit 2 to include
patent applications relating to TP 508 technology that are filed by Licensee
pursuant to this Section 5.4 within the two-year period following the Effective
Date. In addition, with respect to any patent within the Patent Rights, Board
hereby designates Licensee or its designee as its agent for the limited purpose
of obtaining an extension of such patent or governmental equivalent thereof
which extends the exclusivity of any of the Patent Rights where available in
any country in the world and, if reasonably necessary, Board hereby authorizes
Licensee to file in Board’s name or, at Licensee’s option, Board shall use
reasonable efforts to obtain such extension for Licensee or its Sublicensees,
at Licensee’s expense. In the event that Licensee fails to cure any breach in
this Agreement as set forth in Section 7.4, then such designation by Board of
Licensee as its agent for the limited purpose of obtaining any extension of
such Patent Rights is hereby revoked. Furthermore, Board and

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University shall provide reasonable assistance to facilitate Licensee’s or
its Sublicensees’ efforts to obtain any such extension.

     5.5 Licensee shall have the right to add to Licensed Subject Matter
University’s rights in any new technology applications that are not then
included in Patent Rights that are developed at University, provided that the
new technology applications: (i) whether or not Carney is named as an inventor
of such new technology applications consist of new or novel uses of (x) a
composition disclosed or claimed in a prior patent application or (y) a new
composition based on thrombin peptide technology developed at University; or
(ii) relate to TP508 Technology after the two-year period from the Effective
Date. Board may offer a license in any such new technology rights to third
parties, but only if (i) Board gives written notice of its intent to do so to
Licensee and (ii) Licensee does not elect within 90 days of such written notice
to add such new technology rights to Licensed Subject Matter pursuant to this
Section 5.5.

     5.6 Licensee and its successors in interest may record with the various
patent and trademark offices in which Patent Rights are pending or have issued,
a memorandum of exclusive license as provided in Exhibit 3, which University on
behalf of Board will sign upon request of Licensee.

     5.7 Board shall promptly, and in any event, within ten (10) business days
of any of the following occurrences, deliver to Licensee: (i) evidence of each
payment made by Board pursuant to Article 4 of the Monsanto Agreement, unless
Licensee shall have agreed to make such payments to Monsanto directly on
Board’s behalf; and (ii) true and complete copies of each notice, report or
other document delivered or received by Board pursuant to Articles 5 or 6 of
the Monsanto Agreement.

6. PAYMENTS AND REPORTS

     6.1 In consideration of rights granted by Board to Licensee under this
Agreement, Licensee agrees to pay Board the following:

     (a) Running royalties in an amount equal to two and a half percent
(2.5%) of Net Sales of each Licensed Product and each Licensed Process
manufactured, imported, exported, used, leased, or Sold by and/or for
Licensee and/or its Subsidiary and/or its Sublicensees, provided,
however, that the minimum annual running royalties payable to the Board
shall be $20,000 per calendar year, prorated for the first calendar year
following the Effective Date, and any amounts paid under any section of
this Agreement or the Patent Assignment Agreement to University or Board
by Licensee in a given year after the Effective Date shall count against
the minimum annual running royalties. Notwithstanding the foregoing, (i)
the running royalty rate shall be 3.3% in respect of Net Sales of
Licensed Products and Licensed Processes to the extent that such Licensed
Products or Licensed Processes arise from new technology rights that
Licensee elects to add to Licensed Subject Matter after the Effective
Date pursuant to Section 5.5 and such royalty rate shall not be subject
to increase pursuant to Section 6.2 and (ii) to the extent that a Sale
gives rise to the accrual of a running royalty under Section 5.a of the
Patent

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Assignment Agreement (or, but for the second paragraph of such
Section 5.a, would have given rise to such accrual) it shall not give
rise to the accrual of a running royalty under this 6.1(a).

It is understood and agreed by the parties that the payment of royalties
pursuant to this Section 6.1(a) shall be made only on the first Sale of a
Licensed Product or Licensed Process by Licensee, a Subsidiary or a
Sublicensee, and that subsequent Sales of the same Licensed Product or
Licensed Process for which royalties have been accrued pursuant to this
Section 6.1(a) shall not be subject to any additional accrual of
royalties (for example, and for illustration purposes only, if a royalty
accrues due to a Sale by Licensee of a Licensed Product to a Sublicensee
or a pharmaceutical distributor, a subsequent Sale by such Sublicensee or
such pharmaceutical distributor shall not generate a royalty payable to
Board).

     (b) **** of all cash and the fair market value (determined in
accordance with Section 6.6) of non-cash consideration received by
Licensee from a Sublicensee as a result of a sublicense for Licensed
Products or Licensed Processes including but not limited to licensing or
option fees, marketing fees, milestone payments, bonus payments and the
like, but excluding (i) payments received by Licensee for research
development pursuant to research grants; (ii) royalty payments received
by Licensee calculated on the basis of Net Sales of the Sublicensee;
(iii) payments received by Licensee as consideration for an assignment of
substantially all of the assets of Licensee or a controlling majority of
the stock of Licensee; and (iv) payments subject to the payment of
royalties under Section 5.b of the Patent Assignment Agreement. .

     (c) A fee of $75,000 plus all reasonable legal costs and fees
incurred by Board for filing, prosecuting, obtaining and maintaining
patents for each new patent application relating to new technology
applications Licensee elects to add to this Agreement as Licensed Subject
Matter pursuant to Section 5.5. This fee is not applicable to the Patent
Rights or to intellectual property relating to derivatives, new
formulations or methods of delivery of compositions, claimed or disclosed
in prior applications, or new compositions for uses that are already
disclosed or claimed, and other modifications or improvements of TP508
Technology. Fees paid to Board under this Section 6.1(c) shall count
against minimum annual running royalties payable pursuant to Section
6.1(a).

     6.2 Assignment Bonus. Licensee hereby acknowledges and agrees that Board
and University are under no obligation whatsoever herein to make any assignment
of the Patent Rights. University shall use reasonable efforts during the first
year after the Effective Date to attempt to obtain necessary approvals and
authorizations of, and to execute and deliver, or cause to be executed and
delivered, the Patent Assignment Agreement in substantially the form attached
hereto as Exhibit 4, pursuant to which, if approved by Board at a subsequent
date during the first year after the Effective Date, Board will assign to
Licensee all its right, title and interest in and to the Patent Rights, other
than new technology rights as set forth in Section 5.5 hereof, that are added
to Exhibit 2 in the two-year period following the Effective Date (but not its
obligations under the Monsanto Agreement), subject to continued royalty
payments and other

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obligations of Licensee set forth in the Patent Assignment Agreement, and
pursuant to which, among other things:

     (a) Licensee shall pay to the Board a cash assignment payment of
**** upon execution and delivery of the Patent Assignment Agreement, if
the Patent Assignment Agreement is executed and delivered by Board prior
to ****;

     (b) The running royalties payable by Licensee to the Board pursuant
to Section 6.1(a) shall be increased by 0.5% of Net Sales, except that
this increase shall not apply to the running royalties payable at the
rate of 3.3% relating to new technology applications that Licensee elects
to add to Licensed Subject Matter pursuant to Section 5.5; and

     (c) If Monsanto assigns its joint ownership interest in the Patent
Rights to Licensee prior to the date which is **** after the Effective
Date, then Licensee shall pay to the Board a cash assignment payment of
**** and the running royalties payable by Licensee to the Board pursuant
to Section 6.1(a) shall be increased by an additional 0.3% of Net Sales,
except that this increase shall not apply to the running royalties
payable at the rate of 3.3% relating to new technology applications that
Licensee elects to add to Licensed Subject Matter pursuant to Section
5.5.

     6.3 During the Term of this Agreement and for one (1) year thereafter,
Licensee shall keep complete and accurate records of its and its Sublicensees’
Sales and Net Sales of each Licensed Product and each Licensed Process under
the license granted in this Agreement in sufficient detail to enable the
royalties payable to Board hereunder to be determined. Licensee shall permit
Board or its representatives, at Board’s expense, to periodically examine its
books, ledgers, and records during regular business hours solely for the
purpose of and to the extent necessary to verify any report required under this
Agreement. In the event that the amounts due to Board are determined to have
been underpaid, Licensee shall immediately pay the Board the difference,
together with interest thereon at a per annum rate equal to the prime rate of
interest, as published by the Wall Street Journal, plus three percentage points
and if the amount underpaid is greater than two percent (2%) of the total
royalty, Licensee shall reimburse Board for all costs of such examination.

     6.4 Within thirty (30) days after each March 31, June 30, September 30,
and December 31, Licensee shall deliver to Board a true and accurate report,
giving such particulars of the business conducted by Licensee and its
Sublicensee(s), if any exist, during the preceding three (3) calendar months
under this Agreement as are pertinent to an account for payments hereunder.
Such report shall include at least: (a) the total Sales of Licensed Product and
Licensed Process by Licensee and by Sublicensees; (b) the total Net Sales; (c)
the calculation of royalties thereon; and (d) the total royalties so computed
and due Board. Licensee will report royalties to the University in categories
(specified by the University) based on the University intellectual property for
which the royalties are attributed. Simultaneously with the delivery of each
such report, Licensee shall pay to Board the amount, if any, due for the period
of such report. If no payments are due, it shall be so reported. Minimum
royalties, however, will be due and payable with the September 30 report to the
extent not covered by other payments hereunder

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during the preceding year. It is understood and agreed that if multiple
patents of the Patent Rights cover a single Licensed Product or Licensed
Process, only a single royalty as provided in Section 6.1 shall be paid.

     6.5 All amounts payable hereunder by Licensee shall be payable in United
States funds without deductions for taxes, assessments, fees, wire transfer
charges, or charges of any kind and shall be payable by either checks made
payable to The University of Texas Medical Branch and mailed to The University
of Texas Medical Branch at Galveston, Research Development Services, P.O. Box
4786-750, Houston, TX 77210-4786, or pursuant to wire transfer information or
as otherwise designated by Board within thirty (30) days written notice to
Licensee.

     6.6 Noncash payments received by Licensee which are subject to royalty
payments under this Agreement shall be valued at the fair market value (“FMV”)
thereof, determined in accordance with this Section 6.6. FMV shall be
determined as follows:

     (a) By mutual agreement between the parties if possible;

     (b) If the parties cannot reach a mutual agreement on FMV, then the
parties shall agree on an impartial third party mediator having at least
ten (10) years of accounting experience to assist the parties in
determining FMV, and the parties shall share equally in the fees and
costs of any such mediator; and

     (c) In the event the parties fail to reach an agreement on FMV
pursuant to mediation, then either party may submit the determination of
FMV to binding arbitration by a panel of three (3) arbitrators each
having at least ten (10) years of accounting experience and providing
each party an opportunity to present evidence of FMV to the arbitration
panel. Unless otherwise agreed by the parties, each of the University
and Licensee shall select one (1) arbitrator for the panel and the third
arbitrator shall be selected by the two other arbitrators designated by
the University and Licensee. The decision of the arbitrators in
determining FMV shall be final and binding on University and Licensee.

7. TERM AND TERMINATION; BREACH

     7.1 The term of this Agreement, unless terminated in accordance with this
Agreement (the “Term”), shall extend until the last patent included in the
Patent Rights has expired or has been found to be invalid or unenforceable by a
court of competent jurisdiction from which no appeal is available. Licensee
acknowledges and agrees that in no event shall Licensee take any action or omit
to take any action that causes any of the Patent Rights to lapse or fees not be
paid to avoid royalties hereunder or without providing University or Board the
opportunity to assume Licensee’s rights therein, including all right, title and
interest in any such Patent Rights thereafter.

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     7.2 Except in the cases of fraud in the inducement, mutual agreement of
the Board and Licensee, or any circumstance associated with Section 7.5 herein,
this Agreement is not terminable by the parties or by action at law or equity
for any reason.

     7.3 Except in the case of fraud in the inducement or circumstances
associated with Section 7.5 herein, Board’s sole remedy for default by Licensee
or breach of this Agreement by Licensee shall be an action for monetary damages
and not termination of this Agreement.

     7.4 Prior to the commencement of any action to enforce any breach of this
Agreement by Licensee, Board shall give Licensee written notice of any breach
hereof, and Licensee shall have 30 days to cure any payment breach and, if
curable, 90 days to cure any other breach. In any such action in which Board
is the prevailing party, Board shall be entitled to recover from Licensee its
reasonable attorneys fees and other direct out-of-pocket costs incurred in
connection therewith, and, in the case of the enforcement of any failure to pay
amounts due under Section 6.1 hereof, Licensee shall pay to Board a late fee
equal to the greater of $10,000 ($20,000 if such $10,000 fee has become payable
hereunder at least twice) or 10% of the payment amount for each such payment
not made within the applicable cure period, plus interest on such unpaid
amounts from the due date thereof until paid at a per annum rate equal to the
prime rate of interest, as published by the Wall Street Journal, plus three
percentage points.

     7.5 If at any time after an assignment of this Agreement by Licensee to an
entity not affiliated with OLGC the Licensee shall breach its payment
obligations hereunder and shall not cure such breach pursuant to Section 7.4
within 30 days from Board’s written notice thereof to Licensee, Licensee agrees
and acknowledges that Licensor immediately shall receive a vested security
interest in Licensee’s interests in this Agreement and Licensee will
immediately execute, in a form Board can record, a Security Agreement
substantially similar to the Security Agreement attached hereto as Exhibit 5 to
secure the payment of all such Licensee’s payment obligations hereunder.

8. INFRINGEMENT BY THIRD PARTIES

     8.1 Licensee shall have the first right of refusal to enforce at its
expense any of the Patent Rights against infringement by third parties and
shall be entitled to retain any recovery from such enforcement. Board shall
not communicate directly with any putative infringers, but shall notify
Licensee of all suspected infringement. Licensee shall pay Board a royalty in
the amount of five percent (5%) on any monetary recovery after deduction of all
attorney’s fees and costs. If required by a court pursuant to a court order,
Board consents to be joined as a party in any lawsuit by Licensee for patent
infringement relating to the Patent Rights. If the Board is so joined,
Licensee shall represent Board (at Licensee’s sole cost) in such proceedings
for all claims and issues relating to the Patent Rights and shall use
reasonable best efforts to cause to be dismissed or severed any counterclaim
against Board not related to the Patent Rights. To the extent such
counterclaims or other claims not relating to the Patent Rights are brought and
not dismissed or severed, Licensee shall not be required to assume the defense
thereof, but Licensee shall reasonably cooperate with the Board and its counsel
in connection with the defense thereof. Licensee shall retain sole control of
any litigation, subject to the statutory duties of the Attorney

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General of the State of Texas (other than litigation commenced by Board
pursuant to Section 8.2 hereof) relating to the Patent Rights, including choice
of legal counsel, venue, claims, counterclaims, and all related strategies,
issues, timing, and settlements. Licensee shall hold Board harmless and
indemnify Board for all reasonable attorneys fees and costs directly related to
any such enforcement of Patent Rights by Licensee and for all settlements,
awards and judgments against Board for all counterclaims against Board relating
to the Patent Rights and arising by virtue of the Board’s joinder as a party,
except to the extent based on intentional acts or omissions or willful
malfeasance by the Board, or its directors, officers, employees and agents.

     8.2 If Licensee shall fail to commence an action or take other appropriate
steps to enforce the Patent Rights within six months after Licensee receives
notice of a possible infringement by a third party, Board shall have the right
to enforce the Patent Rights upon 30 days prior written notice to Licensee
reasonably describing the circumstances underlying the claim of infringement.
Board shall be entitled to retain all recovery from any such enforcement by
Board, and Licensee shall fully cooperate with Board in any enforcement by
Board of the Patent Rights, provided Board pays Licensee’s reasonable direct
out-of-pocket expenses, excluding, but not limited to, attorneys’ fees, advisor
fees or fees relating to operations in the ordinary course of business.

     8.3 In any suit or dispute involving an infringer of the Licensed Subject
Matter, the Board and University shall cooperate fully with the Licensee,
subject to the statutory duties of the Attorney General of the State of Texas.
Licensee shall cooperate fully with the Board and University, and upon the
request and at the expense of the Board or University bringing suit, the
Licensee shall make available to the party bringing suit at reasonable times
and under appropriate conditions all relevant personnel, records, papers,
information, samples, specimens, and the like, during regular business hours,
which are in Licensee’s possession. Licensee shall give at least 60 days
advance written notice to Board or University prior to commencing enforcement
actions against an infringing party, unless a temporary or preliminary
injunction is being sought, in which case Licensee shall give at least 10 days
advance written notice; provided that, should there be exigent circumstances
and Licensee determines in good faith that immediate action is necessary
through a temporary restraining order or other ex parte proceeding, Licensee
shall give advance written notice thereof to Board or University as soon as
practicable under the circumstances.

9. ASSIGNMENT

     Licensee (and its successors and assigns) may assign this Agreement
without the prior written consent of Board in the event of a merger with a
third party (where Licensee (or its successors or assigns) is not the surviving
party), in the event of an acquisition of Licensee (or its successors or
assigns) by a third party, or in connection with the sale of substantially all
of Licensee’s (or its successors’ or assigns’) assets relating to this
Agreement to a third party, provided such third party in each incident assumes
all obligations owed to Board and University in this Agreement, agrees to
comply in all respects with the terms, conditions, and provisions of this
Agreement, and provides prompt notice thereof, in no event not more than ten
(10) business

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days from the occurrence thereof, to the Board. In addition, Licensee
(and its successors and assigns) may assign this Agreement with the prior
written consent of the Board, which shall not unreasonably be withheld. Without
limiting this Section 9, Board and University expressly agree that Licensee may
assign this Agreement to OLGC. In the event of any such permitted assignment,
the term, “Licensee” shall mean the successor by assignment of the assigning
Licensee’s rights and obligations hereunder.

10. PATENT MARKING

     Licensee shall mark permanently and legibly all Licensed Products
manufactured or Sold by it under this Agreement with such patent notice as may
be permitted or required under Title 35, United States Code.

11. INDEMNIFICATION

     11.1 Licensee shall hold harmless and indemnify Board, members of Board
(Regents), System and University, and their respective officers, employees,
agents and representatives (each, a “Licensee Indemnified Party”) from and
against any and all losses, damages, costs, expenses, liabilities, obligations,
claims, demands or causes of action (including without limitation those arising
on account of any infringement, injury or death of persons, or damage to
property) (“Losses”) caused by, or arising out of, or resulting from the
exercise or practice of the license granted hereunder by Licensee its
Subsidiaries or their officers, employees, agents or representatives, except to
the extent any such Losses arise from the grossly negligent acts or omissions
of any Licensee Indemnified Party. Licensee shall not be liable for any type
of indirect, special, consequential, exemplary or punitive damages (including,
without limitation, damages for loss of profits or expected savings) whatsoever
arising out of or in connection with this Agreement or its subject matter,
regardless of whether Licensee knows or should know of the possibility of such
damages.

     11.2 Board Indemnification.

     (a) To the extent authorized under the Constitution and laws of the
State of Texas, Board shall hold harmless and indemnify Licensee, its
officers, employees, agents and representatives, from and against any
Losses related to University’s obligation to pay royalties to Monsanto
under the Monsanto Agreement occurring or existing at any time before or
on the date that Monsanto assigns its joint ownership interest in the
Patent Rights to Licensee under Section 6.2(b) hereof. Board’s aggregate
liability under this Section 11.2(a) shall not exceed the amounts paid by
Licensee to Board under Section 6.1(a) and 6.1(b) hereof during the
one-year period preceding the date of the event that gave rise to such
liability.

     (b) To the extent authorized under the Constitution and laws of the
State of Texas, Board shall hold harmless and indemnify Licensee, its
officers, employees, agents and representatives from and against any
Losses caused by, or arising out of, or resulting

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from any breach, amendment, termination or other modification of the
Monsanto Agreement by Board, including any termination of the Monsanto
Agreement arising from any failure to pay royalties thereunder, except to
the extent such Losses arise from the negligent acts or omissions of any
Licensee.

     (c) Board shall, to the extent authorized under the Constitution and
laws of the State of Texas, indemnify and hold Licensee harmless from any
Losses resulting from the negligent acts or omissions of Board, its
agents or employees pertaining to the activities to be carried out
pursuant to this Agreement; provided, that (i) Board shall not hold
Licensee harmless from claims arising out of the negligent acts or
omissions, or willful malfeasance of Licensee, its officers, agents, or
employees, or any person or entity not subject to the University’s
supervision or control and (ii) Board shall not be liable for any type of
indirect, special, consequential, exemplary or punitive damages
(including, without limitation, damages for loss of profits or expected
savings) whatsoever arising out of or in connection with this Agreement
or its subject matter or the Monsanto Agreement, regardless of whether
Board knows or should know of the possibility of such damages.

12. INSURANCE

     12.1 Commencing no later than the Effective Date, or the date on which any
Licensed Subject Matter is distributed or Sold (including for the purpose of
obtaining regulatory approvals) by Licensee or by a Sublicensee, whichever
comes later, Licensee shall, at its sole cost and expense, procure and maintain
commercial general liability insurance in amounts not less than $3,000,000 per
incident and $3,000,000 annual aggregate, and Licensee shall use reasonable
efforts to have the Board, System, University, its Regents, officers, employees
and agents named as additional insured parties. Such commercial general
liability insurance shall provide (i) product liability coverage; (ii) broad
form contractual liability coverage for Licensee’s indemnification obligations
under this Agreement; and (iii) coverage for litigation costs. In no event
shall the minimum amounts of insurance coverage required herein be construed to
create a limit of Licensee’s liability with respect to its indemnification
obligations under this Agreement.

     12.2 Within fifteen (15) days of obtaining the insurance coverage required
under this Agreement, Licensee shall provide Board with written evidence of
such insurance coverage. Licensee shall provide Board with at least fifteen
(15) days prior written notice of the cancellation, non-renewal or material
change in such insurance.

     12.3 Licensee shall maintain such commercial general liability insurance
beyond the expiration or termination of this Agreement during (i) the period
that any Licensed Subject Matter developed pursuant to this Agreement is being
commercially distributed or Sold by Licensee or by a Sublicensee or agent of
Licensee; and (ii) the five (5) year period immediately following such period.

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13. USE OF BOARD AND COMPONENT’S NAME

     Licensee shall not use the name of University, System, or Board in
relation to the Licensed Subject Matter without express written consent, except
for the clauses listed in Exhibit 6 attached hereto.

14. CONFIDENTIAL INFORMATION; PUBLICATION

     14.1 Confidential Information.

     (a) Each of the parties to this Agreement shall use at least the
same degree of care it uses to prevent the disclosure of its own
confidential information to prevent the disclosure of Confidential
Information disclosed to it by the other party. Each party warrants to
the other that such care is reasonably calculated to prevent the
disclosure of Confidential Information.

     (b) Confidential Information will be used by the parties solely as
needed to fulfill the business transactions described in this Agreement
(the “Authorized Purpose”). Each party agrees to limit circulation and
disclosure of the Confidential Information to its employees, agents,
advisors, and representatives who (i) have a need to know such
Confidential Information in order to accomplish the Authorized Purpose,
(ii) have been informed of the confidential and proprietary nature of the
Confidential Information, and (iii) have agreed not to disclose the
Confidential Information in contravention of this Agreement. Each party
will cause its employees, agents, advisors, and representatives to whom
Confidential Information is disclosed or transferred to maintain the
Confidential Information in accordance with the terms and conditions of
this Section 14.1 as though such employees, agents, advisors, and
representatives were parties to this Agreement.

     (c) Notwithstanding this Section 14.1, neither party shall have
liability to the other with regard to any Confidential Information of the
other which: (i) was in the public domain at the time it was disclosed
by the receiver or comes into the public domain through no fault of the
receiver; (ii) was independently developed by the receiver prior to the
receipt of the Confidential Information; (iii) becomes known to the
receiver from another source without breach of this Agreement by the
receiver and otherwise not in violation of the disclosing party’s rights;
or (iv) is disclosed pursuant to the order or requirement of a court,
internal reporting, administrative agency or other governmental body
including disclosure pursuant to federal and state law and regulations.
In no event shall Confidential Information of Licensee be imputed to any
other component institution of System, other than University, that did
not have access to the Confidential Information of Licensee. Also, after
the Effective Date, Licensee hereby agrees that it will provide
reasonable cooperation to University in University’s attempt to
effectuate the assignment of Monsanto’s rights pursuant to Section
6.2(c), including but not limited to, the disclosure of the existence of
this Agreement, non-Confidential Information related to this Agreement
and the consummation of the transactions hereunder, limited confidential
information related to this Agreement after either consent from Licensee
or Monsanto’s

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execution of a Nondisclosure, Non-Use Agreement, in form and
substance reasonably satisfactory to Licensee, with University or Board.
The parties’ obligations pursuant to this paragraph shall survive for a
period of three (3) years after the termination of this Agreement.

     14.2 Board and University and their respective employees, agents and
representatives may publish their own scientific findings (but not Confidential
Information provided by Licensee to Board or University after the Effective
Date unless written waiver thereof is obtained from Licensee) from research
related to Licensed Subject Matter, only in accordance with the following
procedures:

     (a) prior to any publication relating to TP508 Technology, whether
orally, in the form of an abstract or manuscript or otherwise, such
information shall first be submitted to Licensee in writing for review
and comment;

     (b) after receiving such information for review and comment,
Licensee shall have 30 days to notify the entity or person which
submitted such information for review and comment (the “Requestor”) (i)
whether Licensee intends to apply for a patent for the subject matter of
the information and (ii) whether there is any Confidential Information of
Licensee contained therein, specifying such information that cannot be
published pursuant to this Section 14.2;

     (c) if within such 30-day period Licensee notifies Requestor that
Licensee will not file a patent application on the subject matter of the
information, Requestor may publish the information other than any
Confidential Information of Licensee identified by Licensee pursuant to
Section 14.2(b)(ii) hereof within the 30-day period;

     (d) if Licensee fails to communicate any decision to the Requestor
within such 30-day period, Requestor may publish the information; and

     (e) if within such 30-day period, Licensee notifies Requestor that
Licensee intends to file a patent application on the subject matter of
the information, Requestor may publish the information, other than any
Confidential Information of Licensee identified by Licensee pursuant to
Section 14.2(b)(ii) above, 60 days after the date Requestor receives such
notification or, if earlier, upon the filing by Licensee of a patent
application thereon.

15. GENERAL

     15.1 Except as provided in Section 6.6(c) hereof, any dispute or
controversy arising out of or relating to this Agreement, its construction or
its actual or alleged breach will be decided by mediation with the use of a
qualified mediator acceptable to each party. If the mediation does not result
in a resolution of such dispute or controversy, it will be finally decided by
an appropriate method of alternate dispute resolution, including without
limitation, arbitration, conducted in the city of Galveston, Texas in
accordance with the Commercial Dispute

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Resolution Procedures of the American Arbitration Association. The
arbitration panel will include members knowledgeable in the evaluation of
biotechnology. Judgment upon the award rendered may be entered in the highest
court or forum having jurisdiction, state or federal. The provisions of this
Article 15 will not apply to decisions on the validity of patent claims or to
any dispute or controversy as to which any treaty or law prohibits such
arbitration. The decision of the arbitration must be sanctioned by a court of
law having jurisdiction to be binding upon and enforceable by the parties

     15.2 This Agreement constitutes the entire and only agreement between the
parties for Licensed Subject Matter and all other prior negotiations,
representations, agreements, and understandings for Licensed Subject Matter are
superseded hereby. No agreements altering or supplementing the terms hereof
may be made except by means of a written document signed by the duly authorized
representatives of the parties.

     15.3 Any notice required by this License Agreement shall be given by
personal delivery or prepaid, first class, certified mail, return receipt
requested, addressed in the case of Board to:

	 	 	 
	

	 	Board of Regents
	

	 	The University of Texas System
	

	 	201 West 7th Street
	

	 	Austin, Texas 78701
	

	 	ATTENTION: Office of General Counsel
	

	 	FAX: (512) 499-4523
	

	 	PHONE: (512) 499-4462
	 
	 	 
	with copies to:

	 	University of Texas Medical Branch
	

	 	301 University Blvd., Route 0663
	

	 	Galveston, Texas 77555-0663
	

	 	ATTENTION: Director, Technology
	

	 	Development
Center

	

	 	FAX: (409) 747-1441
	

	 	PHONE: (409) 747-0551
	 
	 	 
	or in the case of Licensee (before

	 	Chrysalis BioTechnology, Inc.
	assignment of this Agreement to

	 	2200 Market, Suite 600
	OLGC) to:

	 	Galveston, Texas 77550
	

	 	ATTENTION: Director or President
	

	 	FAX: (409) 750-9253
	

	 	PHONE: (409) 750-9251
	 
	 	 
	or, in the case of Licensee (after

	 	OrthoLogic Corp.
	assignment of this Agreement to

	 	1275 West Washington Street
	OLGC) to:

	 	Tempe, AZ 85281-1210
	

	 	ATTENTION: President and CEO
	

	 	FAX: 602-286-2808

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	 	PHONE: 602-286-5500
	 
	 	 
	with a copy to:

	 	Quarles & Brady LLP
	

	 	One Renaissance Square
	

	 	Two North Central Avenue
	

	 	Phoenix, AZ 85004
	

	 	ATTENTION: Steven P. Emerick
	

	 	FAX: 602-417-2980
	

	 	PHONE: 602-230-5517

or such other addresses as may be given from time to time under the terms of
this notice provision. Notice shall be deemed given upon actual receipt.

     15.4 Licensee shall comply with all applicable federal, state and local
laws and regulations in the United States of America and all applicable laws of
countries other than the United States of America in connection with its
activities pursuant to this Agreement.

     15.5 This License Agreement shall be construed and enforced in accordance
with the laws of the United States of America and of the State of Texas.

     15.6 Failure of either party to enforce a right that under this Agreement
shall not act as a waiver of that right or the ability to later assert that
right relative to the particular situation.

     15.7 Headings included herein are for convenience only and shall not be
used to construe this Agreement.

     15.8 If any provision of this Agreement shall be found by a court to be
void, invalid or unenforceable, the same shall be reformed to comply with
applicable law or stricken if not so conformable, so as not to affect the
validity or enforceability of this Agreement.

[SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement.

	 	 	 
	THE UNIVERSITY OF TEXAS MEDICAL

BRANCH, for itself and on behalf of
	 	 
	 
	 	 
	THE BOARD OF REGENTS OF THE

	 	 
	UNIVERSITY OF TEXAS SYSTEM

	 	CHRYSALIS BIOTECHNOLOGY, INC

	 	 	 	 	 	 	 
	By:

	 	/s/ John D. Stobo
	 	By:
	 	/s/ Dennis L. McWilliams
	

	 	
 
	 	 	 	
 
	Name:

	 	John D. Stobo
	 	Name:
	 	Dennis L. McWilliams
	Title:

	 	President
	 	Title:
	 	Chief Operating Officer
	Date:

	 	April 27, 2004
	 	Date:
	 	April 26, 2004

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with the Securities and Exchange Commission.<PAGE>

EXHIBIT 10.1

           THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
           THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
           1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
           UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
           SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
           REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
           OPINION OF COUNSEL REASONABLY SATISFACTORY TO NETGURU, INC.,
           THAT SUCH REGISTRATION IS NOT REQUIRED.

                      AMENDED AND RESTATED CONVERTIBLE NOTE
                      -------------------------------------

                  FOR VALUE RECEIVED, NETGURU, INC., a Delaware corporation
(hereinafter called the "BORROWER"), hereby promises to pay to LAURUS MASTER
FUND, LTD., c/o Ironshore Corporate Services Ltd., P.O. Box 1234 G.T.,
Queensgate House, South Church Street, Grand Cayman, Cayman Islands, Fax:
345-949-9877 (the "HOLDER") or its registered assigns or successors in interest,
on order, without demand, the sum of Two Million Four Hundred Thousand Dollars
($2,400,000), with any accrued and unpaid interest on December 4, 2006 (the
"MATURITY DATE"). Capitalized terms used herein without definition shall have
the meanings ascribed to such terms in the Purchase Agreement (as defined in
Section 3.1(a) below). The Borrower previously borrowed $900,000 (the "PRIOR
OUTSTANDING LOAN") from the Holder pursuant to that certain $4,000,000 Secured
Convertible Note dated July 31, 2003 (the "JULY 2003 NOTE"). The Prior
Outstanding Loan is hereby consolidated herewith, without duplication, and shall
form a part of the Borrower's obligation to Holder under this Convertible Note.
The Borrower's obligations to Holder under the July 2003 Note issued by the
Borrower to the Holder are hereby simultaneously with the execution and delivery
of this Note by the Borrower to the Holder irrevocably extinguished. This
Amended and Restated Note amends and restates in its entirety that certain
Convertible Note of the Borrower to the Holder dated as of December 4, 2003 in
the original principal amount of One Million Four Hundred Thousand Dollars
($1,400,000).

                  The following terms shall apply to this Amended and Restated
Note:

                                    ARTICLE I

                                    INTEREST

                  1.1 INTEREST RATE. Interest payable on this Note shall accrue
at an interest rate per annum equal to the greater of the "prime rate" published
in the Wall Street Journal from time to time plus one percent (1.0%) and five
percent (5%) and be payable in arrears commencing January 1, 2004 and on the
first business day of each consecutive calendar month thereafter, and on the
Maturity Date, accelerated or otherwise, due and payable as described below.

                  1.2 PAYMENT GRACE PERIOD. The Borrower shall have a four (4)
day grace period to pay any monetary amounts due under this Note. During this
grace period, and thereafter until paid, a default interest rate of five percent
(5%) per annum above the then applicable interest rate hereunder shall apply to
the amounts owed hereunder.

                                       1

<PAGE>

                                   ARTICLE II

                                  AMORTIZATION

                  2.1 MONTHLY PAYMENTS. Subject to the terms of this Article II,
beginning August 1, 2004, and thereafter on the first day of each succeeding
calendar month until the Maturity Date (each, a "REPAYMENT DATE"), the Borrower
shall repay the sum of Fifty Thousand Dollars ($50,000) (to the extent such
amount has not been converted pursuant to Article III below), together with
interest accrued to date on such portion of the original principal amount plus
any and all default payments owing under the Purchase Agreement but not
previously paid (collectively the "MONTHLY AMOUNT"), in accordance with Section
2.2 below; provided, however, that if the Borrower's Registration Statement with
respect to the shares of Common Stock issuable upon conversion of this Note is
declared effective by the Securities and Exchange Commission prior to ninety
(90) days from the date hereof, then the payment the principal portion of the
Monthly Amount shall commence on the first business day of each consecutive
calendar month, beginning on the first such day which occurs following ninety
(90) days from the date hereof.

                  2.2 CASH OR COMMON STOCK. Subject to the terms hereof, the
Borrower has the sole option to determine whether to satisfy payment of the
Monthly Amount in full on each Repayment Date either in cash or in shares of
Common Stock, or a combination of both. The Borrower shall deliver to the Holder
a written irrevocable notice in the form of Exhibit A attached hereto electing
to pay such Monthly Amount in full on such Repayment Date in either cash or
Common Stock, or a combination of both ("REPAYMENT ELECTION NOTICE"). Such
Repayment Election Notice shall be delivered to the Holder at least twenty (20)
days prior to the applicable Repayment Date (the date of such notice being
hereinafter referred to as the "NOTICE DATE"). If such Repayment Election Notice
is not delivered within the prescribed period set forth in the preceding
sentence, then the repayment shall be made in cash. If the Borrower repays all
or a portion of the Monthly Amount in shares of Common Stock, the number of such
shares to be issued for such Repayment Date shall be the number determined by
dividing (x) the portion of the Monthly Amount to be paid in shares of Common
Stock, by (y) the Conversion Price (as defined herein) as of such date.

                  2.3 NO EFFECTIVE REGISTRATION. Notwithstanding anything to the
contrary herein, the Borrower shall be prohibited from exercising its right to
repay the Monthly Amount in shares of Common Stock (and must deliver cash in
respect thereof) on the applicable Repayment Date if at any time from the Notice
Date until the time at which the Holder receives such shares, there fails to
exist an effective registration statement or an Event of Default hereunder
exists or occurs, unless otherwise waived in writing by the Holder in whole or
in part at the Holder's option.

                  2.4 SHARE PRICE/ISSUANCE LIMITATIONS. Notwithstanding anything
to the contrary herein, if the average closing price of the Common Stock as
reported by Bloomberg, L.P. on the Principal Market for the 10 trading days
preceding a Repayment Date was less than 110% of the Fixed Conversion Price, and
the Borrower has previously elected to pay all or a portion of the Monthly
Amount in shares of Common Stock, then the Borrower, in its sole discretion,
shall determine whether (i) to pay the Monthly Amount in cash; or (ii) require
the Holder to convert all or part of the Monthly Amount that is payable in
shares of Common Stock at a Conversion Price of 85% of the average of the three
lowest closing prices during the twenty (20) trading days immediately preceding
the Conversion Date. Any part of the Monthly Amount not converted into shares of
Common Stock by the following Repayment Date shall be paid by the Borrower in
cash on such following Repayment Date. At any time during the relevant month,

                                       2

<PAGE>

the Borrower has the option to pay the Monthly Amount, or the unconverted part
thereof, in cash and the Conversion Price set forth in this Section 2.4 shall no
longer be applicable.

                  2.5 DEEMED CONVERSIONS. Any repayment of the Monthly Amount in
shares of Common Stock pursuant to the terms hereof shall constitute and be
deemed a conversion of such portion of the applicable principal amount of this
Note for all purposes under this Note and the Purchase Agreement (except as
otherwise provided herein).

                  2.6 DEEMED OWNERSHIP. In the case of the exercise of the
conversion rights or payment of the Monthly Amount set forth herein the
conversion privilege shall be deemed to have been exercised and the shares of
Common Stock issuable upon such conversion or Repayment shall be deemed to have
been issued upon the date of receipt by the Borrower of the Notice of
Conversion, a form of which is attached hereto as Exhibit B or Repayment
Election Notice, as the case may be. The person or entity entitled to receive
Common Stock issuable upon such conversion shall, on the date such conversion
privilege is deemed to have been exercised and thereafter, be treated for all
purposes as the record holder of such Common Stock.

                                   ARTICLE III

                                CONVERSION RIGHTS

                  3.1. CONVERSION INTO THE BORROWER'S COMMON STOCK.

                  (a) Subject to the provisions set forth above, the Holder
shall have the right, but not the obligation, from and after the date hereof,
and then at any time until this Note is fully paid, to convert the principal
portion of this Note and/or interest and fees due and payable into fully paid
and nonassessable shares of common stock of the Borrower as such stock exists on
the date of issuance of this Note, or any shares of capital stock of the
Borrower into which such stock shall hereafter be changed or reclassified (the
"COMMON STOCK") at the conversion price set forth below (the "CONVERSION
PRICE"). Notwithstanding the foregoing, the Holder will not be permitted to
convert on any Conversion Date (as defined below) an amount of shares having a
dollar value exceeding 25% of the aggregate dollar trading volume during the 30
trading days preceding such Conversion Date.

                  Upon delivery to the Borrower of a Notice of Conversion as
described in Section 8 of the Securities Purchase Agreement entered into between
the Borrower and the Holder relating to this Note (the "PURCHASE AGREEMENT") of
the Holder's written request for conversion (the date of giving such notice of
conversion being a "CONVERSION DATE"), the Borrower shall issue and deliver to
the Holder within three business days from the Conversion Date that number of
shares of Common Stock for the portion of the Note converted in accordance with
the foregoing. The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal of the Note to be converted and interest, if any, by the Fixed
Conversion Price as of the Conversion Date. In the event of any conversions of
outstanding principal amount under this Note in part pursuant to this Article
III, such conversions shall be deemed to constitute conversions of outstanding
principal amount applying to Monthly Amounts for the Repayment Dates in
chronological order. By way of example, if the original principal amount of this
Note is $2,400,000 and the Holder converted $75,000 of such original principal
amount prior to the first Repayment Date, then (1) the principal amount of the
Monthly Amount due on the first Repayment Date would equal $0, (2) the principal

                                       3

<PAGE>

amount of the Monthly Amount due on the second Repayment Date would equal
$25,000 and (3) the principal amount of the Monthly Amount due on each of the
remaining Repayment Dates would be $ $50,000.

                  (b) Subject to adjustment as provided in Section 3.1(c)
hereof, the Conversion Price per share shall be $1.30 (the "FIXED CONVERSION
PRICE"). If an Event of Default has occurred and be continuing hereunder then
the Conversion Price shall be equal to the lower of (i) the Fixed Conversion
Price; or (ii) seventy percent (70%) of the average of the three lowest closing
prices for the Common Stock on NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market System, American Stock Exchange, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, the "PRINCIPAL MARKET"), or on any
securities exchange or other securities market on which the Common Stock is then
being listed or traded, for the thirty (30) trading days prior to but not
including the Conversion Date.

                  (c) The Conversion Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
3.1(a) and 3.1(b), shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding, as
follows:

                           A. Merger, Sale of Assets, etc. If the Borrower at
any time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of shares or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the number of shares of Common Stock the Holder could have acquired
immediately prior to such consolidation, merger, sale or conveyance based on the
Fixed Conversion Price or the Conversion Price, as the case may be, as of the
closing date thereof. The foregoing provision shall similarly apply to
successive transactions of a similar nature by any such successor or purchaser.
Without limiting the generality of the foregoing, the provisions of this Section
shall apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.

                           B. Reclassification, etc. If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into the same
or a different number of securities of any class or classes, this Note, as to
the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the number of shares of Common Stock into which
the Note would have been convertible immediately prior to such reclassification
or other change at the Fixed Conversion Price or the Conversion Price, as the
case may be, as of the effective date for such reclassification or change.

                           C. Stock Splits, Combinations and Dividends. If the
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common Stock
in shares of Common Stock, the Fixed Conversion Price or the Conversion Price,
as the case may be, shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.

                                       4

<PAGE>

                           D. Share Issuance. Subject to the provisions of this
Section, if the Borrower at any time shall issue any shares of Common Stock
prior to the conversion of the entire principal amount of the Note (otherwise
than as: (i) provided in Sections 3.1(c)A, 3.1(c)B or 3.1(c)C or this
subparagraph D; (ii) pursuant to warrants or options that may be granted in the
future under any option plan of the Borrower, or any employment agreement, joint
venture, credit, leasing or other financing agreement or any joint venture or
other strategic arrangement, in each case now or hereinafter entered into by the
Borrower; (iii) pursuant to any agreement entered into by the Company or any of
its subsidiaries for the acquisition of another business (whether by stock
purchase or asset purchase, merger or otherwise; or (iv) for services rendered
by consultants; ((i), (ii), (iii) and (iv) above, are hereinafter referred to as
the "EXCLUDED ISSUANCES")) for a consideration less than the Fixed Conversion
Price that would be in effect at the time of such issue, then, and thereafter
successively upon each such issue, the Fixed Conversion Price shall be reduced
as follows: (i) the number of shares of Common Stock outstanding immediately
prior to such issue shall be multiplied by the Fixed Conversion Price in effect
at the time of such issue and the product shall be added to the aggregate
consideration, if any, received by the Borrower upon such issue of additional
shares of Common Stock; and (ii) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue. The
resulting quotient shall be the adjusted Fixed Conversion Price. Except for the
Excluded Issuances for purposes of this adjustment, the issuance of any security
of the Borrower carrying the right to convert such security into shares of
Common Stock or of any warrant, right or option to purchase Common Stock shall
result in an adjustment to the Fixed Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.

                  (d) During the period the conversion right exists, the
Borrower will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Common Stock upon the full
conversion of this Note. The Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and non-assessable. The Borrower
agrees that its issuance of this Note shall constitute full authority to its
officers, agents, and transfer agents who are charged with the duty of executing
and issuing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the conversion of this Note.

                  3.2 METHOD OF CONVERSION. This Note may be converted by the
Holder in whole or in part as described in Section 3.1(a) hereof and the
Purchase Agreement. Upon partial conversion of this Note, a new Note containing
the same date and provisions of this Note shall, at the request of the Holder,
be issued by the Borrower to the Holder for the principal balance of this Note
and interest which shall not have been converted or paid.

                  3.3 REQUIRED CONVERSION. The Borrower may, at its sole option,
provide the Holder irrevocable written notice ("CALL NOTICE") requiring the
conversion of all or a portion of the Note held by such Holder as of the date
set forth in such Call Notice (the "CALL DATE"), which such date shall be at
least 30 days following the date of the Call Notice, provided a registration
statement covering resales of that number of shares of Common Stock then
issuable upon conversion of this Note pursuant to such Call Notice has been
declared effective and is available for use. The amount of Common Stock to be
issued in connection with any such conversion pursuant to a particular Call
Notice pursuant to this Section 3.3 shall not exceed 20% of the aggregate dollar
trading volume of the Common Stock for the 22 trading days immediately preceding
the date of such Call Notice. If all of the conditions described herein have
been satisfied, no amount (either principal, interest or fees) shall be payable
after the Call Date with respect to the portion of the Note so converted and the
Borrower will cause a certificate representing the shares of Common Stock so
converted to be issued to the Holder upon receipt of a completed Notice of
Conversion as provided herein. The conversion price with respect to conversions

                                       5

<PAGE>

pursuant to this Section 3.3 shall equal the lesser of (i) the Fixed Conversion
Price and (ii) 90% of the average of the fifteen closing prices for the Common
Stock on the Principal Market during the period immediately preceding the Call
Date.

                                   ARTICLE IV

                                EVENT OF DEFAULT

                  The occurrence of any of the following events is an Event of
Default ("EVENT OF DEFAULT"):

                  4.1 FAILURE TO PAY PRINCIPAL, INTEREST OR OTHER FEES. The
Borrower fails to pay any installment of principal, interest or other fees
hereon or on any other promissory note issued pursuant to the Purchase Agreement
and this Note, when due and such failure continues for a period of four (4) days
after the due date (this is the same four day period in Section 1.2 above).

                  4.2 BREACH OF COVENANT. The Borrower breaches any material
covenant or other term or condition of this Note or the Purchase Agreement in
any material respect and such breach, if subject to cure, continues for a period
of thirty (30) days after written notice to the Borrower from the Holder.

                  4.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty of the Borrower made herein, in the Purchase
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading and
shall not be cured for a period of thirty (30) days after written notice thereof
is received by the Borrower from the Holder.

                  4.4 RECEIVER OR TRUSTEE. The Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.

                  4.5 JUDGMENTS. Any money judgment, writ or similar final
process shall be entered or filed against the Borrower or any of its property or
other assets for more than $250,000, and shall remain unvacated, unbonded or
unstayed for a period of ninety (90) days.

                  4.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower.

                  4.7 STOP TRADE. An SEC stop trade order or Principal Market
trading suspension of the Common Stock for 5 consecutive days or 5 days during a
period of 10 consecutive days, excluding in all cases a suspension of all
trading on a Principal Market.

                  4.8 DEFAULT UNDER RELATED AGREEMENT. An Event of Default
occurs under and as defined in the Security Agreement dated as of the date
hereof between Borrower and Holder, as such agreement may be amended, modified
and supplemented from time to time.

                  4.9 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. The
Borrower's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note.

                                       6

<PAGE>

                  If an Event of Default occurs and is continuing, the Holder
may make all sums of principal, interest and other fees then remaining unpaid
hereon and all other amounts payable hereunder immediately due and payable, all
without demand, presentment or notice, or grace period, all of which hereby are
expressly waived. In the event of an acceleration, the amount due and owing to
the Holder shall be 125% of the outstanding principal amount of the Note (plus
accrued and unpaid interest and fees, if any).

                                    ARTICLE V

                                  MISCELLANEOUS

                  5.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.

                  5.2 NOTICES. Any notice herein required or permitted to be
given shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party notified, (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day, (c) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the Borrower at the address as set forth on the signature page to the
Purchase Agreement executed in connection herewith, with a copy to Richardson &
Patel, LLP, attn: Nimish Patel, Esq., 10900 Wilshire Boulevard, Suite 500, Los
Angeles, California 90024, facsimile number (310) 208-1154, and to the Holder at
the address set forth on the signature page to the Purchase Agreement for such
Holder, with a copy to John Tucker, Esq., 825 Third Street, 14th Floor, New
York, New York 10022, facsimile number (212) 541-4434, or at such other address
as the Borrower or the Holder may designate by ten days advance written notice
to the other parties hereto. A Notice of Conversion shall be deemed given when
made to the Borrower pursuant to the Purchase Agreement.

                  5.3 AMENDMENT PROVISION. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.

                  5.4 ASSIGNABILITY. This Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder.

                  5.5 GOVERNING LAW. This Note shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York; provided, however that the Holder may choose to waive
this provision and bring an action outside the state of New York. Both parties
and the individual signing this Note on behalf of the Borrower agree to submit
to the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which

                                       7

<PAGE>

may prove invalid or unenforceable under any law shall not affect the validity
or unenforceability of any other provision of this Note.

                  5.6 MAXIMUM PAYMENTS. Nothing contained herein shall be deemed
to establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.

                  5.7 SECURITY INTEREST. The holder of this Note has been
granted a security interest in the assets of the Borrower more fully described
in a Security Agreement dated as of December 4, 2003, as amended.

                  5.8 CONSTRUCTION. Each party acknowledges that its legal
counsel participated in the preparation of this Note and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Note to favor
any party against the other.

                                       8

<PAGE>

         IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its name effective as of this 4th day of December, 2003.

                                                     NETGURU, INC.

                                                     By: /s/ Amrit Das
                                                        ------------------------

WITNESS:

/s/ Bruce Nelson
------------------------

                                       9

<PAGE>

                                    EXHIBIT A

                        FORM OF REPAYMENT ELECTION NOTICE

To:      [HOLDER AT HOLDER'S ADDRESS]

         Pursuant to Section 2.2 of the Amended and Restated Note of netGuru,
Inc. issued as of December 4, 2003, we hereby notify you that we are irrevocably
electing to repay the outstanding Monthly Amount (as defined in the Note) due on
the Repayment Date (as defined in the Note) which occurs on ______, 20__ (CHECK
ONE):

         _____    In full in cash on such Repayment Date.

         _____    In full in shares of the Company's Common Stock within three
(3) trading days following such Repayment Date.

         _____    In part in cash in the amount of $______ on such Repayment
Date, and in part in shares of the Company's Common Stock (in the amount of
______ shares) within three (3) trading days following such Repayment Date.

         _____    In shares, but the Holder will be permitted to convert up to
the Monthly Amount that is payable in shares of Common Stock during the period
until the next Repayment Date.

                                              netGuru, Inc.

                                              By: ______________________________

                                              Name: ____________________________

                                              Title: ___________________________

                                       10

<PAGE>

                                    EXHIBIT B

                              NOTICE OF CONVERSION

(To be executed by the Holder in order to convert the Note)

         The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by NETGURU, INC. on
December ___, 2003 into Shares of Common Stock of NETGURU, INC. (the "Company")
according to the conditions set forth in such Note, as of the date written
below.

Date of Conversion:_____________________________________________________________

Conversion Price:_______________________________________________________________

Shares To Be Delivered:_________________________________________________________

Signature:______________________________________________________________________

Print Name:_____________________________________________________________________

Address:________________________________________________________________________

        ________________________________________________________________________

                                       11

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