Exhibit 10.1
------------
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
January 12, 2005 among Ramp Corporation, a Delaware corporation (the "Company"),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Additional Investment Rights" or "AIRs" means the Additional
Investment Rights as described in Section 2.2(a)(iv), in the form of
Exhibit E attached hereto.
"Additional Investment Right Securities" or "AIR Securities"
means the Debentures and Warrants issuable upon exercise of the
Additional Investment Right.
"Additional Investment Right Conversion Shares" or "AIR
Conversion Shares" means the shares of Common Stock issuable upon
conversion and exercise, as applicable, of the Additional Investment
Right Securities.
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by, or is
under common control, with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"AMEX" means the American Stock Exchange.
"AMEX Approval" shall mean the approval of the American Stock
Exchange to the transactions contemplated by this Agreement; provided,
however approval of the listing of the Securities for trading on AMEX
shall not be required to satisfy the foregoing.
"Closing Dates" means, collectively, the dates of the First
Closing and Second Closing.
"Closings" means collectively, the closings of the purchase
and sale of the Securities pursuant to Section 2.1, and any reference
to "Closing" or "Closings" shall be construed to include the First
Closing and the Second Closing unless a specific Closing is expressly
referred to.
"Closing Price" means on any particular date (a) the last
reported closing bid price per share of Common Stock on such date on
the Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York
time), or (b) if there is no such price on such date, then the closing
bid price on the Trading Market on the date nearest preceding such date
(as reported by Bloomberg L.P. at 4:15 PM (New York time) for the
closing bid price for regular session trading on such day), or (c) if
the Common Stock is not then listed or quoted on a Trading Market and
if prices for the Common Stock are then quoted on the OTC Bulletin
Board, the closing bid price of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board (as reported by
Bloomberg L.P. at 4:15 PM (New York time), (d) if the Common Stock is
not then listed or quoted on the Trading Market and if prices for the
Common Stock are then reported in the "pink sheets" published by the
Pink Sheets LLC (formerly the National Quotation Bureau Incorporated
(or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common
Stock so reported, or (e) if the shares of Common Stock are not then
publicly traded the fair market value of a share of Common Stock as
determined by a qualified independent appraiser selected in good faith
by the Company, with the consent of the Purchasers of a majority in
interest of the Shares then outstanding, which consent shall not be
unreasonably withheld.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $0.001 per share, and any securities into which such common stock
shall be reclassified or exchanged into.
"Common Stock Equivalents" means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire
Common Stock, including without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock.
2
"Company Counsel" means Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx, LLP
with offices at 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
"Conversion Price" shall have the meaning ascribed to such
term in the Debentures.
"Debentures" means, the 8% Senior Convertible Debentures
issued by the Company to the Purchasers hereunder, in the form of
Exhibit A.
"December Transactions" means (i) the transactions
contemplated in connection with that certain Note Purchase Agreement
dated November 22, 2004 by and among the Company and the purchasers of
notes party thereto, and (ii) the transactions contemplated in
connection with those certain Securities Exchange Agreements dated as
of December 6, 2004, by and between the Company and each of the
investor parties thereto.
"Definitive Proxy Statement" means the definitive proxy
statement of the Company to obtain Shareholder Approval as filed with
the Commission on XXXXX.
"Disclosure Schedules" shall have the meaning ascribed to such
term in Section 3.1.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term
in Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" means the issuance of (a) shares of Common
Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose, or a majority of the stockholders of the
Company present in person or by proxy at a meeting of stockholders, (b)
securities upon the exercise of or conversion of (i) any securities
issued hereunder, (ii) convertible securities, convertible notes or
debentures, options or warrants issued and outstanding on the date of
this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such
securities or to decrease the exercise or conversion price of any such
securities, (c) securities to vendors, consultants, attorneys or
accountants of the Company in connection with settlements of the
Company's outstanding commitments and obligations or to be performed or
in connection with services to be performed, (d) securities issued
pursuant to a merger, acquisition, consolidation or strategic
transactions, provided that, solely with respect to acquisitions, any
such issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company but shall not include a transaction
in which the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary
3
business is investing in securities, (e) securities issued pursuant to
a bona fide firm underwritten public offering of the Company's
securities with an aggregate initial public offering price of at least
$5,000,000 with a nationally recognized underwriter for a per share
purchase price not less than the then exercise price of the Warrants,
(f) securities issued in connection with strategic license agreements
or other partnering arrangements so long as such issuances are not for
the purpose of raising capital, (g) any securities issued to the
Company's placement agent for the transactions contemplated by this
Agreement, (h) any securities issued upon the conversion or exercise of
any other securities issued in a Subsequent Financing (provided no
subsequent adjustment has occurred to the exercise or conversion price
thereof), (i) securities issued or to be issued in connection with the
December Transactions, (j) shares of Common Stock to be issued in
connection with the Company's acquisition of substantially all of the
assets of Xxxxx Medical Systems, Inc., (k) securities issued as
consideration for marketing agreements for the Caregiver products, and
(l) commencing on the 60th day after the Effective, shares of Common
Stock issued in connection with the Company's completed $25 million
"equity line" of credit financing with a sale price of Common Stock
equal to ninety-two percent (92%) of the average of the lowest three
closing prices for the ten day period immediately prior to the put date
under such financing.
"First Closing" shall have the meaning ascribed to such term
in Section 2.1 hereof.
"First Closing Date" means the date of the First Closing.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Intellectual Property Rights" shall have the meaning ascribed
to such term in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such
term in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such
term in Section 3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in
Section 5.17.
4
"Participation Maximum" shall have the meaning ascribed to
such term in Section 4.13.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Pre-Notice" shall have the meaning ascribed to such term in
Section 4.13.
"Proceeding" means an action, claim, suit or proceeding,
whether commenced or threatened in writing.
"Purchaser Party" shall have the meaning ascribed to such term
in Section 4.9.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of Exhibit B attached hereto.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights
Agreement.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Required Minimum" means, as of any date, one hundred and ten
percent 110% the maximum aggregate number of shares of Common Stock
then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable upon
exercise or conversion in full of all Warrants and Debentures
(including Underlying Shares issuable as payment of interest), ignoring
any conversion or exercise limits set forth therein, and assuming that
the Conversion Price is at all times on and after the date of
determination 85% of the average of the 22 Closing Prices immediately
prior to the date of determination.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Second Closing" shall have the meaning ascribed to such term
in Section 2.1 hereof.
"Second Closing Date" means the date of the Second Closing.
"Securities" means the Debentures, the Warrants, the Warrant
Shares, the Underlying Shares the Additional Investment Rights, the
Additional Investment Right Securities and the Additional Investment
Right Conversion Shares.
5
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder Approval" means such approval as may be required
by the applicable rules and regulations of the Trading Market (or any
successor entity) from the stockholders of the Company with respect to
the transactions contemplated by the Transaction Documents, including
the issuance of all of the Underlying Shares and shares of Common Stock
issuable upon exercise of the Warrants in excess of 19.99% of the
issued and outstanding Common Stock on the First Closing Date.
"Short Sales" shall include, without limitation, all "short
sales" as defined in Rule 3b-3 of the Exchange Act.
"Subscription Amount" means, as to each Purchaser, the amounts
set forth below such Purchaser's signature block on the signature pages
hereto and next to the headings "First Closing Subscription Amount" and
"Second Closing Subscription Amount", in United States Dollars and in
immediately available funds.
"Subsequent Financing" shall have the meaning ascribed to such
term in Section 4.13.
"Subsequent Financing Notice" shall have the meaning ascribed
to such term in Section 4.13.
"Subsidiary" means any subsidiary of the Company as set forth
on Schedule 3.1(a).
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date any
determination is made under this Agreement: the Nasdaq SmallCap Market,
the American Stock Exchange, the New York Stock Exchange or the Nasdaq
National Market.
"Transaction Documents" means this Agreement, the Debentures,
the Warrants, the Additional Investment Rights, the Registration Rights
Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of the Debentures, upon exercise of the Warrants,
issued and issuable in lieu of the cash payment of interest on the
Debentures and the Additional Investment Right Conversion Shares.
"Warrants" means collectively the Common Stock purchase
warrants to purchase Common Stock, in the form of Exhibit C delivered
to the Purchasers at the First Closing
6
in accordance with Section 2.2(a) hereof, which Warrants shall be
exercisable immediately and have a term of exercise equal to 5 years.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closings. The Company agrees to sell, and each Purchaser agrees to
purchase in the aggregate, severally and not jointly, $4,000,000 of principal
amount of Debentures and Warrants. The Closings shall take place in two tranches
as set forth below (respectively, the "First Closing", and the "Second
Closing"). Upon satisfaction of the conditions set forth in Section 2.2, each
Closing shall occur at the offices of FW, or such other location as the parties
shall mutually agree.
(a) First Closing. The First Closing shall be for an aggregate
Subscription Amount of $2,000,000, and shall occur within 5 Trading Days of the
date that the Company certifies in writing to all of the Purchasers that it has
obtained AMEX Approval.
(b) Second Closing. The Second Closing shall be for an
aggregate Subscription Amount of $2,000,000, and shall occur within 5 Trading
Days following the Effective Date.
2.2 Deliveries.
a) At or prior to each Closing, unless otherwise indicated below, the
Company shall deliver or cause to be delivered to each Purchaser the following:
(i) as to the First Closing only, this Agreement duly executed
by the Company;
(ii) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount, for the applicable Closing, registered
in the name of such Purchaser;
(iii) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 100% of such
Purchaser's Subscription Amounts divided by $2.40, with an exercise
price equal to $2.40, subject to adjustment as set forth therein;
(iv) as to the First Closing only, an Additional Investment
Right, registered in the name of such Purchaser, pursuant to which such
7
Purchaser shall have the right to purchase up to a principal amount of
debentures equal to 33.33% of all of such Purchaser's Subscription
Amounts along with additional warrants to purchase up to a number of
shares of Common Stock equal to 33.33% of the Warrant Shares issuable
to such Purchaser under the Warrants, otherwise on the same terms,
prices and conditions of the Debenture and Warrants issued hereunder;
(v) as to the First Closing only, the Registration Rights
Agreement duly executed by the Company; and
(vi) as to the First Closing only, a legal opinion of Company
Counsel, in the form of Exhibit D attached hereto.
b) At or prior to each Closing, unless otherwise indicated
below, each Purchaser shall deliver or cause to be delivered to the Company the
following:
(i) as to the First Closing only, this Agreement duly executed
by such Purchaser;
(ii) such Purchaser's Subscription Amount, for the applicable
Closing, by wire transfer to the account as specified in writing by the
Company; and
(iii) as to the First Closing only, the Registration Rights
Agreement duly executed by such Purchaser.
2.3 Closing Conditions.
------------------
a) The obligations of the Company hereunder in connection with
each Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on
each Closing Date of the representations and warranties of the
Purchasers contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to each Closing Date
shall have been performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
b) The respective obligations of the Purchasers hereunder in
connection with each Closing are subject to the following conditions being met:
8
(i) the accuracy in all material respects on each Closing Date
of the representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to each Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and
(v) From the date hereof to each Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except
for any suspension of trading of limited duration, which suspension
shall be terminated prior to each Closing), and, at any time prior to
each Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets shall not have been suspended or limited,
or minimum prices shall not have been established on securities whose
trades are reported by such service, or on any Trading Market, nor
shall a banking moratorium have been declared either by the United
States or New York State authorities.
c) As to the Second Closing only, the Company shall have filed
with the Commission the Registration Statement registering all of the Underlying
Shares and, on or before the six month anniversary of the date hereof, such
Registration Statement shall have been declared effective by the Commission as
to all such securities and been maintained effective since such date and no
Event of Default shall have occurred since the date hereof.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued
9
and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
(b) Organization and Qualification. Each of the Company and
the Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Documents, (ii) a material adverse effect on the results of
operations, assets, business or financial condition of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company's ability to perform in any material respect its obligations under any
Transaction Documents (any of (i), (ii) or (iii), a "Material Adverse Effect")
and no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith other than in connection with the Required Approvals. Each
Transaction Documents has been (or upon delivery will have been) duly executed
by the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the other transactions contemplated thereby do not and will not: (i) conflict
with or violate any provision of the Company's or any Subsidiary's certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment,
10
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to Section 4.6, (ii) the
filing with the Commission of the Registration Statement, (iii) the notice
and/or application(s) to each applicable Trading Market for the issuance and
sale of the Debentures, the Warrants, the Additional Investment Rights, the
Additional Investment Right Securities and the listing of the Underlying Shares
for trading thereon in the time and manner required thereby, (iv) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws and (vi) Shareholder Approval (collectively,
the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The
Underlying Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of the
Underlying Shares at least equal to the Required Minimum on the date hereof.
(g) Capitalization. The capitalization of the Company is as
described in the Company's most recent periodic report filed with the
Commission. The Company has not issued any capital stock since such filing other
than pursuant to the issuance of Common Stock and the exercise of employee stock
options under the Company's stock option and stock incentive plans, the issuance
of shares of Common Stock to employees pursuant to the Company's employee stock
purchase plan and pursuant to the conversion or exercise of outstanding Common
Stock Equivalents. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or
11
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock or Common Stock Equivalents. The issuance and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. Except for Required Approvals, no further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company's capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company's
stockholders.
(h) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such reports) (the foregoing reports, including the exhibits
thereto, being collectively referred to herein as the "SEC Reports") on a timely
basis or has received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, 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. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably
12
be expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option or stock
incentive plans or as otherwise disclosed on the SEC Reports. The Company does
not have pending before the Commission any request for confidential treatment of
information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened in writing against or affecting the Company, any Subsidiary
or any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an "Action") which (i) adversely
affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty, which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect There has not
been, and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.
(k) Labor Relations. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including
13
without limitation all foreign, federal, state and local laws applicable to its
business except in each case as could not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not have or reasonably be expected to
result in a Material Adverse Effect ("Material Permits"), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by them that
is material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them, subject to ordinary
wear and tear, that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for Liens as do
not materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
the Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases of which the Company
and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights that are necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which the
failure to so have could have a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
To the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights of others.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged, including, but not limited to,
directors and officers insurance coverage at least equal to the aggregate
Subscription Amount. To the best of Company's knowledge, such insurance
contracts and policies are accurate and complete. Neither the Company nor any
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 without a significant increase in cost.
14
(q) Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports, none of the officers or directors of the Company and,
to the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary (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 entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $60,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx. The Company is in material compliance with
all provisions of the Xxxxxxxx-Xxxxx Act of 2002 which are applicable to it as
of each Closing Date. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities. The
Company's certifying officers have evaluated the effectiveness of the Company's
controls and procedures as of the date prior to the filing date of the most
recently filed periodic report under the Exchange Act (such date, the
"Evaluation Date"). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Except as set forth in the SEC Reports,
since the Evaluation Date, there have been no significant changes in the
Company's internal controls (as such term is defined in Item 307(b) of
Regulation S-K under the Exchange Act) or, to the Company's knowledge, in other
factors that could significantly affect the Company's internal controls.
(s) Certain Fees. No brokerage or finder's fees or commissions
are or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by this Agreement. The Purchasers
shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by this
Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. Subject to obtaining Requisite
Approvals, the issuance and sale of the Securities hereunder, when issued by the
Company, will not contravene the rules and regulations of the Trading Market.
15
(u) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(v) Registration Rights. No Person has any right to cause the
Company to effect the registration under the Securities Act of any securities of
the Company.
(w) Listing and Maintenance Requirements. The Company's Common
Stock is registered pursuant to Section 12(b) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration. The Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.
(x) Application of Takeover Protections. The Company and its
Board of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the Securities.
(y) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes material, nonpublic
information. The Company understands that the Purchasers will rely on the
foregoing representations and covenants in effecting transactions in securities
of the Company. All disclosure provided to the Purchasers regarding the Company,
its business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and correct
with respect to such representations and warranties and do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The Company acknowledges and agrees
that no Purchaser makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in Section 3.2 hereof.
16
(z) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2, 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 the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated.
(aa) Solvency. The Company does not intend to incur debts
beyond its ability to pay such debts, in cash or, if permitted by the applicable
debt instrument, in shares of Common Stock, as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from each Closing Date.
The SEC Reports set forth as of the dates thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (a) any liabilities for borrowed money or amounts owed
in excess of $50,000 (other than trade accounts payable incurred in the ordinary
course of business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or
should be reflected in the Company's balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and (c)
the present value of any lease payments in excess of $50,000 due under leases
required to be capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
(bb) Form S-3 Eligibility. The Company is eligible to register
the resale of the Underlying Shares for resale by the Purchaser on Form S-3
promulgated under the Securities Act.
(cc) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of a
tax deficiency which has been asserted or threatened against the Company or any
Subsidiary.
(dd) No General Solicitation. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has
offered the Securities for sale only to the Purchasers and certain other
"accredited investors" within the meaning of Rule 501 under the Securities Act.
17
(ee) Foreign Corrupt Practices. Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any corrupt funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended
(ff) Accountants. The Company's accountants are set forth on
Schedule 3.1(ff) of the Disclosure Schedule. To the Company's knowledge, such
accountants, who the Company expects will express their opinion with respect to
the financial statements to be included in the Company's Annual Report on Form
10-K for the year ending December 31, 2004 are a registered public accounting
firm as required by the Securities Act.
(gg) Seniority. As of each Closing Date, no indebtedness or
other equity of the Company is senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security interests
(which is senior only as to underlying assets covered thereby) and capital lease
obligations (which is senior only as to the property covered thereby).
(hh) No Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers.
(ii) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The Company
further represents to each Purchaser that the Company's decision to enter into
this Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of each Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership power
and authority to enter into and to
18
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or similar action on the
part of such Purchaser. Each Transaction Documents to which it is a party has
been duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) No Conflict. The execution, delivery and performance of
the Transaction Documents by such Purchaser and the consummation by such
Purchaser of the transactions contemplated thereby and hereby do not and will
not (i) violate any provision of such Purchaser's charter or organizational
documents, (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, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which such Purchaser is a party or by
which such Purchaser's respective properties or assets are bound, or (iii)
result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to such Purchaser or by which any property or
asset of such Purchaser are bound or affected, except, in all cases, other than
violations pursuant to clauses (i) or (iii) (with respect to federal and state
securities laws) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, materially and adversely affect such Purchaser's ability to perform
its obligations under the Transaction Documents.
(c) Acquisition for Own Account. Such Purchaser is purchasing
the Securities and will purchase any Shares solely for its own account and not
with a view to or for sale in connection with distribution. Such Purchaser does
not have a present intention to sell any of the Securities, nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of any of the Securities to or through any person or entity;
provided, however, that by making the representations herein, such Purchaser
does not agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
Federal and state securities laws applicable to such disposition. Such Purchaser
acknowledges that it (i) has such knowledge and experience in financial and
business matters that such Purchaser is capable of evaluating the merits and
risks of Purchaser's investment in the Company, (ii) is able to bear the
financial risks associated with an investment in the Securities and (iii) has
been given full access to such records of the Company and the Subsidiaries and
19
to the officers of the Company and the Subsidiaries as it has deemed necessary
or appropriate to conduct its due diligence investigation.
(d) Rule 144. Such Purchaser understands that the Securities
must be held indefinitely unless such Securities are registered under the
Securities Act or an exemption from registration is available. Such Purchaser
acknowledges that such person is familiar with Rule 144 of the rules and
regulations of the Commission, as amended, promulgated pursuant to the
Securities Act ("Rule 144"), and that such Purchaser has been advised that Rule
144 permits resales only under certain circumstances. Such Purchaser understands
that to the extent that Rule 144 is not available, such Purchaser will be unable
to sell any Securities without either registration under the Securities Act or
the existence of another exemption from such registration requirement.
(e) General. Such Purchaser understands that the Securities
are being offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Securities. Such Purchaser
understands that no United States federal or state agency or any government or
governmental agency has passed upon or made any recommendation or endorsement of
the Securities.
(f) No General Solicitation. Such Purchaser acknowledges that
the Securities were not offered to such Purchaser by means of any form of
general or public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications. Such Purchaser, in making the decision to purchase the
Securities, has relied upon independent investigation made by it and has not
relied on any information or representations made by third parties.
(g) Accredited Investor. Such Purchaser is either: (i) an
"accredited investor" (as defined in Rule 501 of Regulation D), or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the Securities
Act and such Purchaser has such experience in business and financial matters
that it is capable of evaluating the merits and risks of an investment in the
Securities. Such Purchaser is not required to be registered as a broker-dealer
under Section 15 of the Exchange Act and such Purchaser is not a broker-dealer.
Such Purchaser acknowledges that an investment in the Securities is speculative
and involves a high degree of risk. Such Purchaser has completed or caused to be
completed the Investor Questionnaire Certification attached hereto as Exhibit G
certifying as to its status as an "accredited investor," if applicable, and
understands that the Company is relying upon the truth and accuracy of such
information set forth therein to determine the suitability of such Purchaser to
acquire the Securities.
20
(h) Certain Fees. The Purchasers have not employed any broker
or finder or incurred any liability for any brokerage or investment banking
fees, commissions, finders' structuring fees, financial advisory fees or other
similar fees in connection with the Transaction Documents.
(i) Independent Investment. No Purchaser has agreed to act
with any other Purchaser for the purpose of acquiring, holding, voting or
disposing of the Securities purchased hereunder for purposes of Section 13(d)
under the Exchange Act, and each Purchaser is acting independently with respect
to its investment in the Securities. The Company acknowledges that for reasons
of administrative convenience only, the Transaction Documents have been prepared
by counsel for one of the Purchasers and such counsel does not represent all of
the Purchasers but only such Purchaser and the other Purchasers have retained
their own individual counsel with respect to the transactions contemplated
hereby. The Company acknowledges that it has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by the Purchasers.
(j) Short Sales. Such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any Short Sales in the securities of
the Company (including, without limitations, any Short Sales involving the
Company's securities) since 9 P.M. (New York Time) on December ___, 2004 which
was the time that such Purchaser was first contacted regarding an investment in
the Company until the date hereof ("Discussion Time").
(k) Patriot Act. Such Purchaser certifies that, to the best of
its knowledge, it has not been designated, and is not owned or controlled, by a
"suspected terrorist" as defined in Executive Order 13224. Purchaser hereby
acknowledges that the Company seeks to comply with all applicable laws
concerning money laundering and related activities. In furtherance of those
efforts, the Purchaser hereby represents, warrants and covenants that: (i) none
of the cash or property that the Purchaser will pay to the Company has been or
shall be derived from, or related to, any activity that is deemed criminal under
United States law; and (ii) no payment by the Purchaser to the Company, to the
extent that they are within the Purchaser's control shall cause the Company to
be in violation of the United States Bank Secrecy Act, the United States
International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. Purchaser shall promptly notify the Company if any of these
representations ceases to be true and accurate.
The Company acknowledges and agrees that each Purchaser does
not make or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.
21
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
---------------------
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the
Company or to an affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights of
a Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities in the
following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a
financial institution that is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and the Registration Rights Agreement and, if required under the terms
of such arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal
22
counsel of the pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such pledge. At the
appropriate Purchaser's expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
Selling Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b) hereof):
(i) while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities Act, or
(ii) following any sale of such Underlying Shares pursuant to Rule 144, or (iii)
if such Underlying Shares are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion to
the Company's transfer agent promptly after the Effective Date if required by
the Company's transfer agent to effect the removal of the legend hereunder. If
all or any portion of a Debenture, the Warrant or Additional Investment Rights
Securities are converted or exercised (as applicable) at a time when there is an
effective registration statement to cover the resale of the Underlying Shares,
or if such Underlying Shares may be sold under Rule 144(k) or if such legend is
not otherwise required under applicable requirements of the Securities Act
(including judicial interpretations thereof) then such Underlying Shares shall
be issued free of all legends. The Company agrees that following the Effective
Date or at such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the delivery by a
Purchaser to the Company or the Company's transfer agent of a certificate
representing Underlying Shares, as applicable, issued with a restrictive legend
(such third Trading Day, the "Legend Removal Date"), deliver or cause to be
delivered to such Purchaser a certificate representing such shares that is free
from all restrictive and other legends. Certificates for Securities subject to
legend removal hereunder shall be transmitted by the transfer agent of the
Company to the Purchasers by crediting the account of the Purchaser's prime
broker with the Depository Trust Company System.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated damages and
not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the
Common Stock on the date such Securities are submitted to the Company's transfer
agent) delivered for removal of the restrictive legend and subject to Section
4.1(c) above, $5 per Trading Day (increasing to $10 per Trading Day 10 Trading
Days after such damages have begun to accrue) for each Trading Day after the
Legend Removal Date until such certificate is delivered without a legend.
Nothing herein shall limit such Purchaser's right to pursue actual damages for
the Company's failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the
23
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the
Company's reliance that the Purchaser will sell any Securities pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom.
(f) Until the date that the Purchasers collectively hold less
than 50% of the Debentures in the aggregate purchased hereunder by such
Purchaser, the Company shall not undertake a reverse stock split of the Common
Stock without the prior written consent of the Purchasers holding a majority in
principal amount outstanding of the Debentures.
4.2 [Intentionally Deleted].
4.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.4 Integration. Subject to Requisite Approvals, the Company shall not
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities
to the Purchasers or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants, the form of Notice of Conversion included in the
Debentures and the form of Notice of Exercise or Conversion set forth in the
Additional Investment Rights and Additional Investment Right Securities set
forth the totality of the procedures required of the Purchasers in order to
exercise the Warrants, convert the Debentures or convert or exercise the
Additional Investment Rights and Additional Investment Right Securities. No
additional legal opinion or other information or instructions shall be required
of the Purchasers to exercise the Warrants, convert the Debentures or convert or
exercise the Additional Investment Rights and Additional Investment Right
Securities. The Company shall honor exercises of the Warrants and the Additional
Investment Rights and conversions of the Debentures and Additional Investment
24
Right Securities and shall deliver the Additional Investment Securities and the
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date hereof, issue a press
release reasonably acceptable to each Purchaser disclosing the material terms of
the transactions contemplated hereby and within 2 Trading Days of the date
hereof, a Current Report on Form 8-K, which shall have attached thereto the
Transaction Documents. The Company and each Purchaser shall consult with each
other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.8 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.10 [INTENTIONALLY DELETED].
25
4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation collectively, (collectively, "Loss") that any such
Purchaser Party may suffer or incur as a result of or relating to (a) any breach
of any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or in the other Transaction Documents or (b) any
action instituted against a Purchaser, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser's representation, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, such Purchaser Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing. Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Purchaser
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and
the position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.
4.12 Reservation and Listing of Securities.
-------------------------------------
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations in full
under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than the Required
Minimum on such date, then the Board of Directors of the Company shall use
commercially reasonable efforts to amend the Company's certificate of
incorporation to increase the number of authorized but unissued shares of Common
Stock to at least the Required Minimum at such time, as soon as possible and in
any event not later than the 75th day after such date.
26
(c) The Company shall, if applicable: (i) in the time and
manner required by the Trading Market, prepare and file with such Trading Market
an additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on the Trading Market as soon as possible thereafter, (iii)
provide to the Purchasers evidence of such listing, and (iv) maintain the
listing of such Common Stock on any date at least equal to the Required Minimum
on such date on such Trading Market or another Trading Market. In addition, the
Company shall hold a special meeting of shareholders (which may also be at the
annual meeting of shareholders) at the earliest practical date after the date
the number of shares of Common Stock issuable pursuant to this Agreement exceeds
15% of the issued and outstanding shares of Common Stock on each Closing Date
for the purpose of obtaining Shareholder Approval, with the recommendation of
the Company's Board of Directors that such proposal be approved, and the Company
shall solicit proxies from its shareholders in connection therewith in the same
manner as all other management proposals in such proxy statement and all
management-appointed proxyholders shall vote their proxies in favor of such
proposal.
4.13 Participation in Future Financing. From the date hereof until the
24 month anniversary of the First Closing Date, upon any financing by the
Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents
(a "Subsequent Financing"), each Purchaser shall have the right to participate
in up to 100% of the Subsequent Financing (the "Participation Maximum"). At
least 5 Trading Days prior to the closing of the Subsequent Financing, the
Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such
Purchaser if it wants to review the details of such financing (such additional
notice, a "Subsequent Financing Notice"). Upon the request of a Purchaser, and
only upon a request by such Purchaser, for a Subsequent Financing Notice, the
Company shall promptly, but no later than 1 Trading Day after such request,
deliver a Subsequent Financing Notice to such Purchaser. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document relating thereto. If
by 5:30 p.m. (New York City time) on the 5th Trading Day after all of the
Purchasers have received the Pre-Notice, notifications by the Purchasers of
their willingness to participate in the Subsequent Financing (or to cause their
designees to participate) is, in the aggregate, less than the total amount of
the Subsequent Financing, then the Company may effect the remaining portion of
such Subsequent Financing on the terms and to the Persons set forth in the
Subsequent Financing Notice. If the Company receives no notice from a Purchaser
as of such 5th Trading Day, such Purchaser shall be deemed to have notified the
Company that it does not elect to participate. Notwithstanding anything herein
to the contrary, in the event the Purchasers do not elect to participate in a
Subsequent Financing for at least, in the aggregate among the Purchasers, 25% of
such Subsequent Financing and such Subsequent Financing is consummated, the
Purchasers shall no longer have a right to participate in future Subsequent
Financings. The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of participation
set forth above in this Section 4.13, if the Subsequent Financing subject to the
initial Subsequent Financing Notice
27
is not consummated for any reason on the terms set forth in such Subsequent
Financing Notice within 60 Trading Days after the date of the initial Subsequent
Financing Notice. In the event the Company receives responses to Subsequent
Financing Notices from Purchasers seeking to purchase more than the aggregate
amount of the Subsequent Financing, each such Purchaser shall have the right to
purchase their Pro Rata Portion (as defined below) of the Participation Maximum.
"Pro Rata Portion" is the ratio of (x) the Subscription Amount of Securities
purchased by a participating Purchaser and (y) the sum of the aggregate
Subscription Amount of all participating Purchasers. Notwithstanding the
foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance
other than clause (k) therein, except that no Variable Rate Transaction or MFN
Transaction shall be an Exempt Issuance.
4.14 Subsequent Equity Sales.
-----------------------
(a) From the date hereof until 65 days after the Effective
Date, neither the Company nor any Subsidiary shall issue shares of Common Stock
or Common Stock Equivalents; provided, however, the 65 day period set forth in
this Section 4.14(a) shall be extended for the number of Trading Days during
such period in which (y) trading in the Common Stock is suspended by any Trading
Market, or (z) following the Effective Date, the Registration Statement is not
effective or the prospectus included in the Registration Statement may not be
used by the Purchasers for the resale of the Underlying Shares.
(b) From the date hereof until such time as no Purchaser holds
any of the Debentures, the Company shall be prohibited from effecting or
entering into an agreement to effect any Subsequent Financing involving a
"Variable Rate Transaction" or an "MFN Transaction" (each as defined below). The
term "Variable Rate Transaction" shall mean a transaction in which the Company
issues or sells (i) 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 (A) 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 shares of Common Stock at any time after the initial issuance
of such debt or equity securities, or (B) with a 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. 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 which grants to an
investor the right to receive additional shares based upon future transactions
of the Company on terms more favorable than those granted to such investor in
such offering.
(c) Unless Shareholder Approval has been obtained and deemed
effective by AMEX, the Company shall not make any issuance whatsoever of Common
Stock or Common Stock Equivalents which would cause any adjustment of the
Conversion Price to the extent the holders of Debentures would not be permitted,
pursuant to Section 4(c)(i) of the Debentures, to convert their respective
outstanding Debentures and exercise
28
their respective Warrants in full, ignoring for such purposes any other
conversion or exercise limitations therein. Any Purchaser shall be entitled to
obtain injunctive relief against the Company to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.
(d) Notwithstanding anything in this Section 4.14 to the
contrary, this Section 4.14 shall not apply in respect of an Exempt Issuance,
except that no Variable Rate Transaction or MFN Transaction shall be an Exempt
Issuance.
4.15 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended to
treat for the Company the Debenture holders as a class and shall not in any way
be construed as the Purchasers acting in concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.
4.16 Short Sales. Each Purchaser covenants that neither it nor any
affiliates acting on its behalf or pursuant to any understanding with it will
execute any Short Sales during the period from the Discussion Time until prior
to the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.6. Notwithstanding the foregoing,
no Purchaser makes any representation, warranty or covenant hereby that it will
not engage in Short Sales in the securities of the Company after the time that
the transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. Additionally, each Purchaser understands and
acknowledges, severally and not jointly with any other Purchaser, that the SEC
currently takes the position that coverage of short sales of shares of the
Common Stock "against the box" prior to the Effective Date of the Registration
Statement with the Underlying Shares issuable hereunder is a violation of
Section 5 of the Securities Act, as set forth in Item 65, Section 5 under
Section A, of the Manual of Publicly Available Telephone Interpretations, dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, by
written notice to the other parties, if the First Closing has not been
consummated on or before January 31, 2005; provided that no such termination
will affect the right of any party to xxx for any breach by the other party (or
parties).
5.2 Fees and Expenses. At the First Closing, the Company has agreed to
reimburse counsel for the placement agent up to $25,000, for its actual,
reasonable, out-of-pocket legal fees and expenses of which $10,000 was paid
prior to the First Closing and of which $15,000 shall be
29
paid out of the proceeds of the First Closing. The Company shall deliver, prior
to the First Closing, a completed and executed copy of the Closing Statement,
attached hereto as Annex A. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 Headings The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.
5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of Purchasers holding at least 66% of the
Securities (measured on a fully converted and exercised basis ignoring for such
purposes any conversion or exercise limitations therein) then outstanding.
Notwithstanding anything herein to the contrary, any assignment of this
Agreement or any of the
30
other Transaction Documents must either be pursuant to an effective registration
statement under the Securities Act or pursuant to an available exemption
therefrom, or in a transaction not subject to the registration requirements of
the Securities Act and in accordance with applicable state securities laws as
evidenced by a legal opinion of counsel to the assignor to such effect, the
substance of which shall be reasonably acceptable to the Company.
Notwithstanding anything herein to the contrary, other than a transfer,
assignment or succession to an Affiliate of a Purchaser, Sections 4.13, 4.14(a)
and 4.14(b) shall not inure to the benefit of a Purchaser's permitted assigns.
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. 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 (including with respect to the enforcement of any of the Transaction
Documents), 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 improper
or inconvenient venue for such proceeding. 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 via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for 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. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.10 Survival. The representations and warranties contained herein
shall survive each Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become
31
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Documents and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of a Debenture, exercise of
a Warrant or conversion and/or exercise of an Additional Investment Right
Securities, the Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded conversion or exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Documents or a
Purchaser enforces or exercises its rights 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
32
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.
5.17 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Documents. Notwithstanding any provision to the contrary contained in any
Transaction Documents, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Documents. Nothing contained herein or in any
Transaction Documents, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only the placement agent to the transaction. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.
33
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(Signature Pages Follow)
34
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
RAMP CORPORATION Address for Notice:
------------------
By:__________________________________
Name:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
35
[PURCHASER SIGNATURE PAGES TO RCO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: ________________________________________________________
Signature of Authorized Signatory of Purchaser: ________________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Purchaser:________________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
First Closing Subscription Amount:
Second Closing Subscription Amount:
Warrant Shares:
AIR Debenture:
AIR Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
36
DISCLOSURE SCHEDULE
TO
SECURITIES PURCHASE AGREEMENT
The following exceptions are hereby made to the representations and warranties
made by Ramp Corporation (the "Company") contained in the Section 3.1 of the
Securities Purchase Agreement dated as of January 12, 2005 (the "Agreement") by
and among the Company and the Purchasers (as defined in the Agreement) listed on
the signature page therein. All exhibits attached hereto are incorporated by
reference where indicated. Any terms defined in the Agreement shall have the
same meaning when used in this Disclosure Schedule as when used in the
Agreement, unless the content otherwise requires.
Notwithstanding any material qualifications in any of the Company's
representations and warranties in the Agreement, for administrative ease,
certain items have been included which are not considered by the Company to be
material to the business, assets, or results of operations of the Company. The
inclusion of any item is not an admission by the Company that the item is
material to the business, assets (including intangible assets), financial
condition or results of operations of the Company and is not an admission of any
obligation or liability to any third party.
The schedule numbers correspond with the section number of the representation or
warranty contained in the Agreement for which disclosure is being made and to
any other representation or warranty where it is reasonably clear, upon reading
the disclosure without any independent knowledge on the part of the reader
regarding the matter disclosed, that the disclosure is intended to apply to such
representation or warranty. To the extent possible, the exceptions, disclosures
and other requested information being provided reference the paragraph or
sub-section being addressed.
37
Schedule 3.1(a)
---------------
Ramp Corporation
Direct and Indirect Subsidiaries
--------------------------------
Name State of Incorporation
---- ----------------------
HealthRamp, Inc. Delaware
LifeRamp Family Financial, Inc. Utah
Schedule 3.1(g)
---------------
Ramp Corporation
Capitalization
--------------
Capitalization as of December 31, 2004:
Common stock outstanding and issuable 12,309,325
Warrants to purchase common stock 3,961,499
Options to purchase common stock 4,144,410
Restricted stock awards 3,349,248
Shares underlying convertible notes 296,630
----------
TOTAL 24,061,112
----------
--------------------------------------------------------------------------------
Notes to capitalization table:
(1) Includes warrants Issuable to CEO as described in his employment agreement
(filed as Exhibit 10.3 to the Company's Form 10-Q filed with the SEC on August
16, 2004). Includes warrants Issuable per anti-dilution and performance criteria
as set forth in the employment agreement. The employment agreement provides for
the payment of performance-based bonuses tied to the growth of the Company's
gross revenues, the grant of up to 100,000 options under the 2004 Stock
Incentive Plan, with an exercise price of $10.80 per share, and the issuance to
Xx. Xxxxx of a warrant whereby he will be entitled to purchase up to
one-nineteenth of the outstanding shares, at an exercise price to be determined.
The number of options and their exercise price give effect to the Company's 60
for 1 reverse stock split effective December 1, 2004.
(2) The table excludes performance - based stock and/or warrants issuable to
certain consultants and vendors.
(3) REFERENCE IS MADE TO THE FOLLOWING DISCLOSURE MADE IN THE COMPANY'S FORM 8-K
FILED WITH THE SEC ON DECEMBER 10, 2004:
Pursuant to agreements between the Company and each of the secured note
holders of the Company, each of the secured note holders agreed to exchange all
of their convertible secured promissory notes, in the aggregate principal amount
of $4,731,870, plus interest in the aggregate amount of $137,162, due January
14, 2005, into an aggregate number of restricted shares of the Company's common
stock, par value $.001 per share, having a market value of $1.14 per share, plus
the issuance of three-year warrants to purchase an aggregate of 1,000,000 shares
of common stock at an
exercise price of $1.14 per share. In connection with the agreements, the note
holders agreed to terminate their security interest in and to all of the assets
of the Company, including the Company's intellectual property. The exchange of
debt into equity eliminates certain restrictive covenants relating to the
Company's ability to enter into subsequent financings and anti-dilution
provisions, which were contained in the note agreements with the original note
holders.
The exchange of the secured notes into common stock of the Company was made
to "accredited investors", as that term is defined under Rule 501 under
Regulation D of the Securities Act of 1933, as amended, pursuant to the
exemption from registration requirements under Rule 506 and Section 4(2) of the
Securities Act.
The Company is obligated to list for trading and register for resale the
shares of common stock and the shares of common stock underlying the warrants
issuable to the investors on its next registration statement filed with the
Securities and Exchange Commission, or within 60 days following the date of the
agreements upon a written demand by the note holders requesting the filing of
such registration statement.
(4) Reference is made to the following disclosure made in the Company's Form 8-K
filed with the SEC on December 7, 2004:
On December 2, 2004, the Company issued to certain investors convertible
promissory notes in the aggregate principal amount of $400,000 bearing interest
at the rate of six percent (6.0%) per annum, due March 1, 2005. In connection
with the note financing, the Company issued a convertible promissory note in the
principal amount of $52,000 to an entity as an advisory fee on the same terms
and conditions as the investors. One hundred and twenty percent (120%) of the
outstanding principal amount of the notes shall be automatically convertible
into other securities of the Company which may be issued by the Company in any
subsequent transaction with gross proceeds to the Company of a minimum of
$1,000,000. Interest on the notes is payable in cash or securities issued in a
subsequent transaction.
The Company shall also issue to the investors an aggregate of 480,000 shares
of the Company's common stock and the advisor shall receive 48,000 shares of the
Company's common stock.
The sale of notes was made to "accredited investors", as that term is
defined under Rule 501 under Regulation D of the Securities Act of 1933, as
amended, pursuant to the exemption from registration requirements under Rule 506
and Section 4(2) of the Securities Act.
The Company is obligated to register for resale the securities Issuable upon
conversion of the notes and the shares of common stock issuable to the investors
on its next registration statement filed with the Securities and Exchange
Commission.
Schedule 3.1(j)
---------------
Ramp Corporation
Litigation
----------
From time to time, the Company is involved in claims and litigation that
arise out of the normal course of business. Currently, other than as discussed
below, there are no pending matters that in management's judgment are expected
to have a Material Adverse Effect on the Company's financial statements.
On June 3, 2003 two former executive officers, Xxxx Xxxxxxx and Xxxxxxxx
Xxxxxxxxx commenced an action against the Company by filing a Complaint in the
Supreme Court of the State of New York for Nassau County (Index No. 03-008576)
in which they alleged that the Company breached separation agreements entered
into in December 2002 with each of them, and that the Company failed to repay
amounts loaned by Xx. Xxxxxxx to the Company. Xx. Xxxxxxx sought approximately
$395,000 (including a loan of $120,000) and Xx. Xxxxxxxxx sought approximately
$222,000. The Complaint was served on July 23, 2003. On July 15, 2003, the
Company paid in full the $120,000 so loaned together with interest, without
admitting the claimed default. On February 2, 2004, the Supreme Court of the
State of New York for Nassau County issued an order for partial summary judgment
in favor of Xx. Xxxxxxxxx for the unpaid severance obligations of $138,064. The
Company made severance payments to both former executives through May 2004 but
due to capital constraints has not made any payments since then. The Company is
continuing negotiations with the plaintiffs to settle the dispute amicably. The
amounts payable to X. Xxxxxxx and Xxxxxxxxx are included in accrued expenses in
the Company's balance sheet as of September 30, 2004.
In February 2004 the Company relocated its executive offices (under a
sublease that expires on June 29, 2008) to 00 Xxxxxx Xxxx, Xxx Xxxx, Xxx Xxxx.
By stipulation the Company has surrendered the premises located at 000 Xxxxxxxxx
Xxxxxx. In connection with this lease abandonment, the Company recorded an
accrual for expected losses on the lease equal to the present value of the
remaining lease payments, net of reasonable sublease income, of approximately
$168,000, which was recorded in the first quarter of 2004 in selling, general
and administrative expenses in the accompanying statements of operations. During
the second quarter of 2004 the Company revised its estimate of the expected
lease loss and recorded an additional accrual of $60,000. In addition, the
Company's landlord agreed to offset the Company's security deposit of $130,000
in satisfaction of a portion of the amounts due under the lease. The remaining
obligation to the landlord is included in accrued expenses in the Company's
balance sheet as of September 30, 2004.
On or about July 16, 2004, Clinton Group, Inc., as plaintiff and sub
sub-landlord, filed a summons and complaint against the Company, as defendant,
with the Supreme Court of the State of New York, County of New York (Index No.
110371) alleging, among other things, breach of an alleged sublease agreement
for non-payment of the
security deposit and one month's rent for the premises located at 00 Xxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx. In the summons and complaint, Clinton sought
repossession of the premises, damages for non-payment of rent in the sum of
$128,629.16, additional damages under the sublease through the date of trial for
the remainder of the term of the Sublease, plus interest and attorney's fees. On
August 20, 2004, the Company entered into a Settlement Agreement and Release
with Clinton pursuant to which, in full settlement of, and release from, any and
all claims against the Company by Clinton relating to the alleged sublease, the
Company agreed to pay to Clinton, an accredited investor, (i) the amount of
$75,000 in cash, (ii) the amount of $150,000 due upon the earlier of the one
year anniversary of the agreement or upon the Company's raising an aggregate of
$5,000,000 in gross proceeds from third party investors, and (iii) issue to
Clinton 1,150,000 shares of common stock. The issuance of the common stock,
promissory note and cash payment resulted in a settlement expense of $343,000
which was recorded in the third quarter.
In June 2004, the Company's former law firm commenced and action against the
Company by filing a complaint in the Supreme Court of the State of New York for
the county of New York (Index No. 108499/04) in which they alleged we breached
our retainer agreement by failing to pay $435,280 for legal services allegedly
performed. The Company believes it has valid defenses and/or counter claims
which the Company intends to vigorously pursue.
The Company has a liability in connection with the termination of employment
of its former Chief Financial Officer, Mr. Xxxx Xxxxxx. The American Arbitration
Association arbitrator has rendered her decision. The company is liable to pay
Xx. Xxxxxx the sum of $204,330.00, which includes all damages, interest, as well
as unpaid severance and vacation. The Company has accrued the full amount as a
liability in its balance sheet.
Schedule 3.1(r)
---------------
Ramp Corporation
Xxxxxxxx-Xxxxx
--------------
REFERENCE IS MADE TO THE FOLLOWING DISCLOSURE MADE IN THE COMPANY'S FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2004 FILED WITH THE SEC ON NOVEMBER 15, 2004.
WE BELIEVE THAT THE REPORTABLE CONDITIONS WERE ELIMINATED BY THE END OF 2004
BECAUSE OF THE ACTIONS TAKEN AS NOTED BELOW. HOWEVER, THERE CAN BE NO ASSURANCE
THAT OUR AUDITORS WILL CONCUR WITH THIS ASSESSMENT AS THEY COMPLETE THEIR AUDIT
OF OUR FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004.
Part 1, Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, including our chief executive officer and chief financial
officer, has carried out an evaluation of the effectiveness of our disclosure
controls and procedures as of September 30, 2004, pursuant to Exchange Act Rules
13a-15(e) and 15(d)-15(e). Our auditors, BDO Xxxxxxx, LLP, have advised us that,
under standards established by the American Institute of Certified Public
Accountants ("AICPA"), reportable conditions involve matters that come to the
attention of auditors that relate to significant deficiencies in the design or
operation of internal controls of an organization that, in the auditors'
judgment, could adversely affect the organization's ability to record, process,
summarize and report financial data consistent with the assertions of management
in the consolidated financial statements.
BDO Xxxxxxx, LLP has advised our management and our Audit Committee that, in
BDO Xxxxxxx, LLP's opinion, there were reportable conditions during 2003, some
of which persisted throughout the first three quarters of 2004, which
constituted material weaknesses in internal control. The Company has taken steps
and has a plan to correct the material weaknesses. More specifically, our
accounting staffing, records and controls were insufficient to identify and
record all accounting entries necessary to reflect our financial position,
results of operations and cash flows in accordance with generally accepted
accounting principles in the United States, and prepare financial reports in
compliance with the rules and regulations of the SEC. In particular, there were
numerous accounting errors and misapplications of accounting principles
generally accepted in the United States, due in large measure, to the absence of
a chief financial officer or other individual with the appropriate experience
and background to handle accounting and financial reporting matters arising from
the complexity of a number of our transactions. However, BDO Xxxxxxx, LLP has
advised the Audit Committee that these conditions were considered in determining
the nature, timing, and extent of the procedures performed for the audit of our
financial statements as of and for the year ended December 31, 2003 and the SAS
100 review of our financial statements for the quarterly periods ended March 31,
June 30 and September 30, 2004, and that these conditions did not
affect its audit report dated April 4, 2004 with respect to our financial
statements as of and for the year ended December 31, 2003, which includes an
explanatory paragraph indicating that our recurring losses from operations and
working capital deficit raise substantial doubt about our ability to continue as
a going concern.
Based upon management's review of our internal controls and procedures, our
management, including our current chief executive officer and current chief
financial officer, has determined that we had inadequate controls and procedures
constituting material weaknesses as of December 31, 2003 which persisted during
the first three quarters of fiscal year 2004. Our management has implemented and
continues to implement potential enhancements to our internal controls and
procedures that it believes will remedy the inadequacies in our internal
controls and procedures.
The following sets forth the steps we have taken through the fiscal period
ended September 30, 2004:
- In November 2003, we hired a permanent chief financial officer with
public company reporting experience. This chief financial officer
resigned in September 2004 and was replaced in October 2004.
- In December 2003, we hired a staff accountant responsible for, among
other things, recording accounts payable. The individual assists the
chief financial officer and controller to identify, report and record
transactions in a timely manner and provides additional segregation of
duties consistent with our internal control objectives.
- Management reassigned certain tasks among the expanded accounting
department, as well as existing administrative personnel to perform
ministerial accounting functions, to improve and better accomplish
bookkeeping, recordkeeping and other accounting functions.
- In August 2004 we hired a Vice President of Finance who will be wholly
dedicated to the areas of internal control, financial accounting and
reporting.
- The review and sign off on all monthly bank reconciliations by the chief
financial officer has been instituted.
- The review of all underlying agreements, contracts and financing
arrangements prior to execution for accounting ramifications has already
been undertaken by the chief financial officer to the extent possible.
- We strengthened certain controls over cash disbursements, including
adopting a policy that requires dual signatures of two senior officers,
at least one of whom is not involved in a transaction, on disbursements
in excess of $10,000.
- We strengthened certain controls over expense authorization and imposed
financial oversight on all expenditure decisions.
- We implemented a policy requiring attendance by outside counsel at all
Board and Audit Committee meetings, including the timely preparation of
minutes of such meetings and reports to management to discuss our
implementation of any plans to address conditions constituting the
material weaknesses in its internal controls.
We have implemented and intend on implementing the following plans to
enhance our internal controls in the fiscal quarter ending September 30, 2004
and in subsequent fiscal periods:
- The addition of the new Vice President Finance (hired on August 2, 2004)
has allowed further redistribution of responsibilities among the
expanded accounting department and, more specifically, provide the chief
financial officer with the necessary time to perform oversight and
supervisory functions in future periods. This includes timely review of
all underlying agreements, contracts and financing arrangements, expense
reports, entries to the general ledger and periodic filings with the
Securities and Exchange Commission.
- Our implementation of formal mechanized month-end, quarter-end and
year-end closing and consolidation processes.
- In July 2004 we appointed two additional independent directors to serve
on our Audit Committee.
- As a result of the resignation of our chief financial officer in
September 2004, we have hired Xxxxxx X. Xxxxxxxxxxx as our new chief
financial officer, effective October 12, 2004.
While we believe that the remedial actions that have been or will be taken
will result in correcting the conditions constituting the material weaknesses in
our internal controls as soon as practicable, the exact timing of when the
conditions will be corrected is dependent upon future events which may or may
not occur. We are making every effort to correct the conditions expediently and
expect to correct the conditions, thereby eliminating the material weaknesses no
later than the fourth quarter of fiscal year 2004. It is estimated that the cost
to implement the actions set forth above will be approximately $300,000 for our
fiscal year ending December 31, 2004 and approximately $200,000 for each fiscal
year thereafter. In addition, substantial additional costs may be necessary to
implement the provisions of section 404 of the Xxxxxxxx-Xxxxx Act of 2003 as
relates to the company's documentation and testing of the effectiveness of
internal controls in 2005.
Schedule 3.1(s)
---------------
Ramp Corporation
Certain Fees
------------
X. X. Xxxxxx & Co. will receive a placement agent fee in connection with this
transaction.
Schedule 3.1(v)
---------------
Ramp Corporation
Registration Rights
-------------------
The Company has agreed to register the following shares of its common stock with
the SEC:
Shares issuable to investors and placement agent
re $400,000 financing on 12/2/2004 528,000
Warrants to purchase common stock 2,405,167
Shares underlying convertible notes 4,622,241
Vendors, and consultants and former employees 1,176,000
Notes to table:
REFERENCE IS MADE TO THE FOLLOWING DISCLOSURE MADE IN THE COMPANY'S FORM 8-K
FILED WITH THE SEC ON DECEMBER 10, 2004:
Pursuant to agreements between the Registrant and each of the secured note
holders of the Registrant, each of the secured note holders agreed to exchange
all of their convertible secured promissory notes, in the aggregate principal
amount of $4,731,870, plus interest in the aggregate amount of $137,162, due
January 14, 2005, into an aggregate number of restricted shares of the
Registrant's common stock, par value $.001 per share, having a market value of
$1.14 per share, plus the issuance of three-year warrants to purchase an
aggregate of 1,000,000 shares of common stock at an exercise price of $1.14 per
share. In connection with the agreements, the note holders agreed to terminate
their security interest in and to all of the assets of the Registrant, including
the Registrant's intellectual property. The exchange of debt into equity
eliminates certain restrictive covenants relating to the Registrant's ability to
enter into subsequent financings and anti-dilution provisions, which were
contained in the note agreements with the original note holders.
The exchange of the secured notes into common stock of the Registrant was
made to "accredited investors", as that term is defined under Rule 501 under
Regulation D of the Securities Act of 1933, as amended, pursuant to the
exemption from registration requirements under Rule 506 and Section 4(2) of the
Securities Act.
The Registrant is obligated to list for trading and register for resale the
shares of common stock and the shares of common stock underlying the warrants
issuable to the investors on its next registration statement filed with the
Securities and Exchange Commission, or within 60 days following the date of the
agreements upon a written demand by the note holders requesting the filing of
such registration statement.
REFERENCE IS MADE TO THE FOLLOWING DISCLOSURE MADE IN THE COMPANY'S FORM 8-K
FILED WITH THE SEC ON DECEMBER 7, 2004:
On December 2, 2004, the Registrant issued to certain investors convertible
promissory notes in the aggregate principal amount of $400,000 bearing interest
at the rate of six percent (6.0%) per annum, due March 1, 2005. In connection
with the note financing, the Registrant issued a convertible promissory note in
the principal amount of $52,000 to an entity as an advisory fee on the same
terms and conditions as the investors. One hundred and twenty percent (120%) of
the outstanding principal amount of the notes (the "December 2004 Notes") shall
be automatically convertible into other securities of the Registrant which may
be issued by the Registrant in any subsequent transaction with gross proceeds to
the Registrant of a minimum of $1,000,000. Interest on the notes is payable in
cash or securities issued in a subsequent transaction.
The Registrant shall also issue to the investors an aggregate of 480,000
shares of the Registrant's common stock and the advisor shall receive 48,000
shares of the Registrant's common stock.
The sale of notes was made to "accredited investors", as that term is
defined under Rule 501 under Regulation D of the Securities Act of 1933, as
amended, pursuant to the exemption from registration requirements under Rule 506
and Section 4(2) of the Securities Act.
The Registrant is obligated to register for resale the securities issuable
upon conversion of the notes and the shares of common stock issuable to the
investors on its next registration statement filed with the Securities and
Exchange Commission.
ADDITIONAL REGISTRATION RIGHTS
The December 2004 Notes together with accrued and unpaid interest thereon
shall be automatically converted into Debentures and Warrants having the same
terms and conditions as set forth in the Agreement. The shares of common stock
underlying the debentures and warrants shall be registered on the Company's next
registration statement.
Schedule 3.1(w)
---------------
Ramp Corporation
Listing and Maintenance Requirements
------------------------------------
Reference is made to the following disclosure made in the Company's Form 8-K
filed with the SEC on September 17, 2004:
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or
Standard; Transfer of Listing.
On September 13, 2004, Ramp Corporation (the "Company") received a written
notice (the "Notice") from the American Stock Exchange (the "Amex") informing
the Company, in relevant part, that the Company is not in compliance with (i)
Section 1003(a)(i) of the Amex rules as a result of stockholder's equity of the
Company less than $2,000,000 and losses from continuing operations and/or net
losses in two out of three of its three most recent fiscal years, (ii) Section
1003(a)(ii) of the Amex rules as a result of stockholder's equity of the Company
of less than $4,000,000 and losses from continuing operations and/or net losses
in three out of its four most recent fiscal years, (iii) Section 1003(a)(iv) of
the Amex rules whereby, as a result of the Company's substantial sustained
losses in relation to its overall operations or its existing financial
resources, or its impaired financial condition, it appears questionable, in the
opinion of Amex, as to whether the Company will be able to continue operations
and/or meet its obligations as they mature, and (iv) Section 1003(f)(v) of the
Amex rules as a result of the Company's common stock selling for a substantial
period at a low price per share.
The Notice is not a notice of delisting from the Amex or a notice by Amex to
initiate delisting proceedings.
Specifically, the Notice provides that, in order to maintain the listing of
the Company's common stock, the Company must submit a plan to the Amex by
October 14, 2004, advising Amex of the action the Company has taken, or the
action the Company will take, to bring the Company into compliance with the
continued listing standards of the Amex within a maximum of eighteen months from
the date the Notice was received.
Amex will accept the Company's plan if the Company provides a reasonable
demonstration of an ability to regain compliance with the continued listing
standards within such eighteen month period. If the Company's plan is accepted,
the Company will be able to maintain its listing on the Amex during the plan
period for up to eighteen months, subject to periodic review by Amex to
determine whether the Company is making progress in accordance with its plan.
The Company's management intends to timely provide Amex with its plan to
achieve compliance with all Amex listing criteria within such eighteen month
period and believes it will be able to maintain its Amex listing at all times
during such eighteen month period.
Subject to the Company's right of appeal of any Amex staff determination,
Amex may initiate delisting proceedings, as appropriate, if (i) the Company does
not submit a plan, (ii) the Company's plan is not accepted, (iii) the Company
does not make progress consistent with the plan during the plan period, or (iv)
the Company is not in compliance with the continued listing standards at the
conclusion of the plan period.
REFERENCE IS MADE TO THE FOLLOWING DISCLOSURE MADE IN THE COMPANY'S FORM 8-K
FILED WITH THE SEC ON DECEMBER 22, 2004:
Item 8.01 Other Events
Ramp Corporation (the "Company") announced that on December 16, 2004 the
American Stock Exchange ("AMEX") notified the Company that it accepted the
Company's plan of compliance and granted the Company an extension of time until
March 13, 2006 to regain compliance with the AMEX's continued listing standards.
The Company will be subject to periodic review by AMEX staff during the
extension period. Failure to make progress consistent with the plan or to regain
compliance with the continued listing standards by the end of the plan period on
March 13, 2006 could result in the AMEX commencing delisting proceedings.
Schedule 3.1(x)
---------------
Ramp Corporation
Application of Takeover Protections
-----------------------------------
Reference is made to the following disclosure made in the Company's Form 8-K
filed with the SEC on May 27, 2004:
On May 25, 2004, the Board of Directors of Ramp Corporation, a Delaware
corporation (the "Company"), approved the issuance of one preferred share
purchase right (a "Right") for each outstanding common share, par value $.001
per share (the "Common Shares"), of the Company. Shareholders of record on June
4, 2004 (the "Record Date") will receive the Rights. Each Right entitles the
registered holder, upon the occurrence of certain events, to purchase from the
Company one one-hundredth (1/100) of a share of Series B Participating Preferred
Stock, par value $.001 per share (the "Preferred Shares"), of the Company at a
price of $40.00 per one one-hundredth (1/100) of a Preferred Share, subject to
adjustment under certain circumstances (the "Purchase Price"). The description
and terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement"), dated as of May 27, 2004, between the Company and Computershare
Trust Company, Inc., a Colorado trust company, as Rights Agent (the "Rights
Agent").
THE RIGHTS AGREEMENT WAS FILED AS AN EXHIBIT TO THE COMPANY'S FORM 8-K FILED
WITH THE SEC ON MAY 27, 2004.
Schedule 3.1(z)
---------------
Ramp Corporation
No Integrated Offering
----------------------
Reference is made to the following disclosure made in the Company's Form 8-K
filed with the SEC on December 7, 2004:
On December 2, 2004, the Registrant issued to certain investors convertible
promissory notes in the aggregate principal amount of $400,000 bearing interest
at the rate of six percent (6.0%) per annum, due March 1, 2005. In connection
with the note financing, the Registrant issued a convertible promissory note in
the principal amount of $52,000 to an entity as an advisory fee on the same
terms and conditions as the investors. One hundred and twenty percent (120%) of
the outstanding principal amount of the notes shall be automatically convertible
into other securities of the Registrant which may be issued by the Registrant in
any subsequent transaction with gross proceeds to the Registrant of a minimum of
$1,000,000. Interest on the notes is payable in cash or securities issued in a
subsequent transaction.
The Registrant shall also issue to the investors an aggregate of 480,000
shares of the Registrant's common stock and the advisor shall receive 48,000
shares of the Registrant's common stock.
The sale of notes was made to "accredited investors", as that term is
defined under Rule 501 under Regulation D of the Securities Act of 1933, as
amended, pursuant to the exemption from registration requirements under Rule 506
and Section 4(2) of the Securities Act.
The Registrant is obligated to register for resale the securities Issuable
upon conversion of the notes and the shares of common stock issuable to the
investors on its next registration statement filed with the Securities and
Exchange Commission.
Schedule 3.1(ff)
----------------
Ramp Corporation
Accountants
-----------
Our independent registered public accounting firm is BDO Xxxxxxx, LLC, 000
Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000.
Schedule 3.1(hh)
----------------
Ramp Corporation
No Disagreements with Accountants and Lawyers
---------------------------------------------
In June 2004, the Company's former law firm commenced and action against the
Company by filing a complaint in the Supreme Court of the State of New York for
the county of New York (Index No. 108499/04) in which they alleged we breached
our retainer agreement by failing to pay $435,280 for legal services allegedly
performed. The Company believes it has valid defenses and/or counter claims
which the Company intends to vigorously pursue.
In addition the company is disputing amounts billed by another former law
firm and is in arrears with amounts due to its current law firm.
