Exhibit 10.1
SUBORDINATED SECURED CONVERTIBLE BRIDGE NOTE
AND WARRANT PURCHASE AGREEMENT
THIS SUBORDINATED SECURED
CONVERTIBLE BRIDGE NOTE AND WARRANT PURCHASE AGREEMENT (this “Agreement”) is made as of the ____ day
of July, 2014 by and among DATARAM CORPORATION, a New Jersey corporation (the “Company”), and
the investors listed on Schedule A attached to this Agreement as amended from time to time (each a “Purchaser”
and together the “Purchasers”).
WHEREAS, the Company
desires to issue and sell, and Purchasers desire to purchase a Subordinated Secured Convertible Bridge Note in substantially the
form attached to this Agreement as Exhibit A (each a “Note”, and collectively, the “Notes”)
which shall be convertible on the terms stated therein into shares of the Company’s Common Stock, $1.00 par value (“Common
Stock”) and warrants to purchase Common Stock of the Company substantially in the form attached to this Agreement as Exhibit
B (the “Warrants”). The Notes, the Warrants and the Common Stock issuable upon conversion or the exercise of such
foregoing, are collectively referred to herein as the “Securities.”
WHEREAS the Notes will
be secured pursuant to the Security Agreement substantially in the form attached hereto as Exhibit C.
INVESTING IN THE
SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” ATTACHED TO THIS AGREEMENT AS EXHIBIT D.
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 parties hereto agree as follows:
1. Purchase and
Sale of Notes and Common Stock.
1.1. Sale and Issuance
of Notes and Common Stock.
(a) Subject to the
terms and conditions of this Agreement, each Purchaser agrees to purchase at the Closing, and the Company agrees to sell and issue
to each Purchaser at the Closing, (i) a Note in the principal amount set forth opposite such Purchaser’s name on the signature
page, and (ii) a Warrant to purchase one thousand two hundred (1,200) shares of Common Stock for each $1,000 of principal amount
of Notes. The aggregate purchase price (the “Purchase Price”) of each Note and the accompanying Warrants shall
be equal to 100% of the principal amount of such Note.
(b) Each Purchaser
has hereby delivered and paid concurrently herewith the aggregate Purchase Price set forth on the applicable signature page hereof
required to purchase the Notes and Warrants subscribed for hereunder, which amount has been paid in U.S. Dollars by cash, wire
transfer or check, subject to collection, to the order of the Company.
(c) Each Purchaser
understands and acknowledges that the subscription under this Agreement is part of a proposed placement by the Company of up to
$750,000 of Notes.
1.2. Closing; Delivery.
(a) The purchase
and sale of the Notes and Warrants hereunder shall take place remotely via the exchange of documents and signatures, at 12:00 p.m.
Eastern Time on the date hereof, or at such other time and place as the Company and the Purchasers mutually agree upon, orally
or in writing (which time(s) and place(s) are each designated as the “Closing”). In the event there is more
than one Closing, the term “Closing” shall apply to each such closing, unless otherwise specified herein.
(b) At each Closing,
the Company shall deliver to each Purchaser:
(i) the Note and
Warrant to be purchased by such Purchaser against (1) payment of the applicable Purchase Price therefor by check payable to the
Company or by wire transfer to a bank designated by the Company, and (2) delivery of counterpart signature pages to such Note and
Warrant; (ii) the fully executed Security Agreement; and (iii) a written consent executed by Rosenthal & Rosenthal, Inc. under
the Security Agreement dated November 6, 2013, as amended, consenting the transaction under the Transaction Documents.
1.3. Use of Proceeds.
The Company will use the proceeds from the sale of the Notes and Warrants hereunder solely (a) to fund general corporate expenses
of the Company in the ordinary course of business; (b) to fund capital expenditures of the Company; (c) to fund working capital
for sales and marketing of the Company; and (d) $5,000 to the Collateral Agent.
1.4. Defined Terms
Used in this Agreement. In addition to the terms defined elsewhere in this Agreement, the following terms shall have the meanings
set forth in this Section 1.4:
“Agreement”
shall have the meaning set forth in the preamble to this Agreement.
“Affiliate”
means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under
common control with such Person, including, without limitation, any general partner, managing member, officer or director of such
Person that is controlled by one or more general partners or managing members of, or shares the same management company with, such
Person.
“Business Day”
means any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions located in New York, New
York are permitted or required by law, executive order or governmental decree to remain closed.
“Closing”
shall have the meaning set forth in Section 1.2(a).
“Company”
shall have the meaning set forth in the preamble to this Agreement.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Common Stock”
shall have the meaning set forth in the recital to this Agreement.
“Common Stock Equivalents”
means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible
into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Evaluation Date”
shall have the meaning set forth in Section 2.1(r).
“Exchange Act”
means the Securities Exchange Act of 1934, as amended.
“FCPA”
means the Foreign Corrupt Practices Act of 1977, as amended.
“Federal
Reserve” shall have the meaning ascribed to such term in Section 2.1(ii).
“GAAP”
shall have the meaning ascribed to such term in Section 2.1(h).
“Intellectual
Property Rights” shall have the meaning set forth in Section 2.1(o).
“Knowledge,”
including the phrase “to the Company's knowledge,” shall mean the actual knowledge of the Company's officers
and directors with the assumption that such officers and directors have made inquiry of the matters presented that is reasonable
in the context of a development stage company with a limited number of employees.
“Lien”
means any lien, charge, encumbrance, security interest, right of first refusal, preemptive right or other restrictions of any kind.
“Material Adverse
Effect” shall have the meaning set forth in Section 2.1(b).
“Material Permits”
shall have the meaning set forth in Section 2.1(m).
“Money Laundering
Laws” shall have the meaning ascribed to such term in Section 2.1(jj).
“Note”
shall have the meaning set forth in the recital to this Agreement.
“OFAC”
shall have the meaning ascribed to such term in Section 2.1(gg).
“Person”
means any individual, corporation, partnership, trust, limited liability company, association, joint venture, government (or an
agency or subdivision thereof) or other entity of any kind.
“Placement Agent”
means TriPoint Global Equities, LLC.
“Purchase Price”
shall have the meaning set forth in Section 1.1(a).
“Purchaser”
shall have the meaning set forth in the preamble to this Agreement.
“Purchaser Party”
shall have the meaning set forth in Section 3.7.
“Required Approvals”
shall have the meaning ascribed to such term in Section 2.1(e).
“SEC”
means the Securities and Exchange Commission.
“SEC Reports”
shall have the meaning set forth in Section 2.29.
“Securities”
shall have the meaning set forth in the preamble to this Agreement.
“Securities Act”
means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Short Sales”
shall include all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed
to include the location and/or reservation of borrowable shares of Common Stock).
“Subscription
Amount” means, as to each Purchaser, the aggregate amount to be paid for Notes and Common Stock purchased hereunder as
specified below such Purchaser's name on the signature page of this Agreement and next to the heading “Subscription Amount,”
in United States dollars and in immediately available funds.
“Subsidiaries”
shall have the meaning set forth in Section 2.1(a).
“Trading Day”
means (i) a day on which the Common Stock is traded on a Trading Market or (ii) if the Common Stock is not listed or
quoted on a Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pink OTC
Markets Inc. (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event
that the Common Stock is not listed or quoted as set forth in (i) and (ii) hereof, then Trading Day shall mean a Business Day.
“Trading Market”
means whichever of The New York Stock Exchange, The NYSE MKT, the NASDAQ Global Market, the NASDAQ Capital Market, the OTC Bulletin
Board or other principal market on which the Common Stock is listed or quoted for trading on the date in question.
“Transaction
Documents” means this Agreement, the Notes, the Warrants, the Security Agreement and all other documents and agreements
executed in connection with the transactions contemplated hereunder.
1.5. Closing Conditions.
(a) The obligations
of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy
in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as
of a specific date therein in which case they shall be accurate as of such date);
(ii) all obligations,
covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed;
and
(iii) the delivery
by each Purchaser of the items set forth in Section 1.2(b) of this Agreement.
(b) The respective
obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy
in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein
(unless as of a specific date therein);
(ii) all obligations,
covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;
(iii) the delivery
by the Company of the items set forth in Section 1.2(b) 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 the Closing Date, trading in the Common Stock shall not have been suspended by the SEC or the Company's principal Trading
Market, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. 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
nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of
such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable
judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.
2. Representations
and Warranties.
2.1. Representations
and Warranties of the Company. Except as set forth in the SEC Reports or any documents incorporated by reference therein, which
such filings, writings and documents shall qualify such representations and warranties to the extent of the disclosures contained
therein, or in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation
or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the
Company hereby makes the following representations and warranties to each Purchaser:
(a) Subsidiaries.
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 of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries,
all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
(b) Organization
and Qualification. The Company and each of 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, 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 nor 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 Document, (ii) a material adverse effect on the results of operations, assets, business, prospects
or condition (financial or otherwise) 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 on a timely basis its obligations under any Transaction Document (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 this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company, the Board of Directors or the Company's shareholders in connection herewith or
therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it
is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms
hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company 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.
(d) No Conflicts.
The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party,
the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and 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, 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) the filings
required pursuant to Section 3.3 of this Agreement, (ii) those filings or consents that have already been made or obtained
prior to the date of this Agreement, (iii) application(s) to each applicable Trading Market for the listing of the Common Stock
for trading thereon in the time and manner required thereby and (iv) such filings as are required to be made under applicable state
securities laws (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.
(g) Capitalization.
The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant
to the exercise of employee stock options under the Company's stock option plans, the issuance of shares of Common Stock to employees
pursuant to the Company's employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the Exchange Act. 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 described in the SEC Reports, or except a result of the purchase and sale of the Securities, there
are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable 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. All of the outstanding
shares of capital stock of the Company are duly authorized, 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. No further approval or authorization of any shareholder, the Board of
Directors or others is required for the issuance and sale of the Securities. There are no shareholders 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 shareholders that are not described in the SEC Reports.
(h) SEC Reports;
Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed
by the Company 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 or regulation to file such material)
(the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, 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, as applicable, 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 the light of the circumstances under which they were made, not misleading.
The Company has never been an issuer subject to Rule 144(i) under the Securities Act. 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
SEC 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, immaterial, year-end audit adjustments.
(i) Material Changes;
Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within
the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof, (i) there has been
no event, occurrence or development that has had or that could reasonably 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 disclosed in filings made with the SEC, (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 shareholders
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 plans. The
Company does not have pending before the SEC any request for confidential treatment of information. Except for the issuance of
the Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence or development has occurred
or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses,
prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable
securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one (1) Trading
Day prior to the date that this representation is made.
(j) Litigation.
Except as set forth in its most recently filed periodic report under the Exchange Act, there is no action, suit, inquiry, notice
of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened 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. There has not been, and to the knowledge
of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company or any current or former
director or officer of the Company. The SEC 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 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. None of the Company's or its Subsidiaries' employees is
a member of a union that relates to such employee's relationship with the Company or such Subsidiary, and neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary,
is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary
information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of
any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries
to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S.
federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably
be expected to have 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 judgment, decree or order of any
court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation
of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in 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 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 and good and marketable
title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case
free and clear of all Liens, except for (i) 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, (ii) Liens for the payment
of federal, state or other taxes, for which appropriate reserves have been made in accordance with GAAP and, the payment of which
is neither delinquent nor subject to penalties, and (iii) as set forth in the SEC Reports. Any real property and facilities held
under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the
Company and the Subsidiaries are in compliance.
(o) Intellectual
Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights
and similar rights necessary or required 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”).
None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual
Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2)
years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited
financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual
Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have
a Material Adverse Effect. 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. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except
where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(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. 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.
(q) Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company or
any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary 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, providing for the borrowing of money from or lending of money to 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, shareholder, member or partner, in each case
in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan
of the Company.
(r) Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements of
the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries
have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company
and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by
the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the SEC's rules and forms. The Company's certifying officers have evaluated the effectiveness of the
disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by 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. Since the Evaluation Date, there have
been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) of the Company and
its Subsidiaries that have materially affected, or is reasonably likely to materially affect, the internal control over financial
reporting of the Company and its Subsidiaries.
(s) 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 an “investment company” subject
to registration under the Investment Company Act of 1940, as amended.
(t) Registration
Rights. Except for Purchasers under this Agreement, no Person has any right to cause the Company or any Subsidiary to effect
the registration under the Securities Act of any securities of the Company or any Subsidiary.
(u) Listing and
Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) 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. Except as set forth in the SEC Reports, 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.
(v) Application
of Takeover Protections. The Company and the 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.
(w) Disclosure.
Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, 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 it believes constitutes or might constitute material, non-public information which is not otherwise disclosed
in the SEC Reports. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting
transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding
the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, is true and correct and does 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 press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken
as a whole do not contain any untrue statement of a material fact or omit 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 and when 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 2.2 hereof.
(x) 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 any applicable shareholder approval provisions
of any Trading Market on which any of the securities of the Company are listed or designated.
(y) Solvent.
Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company's assets exceeds
the amount that will be required to be paid on or in respect of the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature, (ii) the Company's assets do not constitute unreasonably small capital to carry on its
business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability
thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate
all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability
to pay such debts 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 the Closing Date. Except as may be described
in the SEC Reports, there is no outstanding secured or 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” means (x) 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), (y) 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 consolidated 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 (z) 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.
(z) 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 its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign
income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all
taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns,
reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes
for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know
of no basis for any such claim.
(aa) Foreign Corrupt
Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other
person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any 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 any Subsidiary (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 FCPA.
(bb) Accountants.
The Company's accounting firm is set forth on Schedule 3.1(cc) of the Disclosure Schedules. To the knowledge and belief
of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall
express its opinion with respect to the financial statements to be included in the Company's Annual Report for the fiscal year
ending April 30, 2014.
(cc) 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 thereby.
The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser
or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated
thereby is merely incidental to the Purchasers' purchase of the Securities. The Company further represents to each Purchaser that
the Company's decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its representatives.
(dd) Acknowledgement
Regarding Purchaser's Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except
for Sections 2.2(e) and 3.11 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers
has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities
for any specified term; (ii) past or future open market or other transactions by any Purchaser, specifically including, without
limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company's publicly-traded securities; (iii) any Purchaser, and counter-parties
in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, presently may have a “short”
position in the Common Stock, and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm's
length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one
or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including
and (z) such hedging activities (if any) could reduce the value of the existing shareholders' equity interests in the Company at
and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities
do not constitute a breach of any of the Transaction Documents.
(ee) Regulation
M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases
of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any
other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company's Placement
Agent in connection with the placement of the Securities.
(ff) [RESERVED].
(gg) Office of
Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of
Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
(hh) U.S. Real
Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning
of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser's request.
(ii) Bank Holding
Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956,
as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal
Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five
percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity
of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its
Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject
to the BHCA and to regulation by the Federal Reserve.
(jj) Money Laundering.
The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial
record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable
money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money-Laundering Laws”),
and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving
the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary,
threatened.
2.2. Representations
and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as
of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):
(a) Organization;
Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability
company or similar power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise
to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and performance by such Purchaser
of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate, partnership, limited liability
company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document 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) Understandings
or Arrangements. Such Purchaser is acquiring the Securities as principal for its own account and has no direct or indirect
arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation
and warranty not limiting such Purchaser's right to sell the Securities in compliance with applicable federal and state securities
laws).
(c) Purchaser
Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered
as a broker-dealer under Section 15 of the Exchange Act.
(d) Experience
of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(e) Certain Transactions
and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person
acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any purchases or sales,
including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received
a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of
the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding the foregoing, in
the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions
of such Purchaser's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser's assets, the representation set forth above shall only apply with respect to
the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered
by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding
the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any
actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to affect
Short Sales or similar transactions in the future.
The Company acknowledges and agrees that the
representations contained in Section 2.2 shall not modify, amend or affect such Purchaser's right to rely on the Company's
representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction
Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of
the transaction contemplated hereby.
(f) Restricted
Securities; Registration Rights. The Purchaser understands that the Securities have not been, and will not be, registered under
the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon,
among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser's representations as expressed
herein. The Purchaser understands that the Notes and Common Stock are “restricted securities” under applicable U.S.
federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Securities indefinitely unless
they are registered with the SEC and qualified by state authorities, or an exemption from such registration and qualification requirements
is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Securities, for resale.
The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned
on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and
on requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation
and may not be able to satisfy.
The Company shall, as
reasonably possible and in any event no later than 60 days after the date of this Agreement:
(i) prepare and file
with the SEC a registration statement with respect to the shares issuable upon conversion of the Notes or the exercise of the Warrant
(“Registrable Securities”) and use its commercially reasonable efforts to cause such registration statement to become
effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration
statement effective for a period of up to one year or, if earlier, until the distribution contemplated in the registration statement
has been completed; provided, however, that such one year period shall be extended for a period of time equal to the period
the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities
included in such registration;
(ii) prepare and file
with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration
statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by
such registration statement; furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus,
as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their
disposition of their Registrable Securities; use its commercially reasonable efforts to register and qualify the securities covered
by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested
by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act;
(iii) in the event
of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary
form, with the underwriter(s) of such offering;
(iv) use its commercially
reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities
exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company
are then listed;
(g) No Public
Market. The Purchaser understands that the public market for the Securities is either limited or does not exist, and that the
Company has made no assurances that a public market will ever exist for the Securities.
(h) Legends.
The Purchaser understands that the Notes and Common Stock and any securities issued in respect of or exchange for the Securities,
may bear one or all of the following legends:
(i) “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”
(ii) Any legend
set forth in, or required by, the other Transaction Documents.
(iii) Any legend
required by the securities laws of any state to the extent such laws are applicable to the Securities represented by the certificate
so legended.
3. Covenants of
the Company
3.1. Furnishing
of Information. Until the earliest of the time that (i) no Purchaser owns Securities or (ii) the Notes have been paid off in
full, 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 even if the Company is not then
subject to the reporting requirements of the Exchange Act.
3.2. Integration.
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 for purposes of the rules
and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction
unless shareholder approval is obtained before the closing of such subsequent transaction.
3.3. Securities
Laws Disclosure; Publicity. The Company shall (a) by 9:00 a.m. (New York City time) on the Trading Day immediately following
the date hereof, issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Current
Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the SEC within the time required by the Exchange
Act. From and after the issuance of such press release, the Company represents to the Purchasers that it shall have publicly disclosed
all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their
respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents.
In the event the Company fails to timely file the Form 8-K required by this Section, the Purchaser shall be allowed to file a press
release disclosing the terms of the Transaction Documents.
3.4. Shareholder
Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any
Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including
any distribution under a rights agreement) or similar anti-takeover 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.
3.5. Non-Public
Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents,
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 entered into a written agreement with the Company regarding the confidentiality and use of such information.
The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in
securities of the Company.
3.6. Use of Proceeds.
The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use
such proceeds: (a) 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), (b) for the redemption of any Common Stock or Common Stock Equivalents,
or (c) in violation of FCPA or OFAC regulations.
3.7. Indemnification
of Purchasers. Subject to the provisions of this Section 3.7, the Company will indemnify and hold each Purchaser and
its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent
role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser
(within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling persons (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 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 the Purchaser
Parties in any capacity, or any of them or their respective Affiliates, by any shareholder of the Company who is not an Affiliate
of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser Party's representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Purchaser Party may have with any such shareholder or any violations by such Purchaser Party
of state or federal securities laws or any conduct by such Purchaser Party 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 reasonably acceptable to the Purchaser Party. 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 counsel, a material conflict on any material issue
between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for
the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party
under this Agreement (y) for any settlement by a Purchaser Party effected without the Company's prior written consent, which shall
not be unreasonably withheld or delayed; or (z) 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 such Purchaser
Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 3.7 shall be
made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received
or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any
Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.
3.8. Reservation
of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available
at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company
to issue Common Stock pursuant to this Agreement.
3.9. Listing of
Common Stock. The Company hereby agrees to use best efforts to maintain the listing or quotation of the Common Stock on the
Trading Market on which it is currently listed, and concurrently with the Closing or upon shareholder approval, if required, the
Company shall apply to list or quote all of the Common Stock on such Trading Market and promptly secure the listing of all of the
Common Stock Equivalents on such Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will then include in such application all of the Common Stock Equivalents, and will take such other
action as is necessary to cause all of the Common Stock to be listed or quoted on such other Trading Market as promptly as possible.
The Company will then take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading
Market and will comply in all material respects with the Company's reporting, filing and other obligations under the bylaws or
rules of the Trading Market.
3.10. Equal Treatment
of Purchasers. No consideration (including any modification of any Transaction Document) 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. 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 for the Company to
treat the Purchasers 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.
3.11. [RESERVED].
4. Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not
been consummated on or before July 15, 2014; provided however, that no such termination will affect the right of any party
to sue for any breach by any other party (or parties).
4.1. Fees and Expenses.
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 stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities to the Purchasers.
4.2. 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 thereof 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.
4.3. 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 at or 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 (2nd) 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.
4.4. Amendments,
Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed,
in the case of an amendment, by the Company and the Purchasers or, in the case of a waiver, by the party against whom enforcement
of any such waived provision 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 any party to exercise any right hereunder in any
manner impair the exercise of any such right.
4.5. 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.
4.6. 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
the Purchasers (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to
whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”
4.7. 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 3.7.
4.8. 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, partners, members, 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 is an 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 other manner permitted by law. If either party shall commence an action,
suit or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company
under Section 4.8, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its
reasonable attorneys' fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action
or proceeding.
4.9. Survival.
The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.
4.10. 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 effective when counterparts have been signed by each party and delivered to each other party, it being
understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission
or by e-mail delivery of a “.pdf” format data file, 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 or “.pdf”
signature page were an original thereof.
4.11. Severability.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
4.12. Rescission
and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of)
any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction
Document 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.
4.13. 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 (in the case of mutilation), 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. The applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
4.14. 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 contained in the
Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
4.15. Payment Set
Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document 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
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.
4.16. Independent
Nature of Purchasers' Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several
and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance
or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant hereto or 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 its review and negotiation of the Transaction Documents. It is expressly understood and agreed that each provision
contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between
the Company and the Purchasers collectively and not between and among the Purchasers.
4.17. Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding
Business Day.
4.18. Construction.
The parties agree that each of them and/or their respective counsel have 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 thereto. In addition, each and
every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.
4.19. WAIVER OF JURY
TRIAL. IN ANY ACTION SUIT OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY THE PARTIES EACH KNOWINGLY
AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY IRREVOCABLY AND EXPRESSLY
WAIVES FOREVER TRIAL BY JURY.
(Signature Page Follows)
Execution Page for Subordinated Secured Convertible
Bridge Note and Warrant Purchase Agreement for Individuals:
IN WITNESS WHEREOF,
Purchaser has caused this Subordinated Secured Convertible Bridge Note and Warrant Purchase Agreement to be executed as of the
date indicated below.
|
$__________________________________
Principal Amount
___________________________________
Print or Type Name
___________________________________
Signature |
__________________________________
Principal Amount of Notes
___________________________________
Print or Type Name (Joint-owner)
___________________________________
Signature (Joint-owner) |
|
___________________________________
Date
___________________________________
Social Security Number |
___________________________________
Date (Joint-owner)
___________________________________
Social Security Number (Joint-owner) |
|
___________________________________
___________________________________
Address
__Joint Tenancy |
___________________________________
___________________________________
Address (Joint-owner)
__Tenants in Common
|
____Tenancy by the Entirety
Wiring Instructions:
Bank Name:
ABA #:
Acct #:
Acct. Name:
Partnerships, Corporations or Other
Entities Execution Page for Subordinated Secured Convertible Bridge Note and Warrant Purchase Agreement:
IN WITNESS WHEREOF,
Purchaser has caused this Subordinated Secured Convertible Bridge Note and Warrant Purchase Agreement to be executed as of the
date indicated below.
|
$__________________________________
Total Purchase Price
___________________________________
Print or
Type Name of Entity
|
__________________________________
Principal Amount of Notes
|
|
______________________________________________________________________
Address |
|
___________________________________
Taxpayer I.D. No. (if applicable)
By:_________________________________
|
___________________________________
Date
___________________________________
Print or Type Name and Indicate
Title or Position with Entity |
|
___________________________________
Signature (other authorized signatory)
|
___________________________________
Print or Type Name and Indicate
Title or Position with Entity
|
Wiring Instructions:
Bank Name:
ABA #:
Acct #:
Acct. Name:
Company Execution Page for Subordinated Secured
Convertible
Bridge Note and Warrant Purchase Agreement
IN WITNESS WHEREOF,
the Company has caused this Subordinated Secured Convertible Bridge Note and Warrant Purchase Agreement to be executed, and the
foregoing subscription accepted, as of the date indicated below.
DATARAM
CORPORATION
By:_______________________________
Name: John H. Freeman
Title: Chief Executive
Officer
Address: 777 Alexander Road
Princeton, New Jersey 08540
Fax: (609) 799–6734
Date: July ___, 2014
SCHEDULE A
LIST OF INVESTORS
EXHIBIT A
FORM OF NOTE
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
FORM OF SECURITY AGREEMENT
EXHIBIT D
DATARAM RISK FACTORS
Investing in
the Securities involves a high degree of risk. You should consider the following risk factors, as well as other information contained
or incorporated by reference in this Agreement, before deciding to purchase any of the common stock offered herein. If any of these
risks occur, our business, financial condition or results of operations could suffer, the market price of our common stock could
decline and you could lose all or part of your investment. Share information set forth in these risk factors is as of the dates
set forth herein and unless otherwise indicated, does not give effect to the issuance of the common stock in connection with this
offering.
Risks Related to Our Business and
Financial Condition
Our independent auditors have issued
a going concern opinion and, if we are unable to obtain bank financing, raise capital or generate enough cash from operations to
sustain our business, then we may have to liquidate assets or curtail our operations.
In its audit report
dated July 29, 2013 for the fiscal years ended April 30, 2013 and 2012, the opinion of our independent registered public accounting
firm, CohnReznick LLP, included an emphasis paragraph as to the uncertainty of our ability to continue as a going concern. Most
notably, significant recurring net losses through April 30, 2013 raise substantial doubt about our ability to continue as a going
concern. During the fiscal year ended April 30, 2013, we incurred a net loss to common shareholders of $4,625,000. We will need
to generate significant revenues in order to achieve profitability.
We have incurred net losses in recent
years and our future profitability is not assured.
For the fiscal years
ended April 30, 2013, 2012, and 2011, we incurred net losses of approximately $4,625,000, $3,259,000, and $4,634,000, respectively.
For the nine months ended January 31, 2014, we incurred net losses of approximately $2,066,608. Our operating results for future
periods are subject to numerous uncertainties and we cannot assure you that we will not continue to experience net losses for the
foreseeable future. If we are not able to increase revenue and reduce our costs, we may not be able to achieve profitability.
We are likely to need additional
financing, but our access to capital funding is uncertain.
As of April 30,
2013, we had cash, cash equivalents and marketable securities totaling approximately $324,000. During the year then ended, we had
a net loss of $4,625,000 and used cash in operating activities of $3,882,000. For the nine months ended January 31, 2014, we had
a net loss of approximately $2,066,608 and used cash in operating activities of approximately $47,000. We believe our existing
capital resources should be sufficient to fund the activities contemplated by our current operating plan into the first quarter
of fiscal 2015. We intend to seek external funding prior to that time, however, most likely through bank debt and the issuance
and sale of securities. We cannot predict with any certainty when we will need additional funds or how much we will need or if
additional funds will be available to us. Our need for future funding will depend on numerous factors, many of which are outside
our control.
Our access to capital
funding is uncertain. We do not have committed external sources of funding, and we may not be able to obtain additional funds on
acceptable terms, or at all. In the quarter ended July 31, 2013, we implemented cost-containment initiatives through the restructuring
of our workforce and we could implement other cost-containment initiatives in the future. Such cost-containment initiatives could
result in a temporary lack of focus and reduced productivity amongst our work force which could adversely impact our prospects
for product sales and profitability. We might also need to sell or license our technologies on terms that are not favorable to
us, which could also adversely affect our prospects for profitability. Our inability to raise additional capital on terms reasonably
acceptable to us would seriously jeopardize the future success of our business.
If we raise funds
by issuing and selling securities, it may be on terms that are not favorable to our existing stockholders. If we raise additional
funds by selling equity securities, our current stockholders will be diluted, and new investors could have rights superior to our
existing stockholders. If we raise funds by selling debt securities, we could be subject to restrictive covenants and significant
repayment obligations.
We may have to substantially increase
our working capital requirements in the event of DRAM allocations.
Over the past 20
years, availability of DRAMs has swung back and forth from oversupply to shortage. In times of shortage, we have been forced to
invest substantial working capital resources in building and maintaining inventory. At such times we have bought DRAMs in excess
of our customers' needs in order to ensure future allocations from DRAM manufacturers. In the event of a shortage, we may not be
able to obtain sufficient DRAMs to meet customers' needs in the short term, and we may have to invest substantial working capital
resources in order to meet long-term customer needs.
We could suffer additional losses
if DRAM prices continue to decline.
We are at times
required to maintain substantial inventories during periods of shortage and allocation. Thereafter, during periods of increasing
availability of DRAMs and rapidly declining prices, we have been forced to write down inventory. There can be no assurance that
we will not suffer losses in the future based upon high inventories and declining DRAM prices.
Our sales, revenues and results of
operations could fluctuate from quarter to quarter.
Our revenues and
ultimate results of operation may vary for a variety of reasons. Such reasons could include, for example, changes in general economic
conditions or consumer demand, the introduction of new products by us or by our competitors, a significant purchase or sale of
assets or other business combination or an unanticipated event affecting us or our industry, among other factors. Such variability
in operating results may affect credit terms offered to us, makes prediction of revenues for each financial period difficult and
increases the risk of unanticipated variations in quarterly results and financial condition.
In order to compete and succeed,
we need to introduce, and continue to provide, products that provide value for customers.
Our future success
is dependent on the development of new markets wherever possible, and new applications and new products which customers believe
will add value, as well as the continued demand for our products among our existing customers. Our ability to develop, qualify
and distribute new products and related technologies to meet evolving industry requirements, at prices acceptable to our customers
and on a timely basis are significant factors in determining our competitiveness in our target markets. There can be no assurance
that the Company will be able to exploit new markets or continue to develop products that achieve wide customer acceptance in the
marketplace, or that demand for existing products will continue.
The Company’s business is subject
to the risks of international procurement which could have an adverse effect on the Company’s financial results.
A significant portion
of the Company’s raw materials and finished goods are purchased from foreign manufacturers. As a result, the Company’s
international procurement operations are subject to the risks associated with such activities including, economic and labor conditions,
international trade regulations (including tariffs and anti-dumping penalties), war, international terrorism, civil disobedience,
natural disasters, political instability, governmental activities and deprivation of contract and property rights. In addition,
periods of international unrest may impede our ability to procure goods from other countries and could have a material adverse
effect on our business and results of operations. An interruption in supply and resulting higher costs, could have an adverse effect
on the Company’s financial results.
We may not successfully implement
our strategic plans.
The Company presently
has plans to expand its sales of memory and RAMDisk products, to develop new business opportunities based on its existing expertise
and software, to continue to seek and evaluate possible strategic alliances to enhance its sales, and to develop and monetize additional
intellectual property. These plans, however, are subject to modification or replacement by management if it decides that economic,
industry, technological, regulatory or other factors warrant a change. In addition, there can be no assurance that the Company
will successfully implement all such plans or that circumstances in the marketplace and the economy will allow the implementation
of such plans.
If we fail to achieve and maintain
favorable pricing and credit terms from our vendors, our business would be harmed and our operating results would be adversely
affected.
Our costs are affected
by our ability to achieve favorable pricing and credit terms from our vendors and contract manufacturers, including through negotiations
for vendor rebates and other vendor funding received in the normal course of business. Because these supplier negotiations are
continuous and reflect the ongoing competitive environment, the variability in terms can negatively affect our costs and operating
results if we cannot sufficiently adjust pricing or cost variables.
In order to compete, we must attract,
retain, and motivate key employees, and our failure to do so could harm our results of operations.
In order to compete,
we must attract, retain, and motivate executives and other key employees. Hiring and retaining qualified executives, engineers,
technical staff, and sales representatives are critical to our business, and competition for experienced employees in our industry
can be intense. We also do not have an equity compensation plan applicable to executive officers. If we continue to suffer losses
or do not implement an equity compensation plan for executive officers, our ability to attract, retain, and motivate executives
and employees could be weakened, which could harm our results of operations.
We may not be able to adequately
protect our intellectual property rights.
We rely on copyright,
trademark, patent and trade secret laws, confidentiality procedures, controls and contractual commitments to protect our intellectual
property rights. Despite our efforts, these protections may be limited. Unauthorized third parties may try to copy or reverse engineer
portions of our products or otherwise obtain and use our intellectual property. Any patents owned by us may be invalidated, circumvented
or challenged. Any of our pending or future patent applications, whether or not being currently challenged, may not be issued with
the scope of the claims we seek, if at all. In addition, the laws of some countries do not provide the same level of protection
of our intellectual property rights as do the laws and courts of the United States. If we cannot protect our intellectual property
rights against unauthorized copying or use, or other misappropriation, we may not remain competitive.
Our products may violate third party
intellectual property rights.
Certain of our products
are designed to be used with proprietary computer systems built by various OEM manufacturers. We often have to comply with the
OEM's proprietary designs which may be patented, now or at some time in the future. OEMs have, at times, claimed that we have violated
their patent rights by adapting our products to meet the requirements of their systems. It is our policy to, in unclear cases,
either obtain an opinion of patent counsel prior to marketing, or obtain a license from the patent holder. We are presently licensed
by Sun Microsystems and Silicon Graphics to sell memory products for certain of their products. However, there can be no assurance
that product designs will not be created in the future which will, in fact, be patented and which patent holders will require the
payment of substantial royalties as a condition for our continued presence in the segment of the market covered by the patent or
they may not give us a license. Nor can there be any assurance that our existing products do not violate one or more existing patents.
We may lose an important customer.
During the fiscal
year ended April 30, 2013, the largest ten customers accounted for approximately 40% of the Company's revenues and one customer
accounted for approximately 9% of the Company's revenues. There can be no assurance that one or more of these customers will not
cease or materially decrease their business with the Company in the future and that our financial performance will not be adversely
affected thereby.
Sales directly to OEM's and contract
manufacturers can make our revenues, earnings, backlog and inventory levels uneven.
Revenue and earnings
from OEM sales may become uneven as order sizes are typically large and often a completed order cannot be shipped until released
by the OEM, e.g., to meet a “just in time” inventory requirement. This may occur at or near the end of an accounting
period. In such case, revenues and earnings could decline for the period and inventory and backlog could increase.
We face competition from OEMS.
In the compatibles
market we sell our products at a lower price than OEMs. Customers will often pay some premium for the “name brand”
product when buying additional memory and OEMs seek to exploit this tendency by having a high profit margin on memory products.
However, individual OEMs can change their policy and price memory products competitively. While we believe that with our manufacturing
efficiency and low overhead we still would be able to compete favorably with OEMs, in such an event profit margins and earnings
would be adversely affected. Also, OEMs could choose to use “free memory” as a promotional device in which case our
ability to compete would be severely impaired.
We face competition from DRAM manufacturers.
DRAM manufacturers
not only sell their product as discrete devices, but also as finished memory modules. They primarily sell these modules directly
to OEMs and large distributors and as such compete with us. There can be no assurance that DRAM manufacturers will not expand their
market and customer base, and our profit margins and earnings could be adversely affected.
The market for our products may narrow
over time.
The principal market
for our memory products consists of the manufacturers, buyers and owners of workstations and enterprise servers, classes of machines
lying between large mainframe computers and personal computers. Personal computers are increasing in their power and sophistication
and, as a result, are now filling some of the computational needs traditionally filled by workstations. The competition for the
supply of after-market memory products in the PC industry is very competitive and to the extent we compete in this market we can
be expected to have lower profit margins. There can be no assurance that this trend will not continue in the future, and that our
financial performance will not be adversely affected.
A portion of our operations is designed
to meet the needs of the very competitive Intel and AMD processor-based motherboard market.
In addition to selling
server memory systems, we develop, manufacture and market a variety of memory products for motherboards that are Intel or AMD processor
based. Many of these products are sold to OEMs and incorporated into computers and other equipment. This is an intensely competitive
market with high volumes but lower margins.
Delays in product development schedules
may adversely affect our revenues.
The development
of software products is a complex and time-consuming process. New products and enhancements to existing products can require long
development and testing periods. Our increasing focus on software plus services also presents new and complex development issues.
Significant delays in new product or service releases or significant problems in creating new products or services could adversely
affect our revenue.
Any claim that our products are defective
could harm our business.
We undertake to
produce consistently high-quality products, free of defects and errors. Nevertheless, it is possible that our products may contain
errors or defects. Our products are complex and must meet stringent user requirements, and we have consistently provided a lifetime
warranty for our products. Any customer claims of errors or defects could result in increased expenditures for product testing,
or increase our service costs and potentially lead to increased warranty claims. Errors or defects in our products may be caused
by, among other things, errors or defects in the memory or controller components, including components we procure from third parties.
These factors could result in the rejection of our products, product recalls, and damage to our reputation, lost revenues, diverted
development resources, increased customer service and support costs, warranty claims and litigation. We record an allowance for
warranty and similar costs in connection with sales of our products, but actual warranty and similar costs may be significantly
higher than our recorded estimate and harm our operating results and financial condition.
Moreover, despite
testing prior to its release, our software products may contain errors, especially when first introduced or when new versions are
released. The detection and correction of any errors can be time consuming and costly. Errors in our software products could affect
the ability of our products to work with other software or hardware products, could delay the development or release of new products
or new versions of products and could adversely affect market acceptance of our products. If we experience errors or delays in
releasing our new software or new versions of our software products, we could lose revenues. End users, who rely on our software
products and services for applications that are critical to their businesses, may have a greater sensitivity to product errors
than customers for software products generally. Errors in our software products or services could expose us to product liability,
performance and/or warranty claims as well as harm our reputation, which could impact our future sales of products and services.
We may make unprofitable acquisitions.
The Company is actively
looking at acquiring complementary products and related intellectual property. The possibility exists that an acquisition will
be made at some time in the future. Uncertainty surrounds all acquisitions and it is possible that a particular acquisition may
not result in a benefit to shareholders, particularly in the short-term. In addition, there can be no assurance that the business
of MMB acquired by the Company will remain a profitable operating unit of the Company or that savings from having a larger consolidated
business operation will continue.
The investments we make in research
and development may not lead to profitable new products.
The Company has
implemented a strategy to introduce new and complementary products into its offerings portfolio, and expects to spend substantial
sums of money on research and development of such possible new products. Specifically, the Company has made considerable investments
in research and development of the RAMDisk product line. We will also continue to invest in new software and hardware products,
services, and technologies. Investments in new technology are speculative. Commercial success depends on many factors, including
innovativeness, developer support, and effective distribution and marketing. If customers do not perceive our latest offerings
as providing significant new functionality or other value, they may reduce their purchases of our products, unfavorably impacting
revenue. There can be no assurance that these research and development expenditures will result in the identification or exploitation
of any products that can be profitably sold by the Company.
We may be adversely affected by exchange
rate fluctuations.
A portion of our
accounts receivable and a portion of our expenses are denominated in foreign currencies. These proportions change over time. As
a result, the Company's revenues and expenses may be adversely affected, from time to time, by changes in the relationship of the
dollar to various foreign currencies on foreign exchange markets. Currently, the Company does not hedge its foreign currency risks,
but could do so in the future.
We may incur intangible asset and
goodwill impairment charges which could harm our profitability.
We periodically
review the carrying values of our intangible assets and goodwill to determine whether such carrying values exceed the fair market
value. Our goodwill is subject to an annual review for goodwill impairment. If impairment testing indicates that the carrying value
exceeds its fair value, the intangible assets or goodwill is deemed impaired. For example, in the fiscal quarter ended January 31,
2012, the Company took an impairment charge of $2,387,000 on capitalized software development costs that were written down to zero.
Accordingly, an impairment charge was recognized in the period identified, which reduced our profitability.
In the fiscal year
ended April 30, 2013, the goodwill associated with the MMB acquisition was deemed to be impaired. Therefore, we recorded a charge
to earnings and a reduction of the intangible asset in the amount of $438,000.
The market price for our common stock
has experienced significant price and volume volatility and may continue to experience significant volatility in the future.
Our stock has experienced
significant price and volume volatility for the past several years, and is likely to experience significant volatility in the future,
which could result in investors losing all or part of their investments. We believe that such fluctuations will continue as a result
of many factors, including financing plans, future announcements concerning us, our competitors or our principal customers regarding
financial results or expectations, technological innovations, industry supply and demand dynamics, new product introductions, governmental
regulations, the commencement or results of litigation or changes in earnings estimates by analysts, as well as a result of numerous
factors outside our control. Significant declines in our stock price may interfere with our ability to raise additional funds through
equity financing or to finance strategic transactions with our stock. A significant adverse change in the market value of our common
stock could also trigger an interim goodwill impairment test that may result in a non-cash impairment charge. In addition, we have
historically used equity incentive compensation as part of our overall compensation arrangements. The effectiveness of equity incentive
compensation in retaining key employees may be adversely impacted by volatility in our stock price.
Our stock has limited liquidity.
Although our stock
is publicly traded, it has been observed that this market is “thin.” As a result, the common stock may trade at a discount
to what would be its value if the stock enjoyed greater liquidity.
We do not intend to pay dividends
in the foreseeable future.
We have rarely declared
or paid any dividends on our common stock. We anticipate that we will retain any future earnings to support operations and to finance
the development of our business and do not expect to pay cash dividends in the foreseeable future. As a result, the success of
an investment in our common stock will depend entirely upon any future appreciation in its value. There is no guarantee that our
common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.
We are subject to the New Jersey
Shareholders Protection Act.
This statute has
the effect of prohibiting any “business combination” - a very broadly defined term - with any “interested shareholder”
unless the transaction is approved by the Board of Directors at a time before the interested shareholder had acquired a 10% ownership
interest. This prohibition of “business combinations” is for five years after the shareholder became an “interested
shareholder” and continues after that time period subject to certain exceptions. A practical consequence of this statute
is that a hostile acquisition of our Company is unlikely to occur and hostile transactions which might be of benefit to our shareholders
are unlikely to occur.
We are a party to a litigation that
could cause us to incur substantial cost and/or pay substantial damages.
The landlord for
the property previously leased by the Company in Ivyland, Pennsylvania filed suit against the Company, which vacated the property
at the expiration of its lease, for the Company’s alleged failure to restore the property to its original condition. The
landlord is currently in possession of a security deposit in the amount of $52,000. The Company denies its liability for the restoration
of the property and believes that the outcome cannot be determined at this time.
On July 30, 2013,
the District Court Judge issued an order against the Company in favor of the landlord Ivyland Ventures, LLC. Based on the language
of the lease agreement, the Court, without making any factual findings on the extent of the Company’s liability, ruled that
the Company is required to remove and restore the premises to condition that existed as of January 11, 2006 or pay the cost of
removal and restoration of improvements made during its entire occupation. Dates have been set for discovery with a trial tentatively
scheduled for the Fall/Winter of 2014. The Company believes that the claims of the landlord are without merit and intends to vigorously
defend this action. However, no assurance can be given that any amounts ultimately due by the Company will not have a material
impact on the Company’s financial condition.
Adverse global economic conditions
and instability in financial markets may harm our business and adversely affect our operating results.
Adverse or worsening
economic conditions or the instability of financial markets in the United States, Europe, Asia or other parts of the world have
a negative effect on our business. When there are such adverse conditions or instability, many of our direct and indirect customers
may delay or reduce their purchases of our products and systems containing our products. In addition, several of our customers
rely on credit financing in order to purchase our products. If the negative conditions in the global credit markets prevent our
customers' access to credit or render them insolvent, orders for our products may decrease, which would result in lower revenue.
Likewise, if our suppliers face challenges in obtaining credit, in selling their products, or otherwise in operating their businesses
or remaining solvent, they may become unable to offer the materials we use to manufacture our products. We believe we have obtained
adequate available insurance to address the business which can be insured against with respect to our business. However, these
events could result in reductions in our revenue, increased price competition, and increased operating costs, which could adversely
affect our business, financial condition, results of operations, and cash flows.
Government regulations may have a
negative effect on our business.
Government regulators,
or our customers, may in the future require us to comply with product or manufacturing standards that are more restrictive than
current laws and regulations related to environmental matters, conflict minerals or other social responsibility initiatives. The
implementation of these standards could affect the sourcing, cost and availability of materials used in the manufacture of our
products. For example, there may be only a limited number of suppliers offering “conflict free” metals used in our
products, and there can be no assurance that we will be able to obtain such metals in sufficient quantities or at competitive prices.
Also, we may face challenges with regulators and our customers and suppliers if we are unable to sufficiently verify that the metals
used in our products are conflict free. Non-compliance with these standards could cause us to lose sales to these customers and
compliance with these standards could increase our costs, which may harm our operating results.
Changes to financial accounting standards
may affect our results of operations and cause us to change our business practices.
We prepare our financial
statements to conform to U.S. Generally Accepted Accounting Principles (“GAAP”). These accounting principles are subject
to interpretation by the American Institute of Certified Public Accountants, the SEC, and various bodies formed to interpret and
create appropriate accounting policies. A change in those policies can have a significant effect on our consolidated reported results
and may affect our reporting of transactions completed before a change in accounting principles is announced. Changes to those
rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.
We may suffer a breach of our computer
security measures, which could harm our business.
If our security
measures are breached and unauthorized access is obtained to our information technology systems, we may lose proprietary data or
suffer damage to our business. Our security measures may be breached as a result of third-party action, including computer hackers,
employee error, malfeasance or otherwise, and result in unauthorized access to our customers’ data or our data, including
our intellectual property and other confidential business information, or our information technology systems. Because the techniques
used to obtain unauthorized access, or to sabotage systems, change frequently, we may be unable to anticipate these techniques
or to implement adequate preventative measures. We believe we have obtained adequate available insurance to address the business
which can be insured against with respect to our business. However, any security breach could result in disclosure of our trade
secrets or confidential customer, supplier or employee data, or harm our ability to carry on our business, all of which could result
in legal liability, harm to our reputation and otherwise harm our business.
Armed hostilities, terrorism, natural
disasters, property damage, public health or other issues could harm our business.
Armed hostilities,
terrorism, natural disasters, damage to property (through fire, flood, or other similar occurrence), telecommunications or transportation/shipping
interruptions, epidemic or public health issues, whether in the U.S. or abroad, could cause damage or disruption to us, our facilities
and infrastructure, our suppliers, or our customers, or could create political or economic instability, any of which could harm
our business. These events could cause a decrease in demand for our products, could make it difficult or impossible for us to deliver
products or for our suppliers to deliver components, and could create delays and inefficiencies in our supply chain. We believe
we have obtained adequate available insurance to address the business which can be insured against with respect to our business,
but there can be no assurance that our insurance will cover such risks or would adequately remediate any harm to us from any such
event.
The severe flooding
in Thailand which occurred during the fiscal year ended April 30, 2012 caused damage to infrastructure and factories that
resulted in a shutdown for several months of hard drive manufacturing which has resulted in shortages and price increases and has
otherwise adversely affected our operations. If we are unsuccessful in our continuing efforts to minimize the impact of this event
(or of any future event) on our customers and operations, our business and financial results could decline.
