-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FVjrQbLSjGqwdZgL4ZRMMTHrxnhfVto3oGGjmUFFKrgw7tr3yRHZ0JEAveC4vxG4 ZBvV8U69agf4nnlce1sEVQ== 0000910680-04-001192.txt : 20041115 0000910680-04-001192.hdr.sgml : 20041115 20041115162013 ACCESSION NUMBER: 0000910680-04-001192 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041115 DATE AS OF CHANGE: 20041115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAMP CORP CENTRAL INDEX KEY: 0000890784 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 841123311 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15805 FILM NUMBER: 041145519 BUSINESS ADDRESS: STREET 1: 33 MAIDEN LANE CITY: NEW YORK STATE: NY ZIP: 10038 BUSINESS PHONE: 212-440-1500 MAIL ADDRESS: STREET 1: 33 MAIDEN LANE CITY: NEW YORK STATE: NY ZIP: 10038 FORMER COMPANY: FORMER CONFORMED NAME: MEDIX RESOURCES INC DATE OF NAME CHANGE: 19980218 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL NURSING SERVICES INC DATE OF NAME CHANGE: 19940719 10-Q 1 f10q-9302004.txt SEPTEMBER 30, 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ______________ Commission File Number: 024768 ------ Ramp Corporation ---------------- (Exact name of issuer as specified in its charter) Delaware 84-123311 - ------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 33 Maiden Lane, New York, New York 10038 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 440-1500 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of November 3, 2004. Common Stock, $0.001 par value 283,191,587 - ------------------------------ ---------------- Class Number of Shares Ramp Corporation INDEX ----- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2004 (Unaudited) and December 31, 2003 Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2004 and 2003 Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 Notes to Unaudited Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 6. Exhibits Signatures Index to Exhibits PART I Item 1. Financial Statements
Ramp Corporation (formerly Medix Resources, Inc.) Consolidated Balance Sheets September 30, December 31, 2004 2003 -------------------------------- (Unaudited) Assets Current assets Cash $ 386,000 $ 1,806,000 Accounts receivable 304,000 182,000 Unamortized debt issuance costs 251,000 -- Prepaid expenses and other 161,000 321,000 ----------------------------------- Total current assets 1,102,000 2,309,000 ----------------------------------- Non-current assets Property and equipment, net 730,000 731,000 Security deposits 254,000 398,000 Goodwill 1,605,000 4,853,000 Other intangible assets, net 52,000 1,382,000 ----------------------------------- Total non-current assets 2,641,000 7,364,000 ----------------------------------- Total assets $ 3,743,000 $ 9,673,000 =================================== Liabilities and Stockholders' Equity (Deficit) Current liabilities Convertible promissory notes net of debt discount of $910,000 $ 5,210,000 $ -- Promissory notes and current portion of long term debt 153,000 232,000 Accounts payable 2,545,000 847,000 Accounts payable - related parties -- 261,000 Accrued expenses 4,363,000 2,067,000 Deferred revenue 143,000 -- ----------------------------------- Total current liabilities 12,414,000 3,407,000 ----------------------------------- Long-term debt, net of current portion and debt discount of $143,000 and $169,000 57,000 269,000 Commitments and contingencies Stockholders' equity (deficit) 1996 Preferred stock, 10% cumulative convertible, $1 par value, 488 shares authorized, 155 shares issued, 1 share outstanding, liquidation preference $10,000 plus accrued and unpaid dividends -- -- 2003 Series A convertible stock, $1 par value, 3,200 shares authorized, 3,112 shares issued and outstanding at December 31, 2003 -- 3,000 Common stock, $0.001 par value, 400,000,000 shares authorized, 239,398,443 and 145,244,392 issued and outstanding at September 30, 2004 and December 31, 2003, respectively 239,000 145,000 Deferred compensation (246,000) (86,000) Additional paid-in capital 98,465,000 78,303,000 Accumulated deficit (107,186,000) (72,368,000) ----------------------------------- Total stockholders' equity (deficit) (8,728,000) 5,997,000 ----------------------------------- $ 3,743,000 $ 9,673,000 =================================== See notes to unaudited consolidated financial statements.
Ramp Corporation (formerly Medix Resources, Inc.) Unaudited Consolidated Statements of Operations For the Three Months For the Nine Months Ended September 30, Ended September 30, ------------------------------------------------------------------ 2004 2003 2004 2003 ------------------------------------------------------------------ Revenues $ 94,000 $ 1,000 $ 194,000 $ 174,000 Costs and expenses Software and technology costs 1,850,000 789,000 4,884,000 1,980,000 Selling, general and administrative expenses 5,410,000 4,134,000 16,909,000 7,899,000 Costs associated with terminated acquisition -- -- -- 142,000 ------------------------------------------------------------------ Total operating expenses 7,260,000 4,923,000 21,793,000 10,021,000 ------------------------------------------------------------------ Other income (expense) Other income 5,000 24,000 8,000 42,000 Interest expense (74,000) (162,000) (87,000) (171,000) Financing costs (8,520,000) (364,000) (9,046,000) (499,000) ------------------------------------------------------------------ Total other income (expense) (8,589,000) (502,000) (9,125,000) (628,000) ------------------------------------------------------------------ Loss from continuing operations (15,755,000) (5,424,000) (30,724,000) (10,475,000) ------------------------------------------------------------------ Loss from discontinued operations (29,000) -- (174,000) -- Loss on sale of discontinued operations (3,920,000) -- (3,920,000) -- ------------------------------------------------------------------ Loss from discontinued operations (3,949,000) 0 (4,094,000) 0 ------------------------------------------------------------------ Net loss (19,704,000) (5,424,000) (34,818,000) (10,475,000) ------------------------------------------------------------------ Disproportionate deemed dividend issued to certain warrant holders (149,000) (113,000) (990,000) (1,246,000) ------------------------------------------------------------------ Net loss applicable to common stockholders $(19,853,000) $ (5,537,000) $(35,808,000) $(11,721,000) ================================================================== Net loss per share basic and diluted: Loss from continuing operations applicable to common stockholders ($0.08) ($0.06) ($0.18) ($0.14) Discontinued operations (0.02) 0.00 (0.02) 0.00 ------------------------------------------------------------------ Net loss applicable to common stockholders ($0.10) ($0.06) ($0.20) ($0.14) ================================================================== Basic and diluted weighted average common shares outstanding 202,377,020 90,906,261 177,235,749 84,015,402 See notes to unaudited consolidated financial statements.
Ramp Corporation (formerly Medix Resources, Inc.) Unaudited Consolidated Statements of Cash Flows For the Nine Months Ended September 30, ----------------------------------- 2004 2003 ----------------------------------- Cash flows from operating activities Net loss $ (34,818,000) $ (10,475,000) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Loss on sale of discontinued operations 3,920,000 -- Depreciation and amortization 546,000 42,000 Impairment of long-lived assets 407,000 -- Amortization of deferred issuance costs 144,000 318,000 Common stock, options, warrants and promissory note issued for services, consulting and settlements 4,194,000 587,000 Common stock, warrants and promissory note issued for interest and other financing costs, non-cash portion 8,884,000 169,000 Net changes in operating assets and liabilities 4,119,000 1,784,000 ----------------------------------- Net cash used in operating activities (12,604,000) (7,575,000) ----------------------------------- Cash flows from investing activities: Net proceeds from sale of discontinued operations 449,000 -- Purchase of property and equipment (810,000) (93,000) Note receivable -- (67,000) Business acquisition costs, net of cash acquired -- (300,000) ----------------------------------- Net cash used in investing activities (361,000) (460,000) ----------------------------------- Cash flows from financing activities: Net proceeds from issuance of debt and notes payable 5,441,000 2,833,000 Principal payments on debt and notes payable (1,763,000) (89,000) Proceeds from issuance of preferred and common stock, net of offering costs 5,526,000 3,180,000 Proceeds from the exercise of options and warrants 2,341,000 773,000 ----------------------------------- Net cash provided by financing activities 11,545,000 6,697,000 ----------------------------------- Net decrease in cash (1,420,000) (1,338,000) Cash, beginning of period 1,806,000 1,369,000 ----------------------------------- Cash, end of period $ 386,000 $ 31,000 =================================== See Notes 8-10 and 12 for discussion of non-cash investing activities for the nine months ended September 30 2004. Non-cash financing activities for the nine months ended September 30, 2003: Issuance of 100,000 shares of $0.001 par value common stock valued at $48,000 along with cash of $300,000; the total being the purchase price of the ePhysician assets Issuance of warrants to placement agent valued at $215,000 in a private placement
See notes to unaudited consolidated financial statements. Ramp Corporation (formerly Medix Resources, Inc.) Notes to Unaudited Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods presented. They comply with Regulation S-X and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required under generally accepted accounting principles for complete financial statements. The consolidated balance sheet as of December 31, 2003 has been derived from the audited financial statements. The unaudited consolidated financial statements contained herein should be read in conjunction with the financial statements and notes thereto contained in the Company's Form 10-K for the fiscal year ended December 31, 2003. The results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2004 or for any other interim period in the fiscal year ending December 31, 2004. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced substantial recurring losses to date which raise substantial doubt about its ability to continue as a going concern. In addition, at September 30, 2004, the Company had a working capital deficit of $11,312,000. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management continues to pursue fund-raising activities, including private placements, to continue to fund the Company's operations until such time as revenues are sufficient to support operations. There can be no assurances that additional funds will be raised or that the Company will ever be profitable. 2. GOODWILL AND OTHER INTANGIBLE ASSETS, NET Total goodwill at September 30, 2004, includes $1,605,000 related to the balance of goodwill acquired through the acquisition of Cymedix in 1998. The Company has tested the goodwill in accordance with SFAS 142 and has found no indication of impairment. The Company anticipates recording additional goodwill in the fourth quarter of 2004 as the result of its acquisition of Berdy Medical Systems, Inc. on October 22, 2004 - see note 13, Subsequent Events. In connection with the Company's acquisitions of ePhysician in March 2003, the Company recorded certain other intangible assets. At September 30, 2004, the Company's other intangible assets, net, consisted of the following: Accumulated ----------- Cost Amortization Average useful lives ---- ------------ -------------------- Trade name and related marks $50,000 $ 40,000 2 years Customer-related intangibles 50,000 40,000 2 years Software and other technology 150,000 118,000 2 years ------- ------- Total $250,000 $198,000 -------- -------- Amortization expense for continuing operations during the three and nine months ended September 30, 2004 was $31,000 and $94,000, respectively. 3. DISCONTINUED OPERATIONS On September 30, 2004, the Company closed a transaction pursuant to a certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated as of September 29, 2004, by and between the Company, The Duncan Group, Inc. ("Duncan"), M. David Duncan (a former employee of the Company) and Nancy L. Duncan (a former Executive Vice President of the Company), to sell the assets of the Company previously acquired from Duncan on November 10, 2003 (including intellectual property, tangible personal property, accounts receivable, and other assets) related to the business of Duncan known as Frontline Physicians Exchange and Frontline Communications ("Frontline"). In accordance with the Asset Purchase Agreement, the Company agreed to sell all of the assets of the Company's Frontline division, now known as the OnRamp division, in consideration of (i) the Company's receipt of $500,000 in cash paid at closing; (ii) termination of the employment agreement between the Company and each of M. David Duncan and Nancy L. Duncan; (iii) release and discharge of the Company's obligations to Duncan under a certain Asset Purchase Agreement dated as of November 7, 2003, between the Company and Duncan (the "2003 Purchase Agreement"), to issue Incentive Shares (as defined in the Asset Purchase Agreement) to Duncan; (iv) release and discharge of the Company's obligations to Duncan under the 2003 Purchase Agreement to pay Duncan a royalty equal to 15% of the gross revenue of the OnRamp business during 2003 and 2004 (of which $326,000 was accrued and unpaid as of September 30, 2004); and (v) release and discharge of the Company's obligations under the 2003 Purchase Agreement to pay Duncan any shortfall amount following the sale of certain shares of the Company's common stock by Duncan. The sale of OnRamp results in a loss of approximately $3.9 million. Goodwill of $3,357,000 was removed from the balance sheet in the sale of OnRamp. Absent the sale of OnRamp during the third quarter, the Company would likely have written down goodwill and other intangible assets associated with its OnRamp operations in response to changing business conditions during the third quarter. Since the sale of OnRamp was in fact consummated during the third quarter, the entire impact of OnRamp's operations have been reclassified to discontinued operations in the Company's financial statements for the three and nine-month periods ended September 30, 2004. Revenues and loss from the discontinued OnRamp segment operations were as follows: Three Months Ended Nine Months Ended September 30, 2004 September 30, 2004 ----------------------------------------- Revenues $ 379,000 $ 1,081,000 Loss from discontinued operations (29,000) (174,000) 4. LIFERAMP FAMILY FINANCIAL, INC. In 2003, the Company formed a wholly-owned subsidiary, LifeRamp Family Financial, Inc. ("LifeRamp"), in Utah and commenced exploring the feasibility of using LifeRamp to commence a new business, making non-recourse loans to terminally ill cancer patients secured by their life insurance policies. In May 2004, the Company decided to proceed with the launch of LifeRamp and had previously retained Shattuck Hammond Partners as its investment banker and financial advisor in the structuring and capitalization of LifeRamp. During 2003 and for the first nine months of 2004, the Company invested approximately $1.1 million and $2.2 million in LifeRamp, respectively. In July 2004, the Company decided to indefinitely delay LifeRamp's continued development and commencement of operations until adequate funding is obtained or other strategic alternative measures could be implemented by the Company. In September 2004, the Company ceased all operations of LifeRamp and terminated the employment of the remaining employees and commenced vacating its office facilities in Texas and Utah. In connection with these lease abandonments, the Company recorded an accrual for expected losses on the leases equal to the present value of the remaining lease payments, net of reasonable sublease income, of approximately $73,000, which was recorded in the third quarter of 2004. In addition, the Company recorded an asset impairment charge of approximately $229,000 relating to the long-lived assets of LifeRamp (including fixed assets and leasehold improvements). The Company is continuing to explore strategic alternatives for the possible development of LifeRamp. There can be no assurance that the Company will find such a strategic alternative or that if one were found that the Company would be able to recoup a material portion of its investment in LifeRamp. 5. REDUCTION IN WORK FORCE In June and September 2004, the Company implemented a reduction in work force and salary reduction program, pursuant to which 73 employees were terminated and, with respect to the June 2004 reduction in work force, some of the remaining employees agreed to accept, during the six-month period ending November 30, 2004, in lieu of a portion of their base salaries, a retention bonus equal to an individually negotiated multiple of the amount of their reduction in pay in the form of shares of common stock, payable only if they remained employed with us on November 30, 2004. Included in operating expenses for the three and nine months ended September 30, 2004 are non cash expenses of $1.2 million and $1.5 million, respectively, that have been accrued and will be paid in shares of common stock. 6. EMPLOYMENT AND RETAINER AGREEMENTS On April 25, 2004, Darryl R. Cohen resigned as a director, Chairman and Chief Executive Officer and Andrew Brown, the Company's then current President, was appointed Chairman and Chief Executive Officer of the Company. In connection with Mr. Cohen's resignation, the Company recorded a compensation charge of approximately $15,000 related to accrued bonus and tax benefit on his restricted stock awards during the second quarter of 2004. Additionally, in the second quarter of 2004, the Company recorded a charge of approximately $400,000 with respect to the benefit Mr. Cohen received upon his termination as a result of the Company's having earlier accelerated the vesting of his stock-based awards, pursuant to a promissory note of the Company collateralized by the pledge of those shares. As a result of the terms of the agreement with Mr. Cohen, because the Company did not pay him the amounts due by August 30, 2004 the exercise price of all of his options to purchase 4,740,000 shares of common stock were reduced to $0.01. This modification resulted in a charge of $142,000 in the third quarter of 2004. As a result of the modification the Company will apply variable accounting to Mr. Cohen's options until they are exercised, cancelled or expire. On June 1, 2004, the Company entered into an employment agreement with Andrew Brown. During the employment period, which will end on June 30, 2006, Mr. Brown will be paid a base salary at an annual rate of $240,000 per year; provided that, during the six-month period ending November 30, 2004, Mr. Brown will be paid a base salary at the rate of $120,000 per year and receive a retention bonus of three times the amount of his reduction in pay payable in the form of shares of the Company's common stock, but only if he remains employed as Chief Executive Officer on November 30, 2004, is terminated before that date without "cause" or resigns before that date for "good reason". The employment agreement also provides for the payment of performance-based bonuses tied to the growth of the Company's gross revenues, the grant of up to 6,000,000 options under the 2004 Stock Incentive Plan, with an exercise price of $0.18 per share, and the issuance to Mr. Brown of a warrant whereby he will be entitled to purchase up to one-nineteenth of the outstanding shares, at an exercise price to be determined. The employment agreement also provides that in the event that Mr. Brown's employment is terminated for good reason within six months or his employment is terminated within one year without cause after any person or group acquires more than 25% of the combined voting power of the Company's then outstanding Common Stock, all of Mr. Brown's options will become fully vested and immediately exercisable and Mr. Brown will be paid an amount equal to twice his annual base salary and twice his bonus compensation received during the twelve months immediately preceding the date of termination of Mr. Brown's employment; provided that if the change in control resulted from the sale of the Company for less than $31 million, the payments to Mr. Brown will be in amounts as described above in this paragraph as if the word "twice" had been deleted. In June 2004, the Company entered into amendments of its employment agreements with Louis Hyman, Chief Technology Officer, and Mitchell M. Cohen, former Chief Financial Officer, which provide that in the event that Mr. Hyman's or Mr. Cohen's employment is terminated within one year without cause after any person or group acquires more than 25% of the combined voting power of the Company's then outstanding Common Stock, all of his options will become fully vested and immediately exercisable and he will be paid an amount equal to twice his annual base salary and twice his bonus compensation received during the twelve months immediately preceding the date of termination of his employment; provided that if the change in control resulted from the sale of the Company for less than $31 million, the payments to Mr. Hyman and/or Mr. Cohen will be in amounts as described above in this paragraph as if the word "twice" had been deleted. Effective on September 8, 2004, Mr. Cohen resigned his position as the Company's Chief Financial Officer and his employment agreement was terminated. On October 12, 2004, the Company entered into an employment agreement with Ronald C. Munkittrick, Chief Financial Officer. Mr. Munkittrick will be paid an annual base salary of $195,000 provided, however, that Mr. Munkittrick has agreed to a salary reduction to $120,000 per annum through December 31, 2004 and a salary reduction to $150,000 per annum from January 1, 2005 through March 31, 2005. The employment agreement also provides that in the event that Mr. Munkittrick's employment is terminated within one year without cause after any person or group acquires more than 25% of the combined voting power of the Company's then outstanding Common Stock, all of his options and/or restricted stock awards will become fully vested and immediately exercisable and he will be paid an amount equal to twice his annual base salary and twice his bonus compensation that he was entitled to receive during the twelve months immediately preceding the date of termination of his employment; provided that if the change in control resulted from the sale of the Company for less than $31 million, the payments to Mr. Munkittrick will be in amounts as described above in this paragraph as if the word "twice" had been deleted. On May 25, 2004, the Company entered into retainer agreements with Steven Berger and Jeffrey Stahl, M.D., two independent directors. Pursuant to these agreements, each independent director was granted a five-year option to purchase 200,000 shares of the Company's common stock at an exercise price of $0.19 per share, and will be paid a quarterly fee of $7,500 in arrears, except that in the case of Dr. Stahl the quarterly payments due on August 25, 2004 and November 25, 2004 were paid in advance in the form of 78,947 performance shares of common stock, which will vest as to 50% on each of such dates. The Company has arrangements with Anthony Soich and Steven Shorr whereby each has been awarded options and will be paid quarterly fees on substantially similar terms as Mr. Berger and Dr. Stahl. In connection with the sale of OnRamp on September 30, 2004, Nancy Duncan's two-year employment agreement with the Company which provided that Ms. Duncan will be compensated at an annual salary of $140,000 was terminated. In connection with the sale of OnRamp, the employment relationship with M. David Duncan, previously employed by the Company at an annual salary of $140,000, was also terminated. 7. PROMISSORY NOTES In May and June 2004 the Company issued an aggregate of $1,650,000 of promissory notes which bear interest at the prime rate plus 2%. The notes plus accrued interest were repaid on July 14, 2004 from the proceeds of the issuance of $4,200,000 of convertible promissory notes (see Note 8). In connection with investment advisory services, Richard Rosenblum and David Stefansky received an aggregate of 1,000,000 shares of the Company's unregistered common stock and 1,000,000 unregistered common stock purchase warrants at an exercise price of $0.18. The fair value of these issuances of $478,000 was recorded as debt issuance costs. 8. CONVERTIBLE PROMISSORY NOTES AND RELATED TRANSACTIONS On July 14, 2004, the Company entered into a Note and Warrant Purchase Agreement (the "Note Purchase Agreement") with Cottonwood Ltd. and Willow Bend Management Ltd., each an accredited investor. Under the terms of the Note Purchase Agreement, the Company issued a convertible promissory note due January 14, 2005 in the aggregate principal amount of $2,100,000 to each of Cottonwood Ltd. and Willow Bend Management Ltd. Each promissory note is convertible into shares of common stock at an initial conversion price of $0.30 cents per share, or 7,000,000 shares of common stock. In addition, the Company issued to each of Cottonwood Ltd. and Willow Bend Management Ltd. warrants exercisable into 4,683,823 shares of common stock at an exercise price of $0.11 cents per share, warrants exercisable into 4,683,823 shares of common stock at an exercise price of $0.15 cents per share, warrants exercisable into 4,683,823 shares of common stock at an exercise price of $0.35 cents per share and warrants exercisable into 4,683,823 shares of common stock at an exercise price of $0.40 cents per share. The warrants have a term of one year. The issuance of the warrants along with convertible debt created a debt discount of $1,580,000 which is being amortized to financing expense over the six month term of the notes. In October 2004, the Company and the noteholders entered into an agreement with respect to lowering the exercise price of the warrants to $0.0325 - see Note 13, Subsequent Events. Redwood Capital Partners, Inc. acted as the Company's placement agent in connection with the Note Purchase Agreement. As compensation to Redwood for its services as placement agent and in addition to payment in cash of $320,000 to Redwood, the Company agreed to issue to Redwood warrants exercisable into 350,000 shares of common stock exercisable at $0.11 cents per share for a one year term, warrants exercisable into 350,000 shares of common stock exercisable at $0.15 cents per share for a one year term, warrants exercisable into 350,000 shares of common stock exercisable at $0.35 cents per share for a one year term and warrants exercisable into 350,000 shares of common stock exercisable at $0.40 cents per share for a one year term. The placement agent fees paid in cash and warrants were recorded as additional deferred financing costs in the third quarter, and are being amortized over the maturity of the related notes or upon the notes' conversion, if such conversion occurs earlier. On July 14, 2004, the Company entered into a Letter Agreement (the "Letter Agreement") with Hilltop Services, Ltd. ("Hilltop") in connection with the anti-dilution provisions contained in that certain Common Stock and Warrant Purchase Agreement, dated March 4, 2004, between Hilltop and the Company (the "Hilltop Agreement"). Under the terms of the Letter Agreement and in consideration for the waiver by Hilltop of its anti-dilution rights, the Company issued to Hilltop an additional 24,130,435 shares of common stock, a convertible promissory note in the aggregate principal amount of $1,920,000 convertible into shares of the Company's common stock at a conversion price of $0.30 cents per share, or 6,400,000 shares of common stock, and warrants exercisable into 4,282,354 shares of common stock at an exercise price of $0.11 cents per share, warrants exercisable into 4,282,354 shares of common stock at an exercise price of $0.15 cents per share, warrants exercisable into 4,282,354 shares of common stock at an exercise price of $0.35 cents per share and warrants exercisable into 4,282,354 shares of common stock at an exercise price of $0.40 cents per share. The warrants have a term of one year. In October 2004, the Company and Hilltop entered into an agreement with respect to lowering the exercise price of the warrants to $0.0325 - see Note 13, Subsequent Events. In connection with the above issuance of the common stock and warrants under the Hilltop agreement, two placement agents received an aggregate of 1,720,360 shares of the Company's Common Stock. The issuance of the additional shares of common stock, the convertible promissory note and the warrants to Hilltop resulted in non cash financing costs of approximately $7.3 million which were recorded in the third quarter of 2004. In addition, on the condition that the Hilltop warrants issued in March 2004 with respect to all of the 2,173,913 shares of Common Stock underlying such warrant was exercised and the aggregate exercise price of $2,174 was received by the Company within three (3) days from the date thereof, the exercise price with respect to all of the shares of common stock underlying the original Hilltop warrant issued in March 2004 then being exercised was reduced from $.80 cents per share to $.001 cent per share. This repricing resulted in a deemed dividend of $118,000 which was recorded in the third quarter of 2004. 9. EQUITY TRANSACTIONS Stockholder Rights Plan On May 27, 2004 the Company adopted a stockholder rights plan (commonly known as a "poison pill") in order to deter possibly abusive tactics by a stockholder or group. The stockholder rights plan is set forth in a Rights Agreement dated May 27, 2004 between Ramp and Computershare Trust Company, Inc., as Rights Agent. The Rights Agreement provides for the distribution of one preferred share purchase right ("Right") on each share of Common Stock issued and outstanding as of the close of business on June 4, 2004. Initially the Rights will trade with the Common Stock and will not be represented by separate certificates. Each Right represents the right to purchase, for an exercise price of $40 per Right, one one-hundredth (1/100) share of Ramp Series B Participating Preferred Stock, par value $.001 per share, but will not be exercisable unless and until certain events occur. Option and Warrant Exercises During the three and nine months ended September 30, 2004, the Company received net proceeds of $51,000 and $2,341,000, respectively, from the exercise of stock options and warrants resulting in the issuance of 2,868,000 shares and 13,838,000 shares, respectively, of common stock. The exercise of warrants during the three months ended September 30, 2004 was the result of the modification of several warrants held by investors to induce them to exercise. In the comparable periods of 2003, the Company received proceeds of $50,000 and $773,000, respectively, from the exercise of stock options and warrants resulting in the issuance of 223,000 and 3,703,000 shares, respectively, of common stock. Company Purchase of Stock Options On April 14, 2004, Samuel H. Havens and David Friedensohn resigned as directors. In connection with the board members' resignations, their stock options were purchased by the Company and a related compensation charge of approximately $355,000 was recognized during the three months ended June 30, 2004. Contingent Warrants The Company has entered into an agreement with an unrelated third party for marketing services with the third party's sole compensation under the agreement limited to warrants to purchase shares of common stock of the Company. The third party pays all of its expenses. Issuance of the warrants is based on a formula related to the success of the third party in selling the services of the Company. No services have been sold to date and therefore no warrants have been issued under this agreement. If, as and when the third party is entitled to receive such warrants the warrants to purchase the first 2,000,000 shares of common stock shall be exercisable at $0.57 per share and shall expire on February 6, 2008. Warrants to purchase shares in excess of 2,000,000 shall have terms identical to the first warrants but have an exercise price equal to the closing price of the Company's common stock on the day preceding the day of issuance of the warrants. Warrant Modifications and Other Related Transactions During the first nine months of 2004, the Company modified certain warrants previously issued in connection with its Series C Preferred and other financing transactions. Warrants to exercise a total of approximately 400,000 shares were modified to extend the periods in which they could be exercised. Additionally, of this group of warrants, those representing approximately 8,783,266 shares were modified to reduce their exercise prices from a range of $0.82 to $0.30, to a new exercise price range of $0.40 to $0.001. These modifications were primarily made to increase the likelihood of the holders exercising such warrants. The Company has applied the modification principles in SFAS 123, using the Black-Scholes model to determine the value of these changes in warrants which resulted in recording deemed dividends totaling $149,000 and $654,000 for the three and nine months ended September 30, 2004, respectively. In connection with a settlement agreement with an existing investor, the Company issued approximately 1.3 million shares to this investor during the second quarter of 2004. The Company accounted for this as a disproportionate deemed dividend in the amount of $336,000 which increased the net loss applicable to common shareholders and basic and diluted net loss per share for the nine month period ended September 30, 2004. Private Placements In March 2004, the Company sold 10,869,565 shares of common stock to Hilltop at a purchase price of $0.46 per share, raising proceeds of $4,751,000, net of $249,000 in offering costs. In connection with the private placement, Hilltop also received a five-year warrant to purchase 2,173,913 shares of common stock at an exercise price of $0.80 per share. The Company also issued a five-year warrant to purchase 173,912 shares of common stock at $0.80 per share to a finder and five-year warrants to purchase an aggregate of 831,391 shares of our common stock at $0.80 per share to the placement agent and its affiliates for its services in the placement. In addition, finders and placement agents received an aggregate of 407,000 shares of the Company's common stock. The fair value of warrants and common stock issued to finders and placement agents was approximately $520,000. The investor has an anti-dilutive feature in the event the Company raises funds at a price of less than $0.46 per share (see Note 8 for discussion of events occurring in July 2004 regarding the issuance of additional shares of Common Stock, convertible promissory note, and warrants relating to this anti-dilutive feature, as well as the reduction in the exercise price of the warrant described above). Also, during the quarter ended March 31, 2004, the Company completed a private placement of its common stock and raised net proceeds of $763,000. A total of 191,250 units were placed, each consisting of ten shares of common stock and two warrants. Subscribers purchased each unit for $4.00 and are entitled to exercise warrant rights to purchase one share of common stock at a purchase price of $0.60 per share for a five-year period commencing on or after July 1, 2004 and terminating on June 30, 2009. 10. STOCK OPTIONS During the third quarter of 2004, the Company issued to employees and directors options to purchase 560,000 shares of common stock at exercise prices ranging from $0.11 to $0.17. Such options were granted under the Company's 2003 Stock Incentive Plan. The weighted-average estimated grant date fair value, as defined by SFAS No. 123, Stock-Based Compensation, of options granted in the third quarter of 2004, was $0.11. The Company used the Black-Scholes option-pricing model to estimate the options' fair value by considering the following assumptions: the options exercise price and expected life, the underlying current market price of the stock and expected volatility, expected dividends and the risk free interest rate corresponding to the term of the option. The Company has adopted the disclosure-only provisions of SFAS No. 123 and continues to apply the accounting principles prescribed by APB No. 25 to its employee stock-based compensation awards. Had compensation cost for the Company's options issued to such employee been determined based on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123, as amended by SFAS No. 148, the Company's net loss and basic loss per common share would have been changed to the pro forma amounts indicated below:
-------------------------------------------------------------------------------- For the Three Months For the Nine Months -------------------------------------------------------------------------------- Ended September 30, Ended September 30, -------------------------------------------------------------------------------- 2004 2003 2004 2003 Net loss applicable to common ($19,853,000) ($5,537,000) ($35,808,000) ($11,721,000) stockholders - as reported Add back: Employee stock 41,000 -- 81,000 -- compensation expense as reported Less: fair value of employee stock (157,000) (66,000) (551,000) (61,000) compensation expense Net loss applicable to common ($19,969,000) ($5,603,000) ($36,278,000) ($11,782,000) stockholders - pro forma Basic and diluted loss per common ($0.10) ($0.06) ($0.20) ($0.14) share - as reported Basic and diluted loss per common ($0.10) ($0.06) ($0.20) ($0.14) share - pro forma
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: --------------------------- For the Nine Months Ended September 30, --------------------------- 2004 2003 ---- ---- Approximate risk free rate 3.69% 2.25% Average expected life 5 years 5 years Dividend yield 0% 0% Volatility 118% 118% 11. RELATED PARTY TRANSACTIONS Until his appointment as the Company's President and Chief Operating Officer in October 2003, Andrew Brown was employed by External Affairs, Inc. In August 2003, the Company entered into a consulting agreement with External Affairs for a term which ended June 30, 2004, under which External Affairs agreed to act as the Company's investor relations and strategy consultant and assist the Company with capital raising efforts. The agreement provided for payments to External Affairs of $328,000, with a discretionary bonus of potentially up to $275,000 based upon the Company attaining a specified level of revenue during the term of the agreement. On October 10, 2003, Mr. Brown was appointed as the Company's President and Chief Operating Officer, and Mr. Brown, External Affairs and the Company agreed to reduce the compensation payable to External Affairs under the August 2003 Consulting Agreement to $20,000 per month, with the remainder payable as employee compensation to Mr. Brown as President and Chief Operating Officer. External Affairs was granted 500,000 restricted shares of the Company's common stock in July 2003. Pursuant to the agreement, External Affairs also received a five-year option to purchase an aggregate 1,500,000 shares of the Company's common stock at $0.25 per share, of which (i) options to purchase 500,000 shares vest in 25% increments every three months beginning September 9, 2003 conditioned on Mr. Brown continuing to render services to the Company at the end of each three-month period, and (ii) options to purchase 1 million shares which will vest on July 9, 2008, subject to earlier vesting in June 2004 based upon a formula contained in the agreement. The agreement is terminable by either the Company or External Affairs for any reason on ninety days prior written notice, subject to certain offset rights in the event of termination by External Affairs for other than "good reason". External Affairs transferred all of its options and restricted shares to Mr. Brown effective October 10, 2003. In November 2003, all of these options and restricted shares became fully vested in return for Mr. Brown collateralizing a promissory note. During 2003 and the first six months of 2004, the Company paid $310,000 and $102,000, respectively, to External Affairs in consulting fees. On October 12, 2004, the Board of Directors of the Company appointed Ronald Munkittrick as Chief Financial Officer replacing Mitchell Cohen who resigned in September, 2004. Prior to the appointment, Mr. Munkittrick worked as a consultant to the Company's HealthRamp division beginning in June 2004. In exchange for his consulting services, Mr. Munkittrick was paid a total of approximately $56,000 and received warrants to purchase 75,000 shares of the Company's common stock an exercise price of $ 0.25 per share. 12. COMMITMENTS AND CONTINGENCIES From time to time, the Company is involved in claims and litigation that arise out of the normal course of business. Currently, other than as discussed below, there are no pending matters that in management's judgment are expected to have a material impact on the Company's financial statements. On June 3, 2003 two former executive officers, John Prufeta and Patricia Minicucci commenced an action against the Company by filing a Complaint in the Supreme Court of the State of New York for Nassau County (Index No. 03-008576) in which they alleged that the Company breached separation agreements entered into in December 2002 with each of them, and that the Company failed to repay amounts loaned by Mr. Prufeta to the Company. Mr. Prufeta sought approximately $395,000 (including a loan of $120,000) and Ms. Minicucci sought approximately $222,000. The Complaint was served on July 23, 2003. On July 15, 2003, the Company paid in full the $120,000 so loaned together with interest, without admitting the claimed default. On February 2, 2004, the Supreme Court of the State of New York for Nassau County issued an order for partial summary judgment in favor of Ms. Minicucci for the unpaid severance obligations of $138,064. The Company made severance payments to both former executives through May 2004 but due to capital constraints has not made any payments since then. The Company is continuing negotiations with the plaintiffs to settle the dispute amicably. The amounts payable to Mr. Prufeta and Ms. Minicucci are included in accrued expenses in the accompanying balance sheet as of September 30, 2004. In February 2004 the Company relocated its executive offices (under a sublease that expires on June 29, 2008) to 33 Maiden Lane, New York, New York. By stipulation the Company has surrendered the premises located at 410 Lexington Avenue. In connection with this lease abandonment, the Company recorded an accrual for expected losses on the lease equal to the present value of the remaining lease payments, net of reasonable sublease income, of approximately $168,000, which was recorded in the first quarter of 2004 in selling, general and administrative expenses in the accompanying statements of operations. During the second quarter of 2004 the Company revised its estimate of the expected lease loss and recorded an additional accrual of $60,000. In addition, the Company's landlord agreed to offset the Company's security deposit of $130,000 in satisfaction of a portion of the amounts due under the lease. The remaining obligation to the landlord is included in accrued expenses in the Company's balance sheet as of September 30, 2004. On or about July 16, 2004, Clinton Group, Inc., as plaintiff and sub sub-landlord, filed a summons and complaint against the Company, as defendant, with the Supreme Court of the State of New York, County of New York (Index No. 110371) alleging, among other things, breach of an alleged sublease agreement for non-payment of the security deposit and one month's rent for the premises located at 55 Water Street, New York, New York. In the summons and complaint, Clinton sought repossession of the premises, damages for non-payment of rent in the sum of $128,629.16, additional damages under the sublease through the date of trial for the remainder of the term of the Sublease, plus interest and attorney's fees. On August 20, 2004, the Company entered into a Settlement Agreement and Release with Clinton pursuant to which, in full settlement of, and release from, any and all claims against the Company by Clinton relating to the alleged sublease, the Company agreed to pay to Clinton, an accredited investor, (i) the amount of $75,000 in cash, (ii) the amount of $150,000 due upon the earlier of the one year anniversary of the agreement or upon the Company's raising an aggregate of $5,000,000 in gross proceeds from third party investors, and (iii) issue to Clinton 1,150,000 shares of common stock. The issuance of the common stock, promissory note and cash payment resulted in a settlement expense of $343,000 which was recorded in the third quarter. In the second quarter of 2004 the Company decided to vacate its office facilities in Florida. In connection with this lease abandonment, the Company recorded an accrual for expected losses on the lease equal to the present value of the remaining lease payments, net of reasonable sublease income, of approximately $83,000, which was recorded in the second quarter of 2004 in selling, general and administrative expenses in the accompanying statements of operations. During the third quarter of 2004 the Company revised its estimate of the expected lease loss and recorded an additional accrual of $195,000. In June 2004, the Company's former law firm commenced and action against the Company by filing a complaint in the Supreme Court of the State of New York for the county of New York (Index No. 108499/04) in which they alleged we breached our retainer agreement by failing to pay $435,280 for legal services allegedly performed. The Company believes it has valid defenses and/or counter claims which the Company intends to vigorously pursue. In the third quarter of 2004, the Company ceased all remaining operations of its wholly-owned subsidiary, LifeRamp - see Note 4, LifeRamp Family Financial, Inc. 13. SUBSEQUENT EVENTS In October 2004, the Company entered into a letter agreement with two of its existing convertible noteholders, Willow Bend Management Ltd. and Cottonwood Ltd., with respect to the reduction of the exercise price of outstanding warrants to purchase an aggregate of 37,470,584 shares of common stock, par value $.001 per share ("Common Stock"), from prices ranging from $0.11 to $0.40, to $.0325 cents per share. In connection with the exercise of warrants to purchase an aggregate of 25,262,096 shares of common stock, the noteholders agreed to a reduction of principal amount of outstanding notes in the aggregate amount of $571,000 and to pay cash proceeds to the Company in the aggregate amount of $250,000. The reduction in the exercise prices of the warrants will be recorded as deemed dividends in the fourth quarter. In October 2004, the Company entered into a letter agreement with an existing convertible noteholder, Hilltop Services Ltd., with respect to the reduction of the exercise price of outstanding warrants to purchase an aggregate of 17,129,416 shares of Common Stock, from prices ranging from $0.11 to $0.40, to $.0325 cents per share. In connection with the exercise of warrants to purchase an aggregate of 12,631,048 shares of Common Stock, the noteholder agreed to a reduction of the principal amount of outstanding notes in the aggregate amount of $410,509. The reduction in the exercise prices of the warrants will be recorded as deemed dividends in the fourth quarter. On October 18, 2004 the Company distributed a proxy to its shareholders to vote for three proposals at the annual meeting to be held on November 18, 2004. The proposals include the election of two directors, approval of an amendment to the Company's Restated Certificate of Incorporation to effect a reverse stock split of the Company's Common Stock at a ratio of one (1) for sixty (60), and to approve the Company's 2005 Stock Incentive Plan. On October 22, 2004, the Company completed a transaction pursuant to an asset purchase agreement with Berdy Medical Systems, Inc. ("Berdy") for the purchase of the tangible and intangible assets of Berdy. The purchase price consisted of an aggregate amount of $400,000 payable through the issuance of restricted shares of the Company's common stock, par value $.001. In addition, Berdy shall receive five (5%) percent of maintenance fees collected in connection with the SmartClinic electronic medical records system business purchased by the Company over a two-year period pursuant to the terms and conditions of an escrow agreement. In connection with the closing, each of Berdy's principal executive officers, Jack Berdy, MD and Mr. Rick Holtmeier have entered into employment agreement with Ramp's wholly-owned subsidiary HealthRamp, Inc., on terms and conditions agreed upon by both parties. On October 29, 2004, the Company issued to Oakwood Financial Services, LLC, a secured convertible promissory note in the principal amount of $50,000 bearing interest at the rate of ten percent (10.0%) per annum, due January 25, 2005, convertible at the option of the holder, into shares of the Company's common stock at a conversion price of $.02 cents per share. Interest is payable in cash. Additionally, the Company issued to Oakwood a warrant to purchase 2,500,000 shares of the registrant's common stock at an exercise price of $.03 cents per share. Oakwood may exercise the warrant at any time through October 29, 2009. The Company is obligated to register for resale the shares of common stock issuable upon conversion of the note and upon exercise of the warrant on a registration statement filed with the Securities and Exchange Commission on or before December 31, 2004. In addition, on November 10, 2004 the Company received a loan in the amount of $150,000 from an investor. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview We develop and market healthcare connectivity software centered around our CarePoint Suite of healthcare communication technology products for electronic prescribing of drugs, laboratory orders and results, Internet-based communication, data integration and transaction processing through a handheld device or browser, at the patient point-of-care. Our products enable communication of healthcare information among physicians' offices, pharmacies, hospitals, pharmacy benefit managers, health management organizations, pharmaceutical companies and health insurance companies. Our technology is designed to provide access to safer, better healthcare and more accurate and less expensive patient point-of-care information gathering and processing. On September 30, 2004, we closed a transaction pursuant to a certain Asset Purchase Agreement, dated as of September 29, 2004, by and between the Company, The Duncan Group, Inc. ("Duncan"), M. David Duncan and Nancy L. Duncan, to sell the assets of the Company previously acquired from Duncan on November 10, 2003 (including intellectual property, tangible personal property, accounts receivable, and other assets) related to the business of Duncan known as Frontline Physicians Exchange and Frontline Communications ("Frontline"). In accordance with the Asset Purchase Agreement, the Company agreed to sell all of the assets of the Company's Frontline division, now known as the OnRamp division, in consideration of (i) the Company's receipt of $500,000 in cash paid at closing; (ii) termination of the employment agreement between the Company and each of M. David Duncan and Nancy L. Duncan; (iii) release and discharge of the Company's obligations to Duncan under that certain Asset Purchase Agreement dated as of November 7, 2003, between the Company and Duncan (the "2003 Purchase Agreement"), to issue Incentive Shares (as defined in the Asset Purchase Agreement) to Duncan; (iv) release and discharge of the Company's obligations to Duncan under the 2003 Purchase Agreement to pay Duncan a royalty equal to 15% of the gross revenue of the OnRamp business during 2003 and 2004 (of which $326,000 was accrued and unpaid as of June 30, 2004); and (v) release and discharge of the Company's obligations under the 2003 Purchase Agreement to pay Duncan any shortfall amount following the sale of certain shares of the Company's common stock by Duncan. The sale of OnRamp results in a loss of approximately $3.9 million. The sale of OnRamp is part of refocusing the Company's financial resources and management efforts on its core HealthRamp operations. The company believes that focusing on HealthRamp's long-term potential and evolving opportunities is in the best interest of its stockholders. In 2003 the Company formed a wholly-owned subsidiary, LifeRamp Family Financial, Inc. ("LifeRamp"), in Utah and commenced exploring the feasibility of using LifeRamp to commence a new business, making non-recourse loans to terminally ill cancer patients secured by their life insurance policies. In May 2004 the Company decided to proceed with the launch of LifeRamp and had previously retained Shattuck Hammond Partners as its investment banker and financial advisor in the structuring and capitalization of LifeRamp. During 2003 and for the first nine months of 2004 the Company invested approximately $1.1 million and $2.2 million in LifeRamp, respectively. In July 2004 the Company decided to indefinitely delay LifeRamp's continued development and commencement of operations until adequate funding is obtained or other strategic alternative measures could be implemented by the Company. In September 2004 the Company ceased all operations of LifeRamp and terminated the employment of the remaining employees and commenced vacating its office facilities in Texas and Utah. In connection with these lease abandonments, the Company recorded an accrual for expected losses on the leases equal to the present value of the remaining lease payments, net of reasonable sublease income, of approximately $73,000, which was recorded in the third quarter of 2004. In addition, the Company recorded an asset impairment charge of approximately $229,000 relating to the long-lived assets of LifeRamp (including fixed assets and leasehold improvements). The Company is continuing to explore strategic alternatives for the possible development of LifeRamp. There can be no assurance that the Company will find such a strategic alternative or that if one were found that the Company would be able to recoup a material portion of its investment in LifeRamp. Forward-Looking Statements and Associated Risks To the extent that any statements made in this Form 10-Q contain information that is not historical, these statements are essentially forward-looking. Forward-looking statements can be identified by the use of words such as "expects," "plans," "will," "may," "anticipates", "believes," "should," "intends," "estimates," and other words of similar meaning. These statements are subject to risks and uncertainties that cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, our ability to raise capital to finance the development of our Internet services and related software, the effectiveness, profitability and the marketability of those services, our ability to protect our proprietary information and to retain and expand our user base, the establishment of an efficient corporate operating structure as we grow and, other risks detailed from time-to-time in our filings with the Securities and Exchange Commission ("SEC"). We do not intend to undertake any obligation to publicly update any forward-looking statements. We have reported significant recurring net losses applicable to common shareholders which endanger our viability as a going concern and caused our accountants to issue a "going concern" explanatory paragraph in their reports in connection with their audits of our financial statements for the years ended December 31, 2003, 2002 and 2001. We have reported net losses applicable to common stockholders of $(31,321,000), $(9,014,000) and $(10,636,000) for the years ended December 31, 2003, 2002 and 2001, respectively, and $(35,808,000) for the nine months ended September 30, 2004. At September 30, 2004, we had an accumulated deficit of $(107,186,000). We rely on investments and financings to provide working capital which may not be available to us in the future and may result in increased net losses and accumulated deficit. While we believe that we can continue to sell our securities to raise the cash needed to continue operating until cash flow from operations can support our business, there can be no assurance that this will occur. There can be no assurance that additional investments in our securities or other debt or equity financings will be available to us on favorable terms, or at all, to adequately support the development and deployment of our technology. Moreover, failure to obtain such capital on a timely basis could result in lost business opportunities. In addition, the terms of our debt or equity financings have included, and in the future may include, contingent anti-dilution provisions and the issuance of warrants, the accounting for which have resulted, and for future financings may result, in significant non-cash increases in our net losses and accumulated deficit. Such non cash expenses totaled $8.5 million and $9.0 million for the three and nine months ended September 30, 2004, respectively. While the Company believes that it has the ability to successfully attract new customers, the ultimate deployment of these new customers frequently requires up front capital. There can be no assurance that the Company will obtain that capital. In recent months the Company has not obtained sufficient capital to meet its obligations and as a result has not been able to pay its vendors on a timely basis and is significantly in arrears in making such payments. While the Company has been working with its creditors to make arrangements to satisfy its obligations, there can be no assurance that it will be able to do so and as a result may be subject to litigation or disruption in its business operations. Our independent registered public accounting firm has advised our management and our Audit Committee that there were material weaknesses in our internal controls and procedures during fiscal year 2003, which management believes have continued through the fiscal period ended September 30, 2004. The Company has taken steps and has a plan to correct the material weaknesses. Progress was made in the first three quarters of 2004; however, management believes that if these material weaknesses are not corrected, a potential misapplication of generally accepted accounting principles or potential accounting error in our consolidated financial statements could occur. Enhancing our internal controls to correct the material weaknesses has and will result in increased costs to us. Based upon management's review of internal controls and procedures, our management, including our current chief executive officer and current chief financial officer, has determined that we had inadequate controls and procedures constituting material weaknesses as of December 31, 2003 which persisted during the first three quarters of fiscal year 2004. These inadequate controls and procedures included: - Inadequate accounting staffing and records to identify and record all accounting entries. - Lack of management review of our bank reconciliations, timely review of expense reports, and timely review of agreements governing complex financing transactions, employee and non-employee stock based compensation arrangements and other transactions having accounting ramifications. - Failure to perform an adequate internal review of financial information in periodic reports to ensure accuracy and completeness. - Inadequate segregation of duties consistent with our internal control objectives. - Ineffective utilization of existing administrative personnel to perform ministerial accounting functions, which would allow our accounting department the opportunity to perform bookkeeping, recordkeeping and other accounting functions effectively. - Lack of management review of entries to the general ledger. Our management has implemented and continues to implement enhancements to our internal controls and procedures that it believes will remedy the inadequacies in our internal controls and procedures. The following sets forth the steps we have taken through the fiscal period ended September 30, 2004: - In November 2003, we hired a permanent chief financial officer with public company reporting experience. This chief financial officer resigned in September 2004 and was replaced in October 2004. - In December 2003, we hired a staff accountant responsible for, among other things, recording accounts payable. The individual assists the chief financial officer and controller to identify, report and record transactions in a timely manner and provides additional segregation of duties consistent with our internal control objectives. - Management reassigned certain tasks among the expanded accounting department, as well as existing administrative personnel to perform ministerial accounting functions, to improve and better accomplish bookkeeping, recordkeeping and other accounting functions. - In August 2004 we hired a Vice President of Finance who will be wholly dedicated to the areas of internal control, financial accounting and reporting. - The review and sign off on all monthly bank reconciliations by the chief financial officer has been instituted. - The review of all underlying agreements, contracts and financing arrangements prior to execution for accounting ramifications has already been undertaken by the chief financial officer to the extent possible. - We strengthened certain controls over cash disbursements, including adopting a policy that requires dual signatures of two senior officers, at least one of whom is not involved in a transaction, on disbursements in excess of $10,000. - We strengthened certain controls over expense authorization and imposed financial oversight on all expenditure decisions. - We implemented a policy requiring attendance by outside counsel at all Board and Audit Committee meetings, including the timely preparation of minutes of such meetings and reports to management to discuss our implementation of any plans to address conditions constituting the material weaknesses in its internal controls. - We have implemented and intend on implementing the following plans to enhance our internal controls in the fiscal quarter ending September 30, 2004 and in subsequent fiscal periods: - The addition of the new Vice President Finance (hired on August 2, 2004) has allowed further redistribution of responsibilities among the expanded accounting department and, more specifically, provide the chief financial officer with the necessary time to perform oversight and supervisory functions in future periods. This includes timely review of all underlying agreements, contracts and financing arrangements, expense reports, entries to the general ledger and periodic filings with the Securities and Exchange Commission. - Our implementation of formal mechanized month-end, quarter-end and year-end closing and consolidation processes. - In July 2004 we appointed two additional independent directors to serve on our Audit Committee. - As a result of the resignation of our chief financial officer in September 2004, we have hired Ronald C. Munkittrick as our new chief financial officer, effective October 12, 2004. While we believe that the remedial actions that have been or will be taken will result in correcting the conditions constituting the material weaknesses in our internal controls as soon as practicable, the exact timing of when the conditions will be corrected is dependent upon future events which may or may not occur. We are making every effort to correct the conditions expediently and expect to correct the conditions, thereby eliminating the material weaknesses no later than the fourth quarter of fiscal year 2004. It is estimated that the cost to implement the actions set forth above will be approximately $300,000 for our fiscal year ending December 31, 2004 and approximately $200,000 for each fiscal year thereafter. In addition, substantial additional costs may be necessary to implement the provisions of section 404 of the Sarbanes-Oxley Act of 2003 as relates to the company's documentation and testing of the effectiveness of internal controls in 2005. The success of the development, distribution and deployment of our technology is dependent to a significant degree on our key management and technical personnel. We believe that our success will also depend upon our ability to attract, motivate and retain highly skilled, managerial, sales and marketing, and technical personnel, including software programmers and systems architects skilled in the computer languages in which our technology operates. Competition for such personnel in the software and information services industries is intense. On October 18, 2004 the Company distributed a proxy to its shareholders requesting approval of the Company's 2005 Stock Incentive Plan. Should the plan not be approved it could have a detrimental effect on employee retention. The loss of key personnel, or the inability to hire or retain qualified personnel, could have a material adverse effect on our results of operations, financial condition or business. We expect to continue to experience losses until such time as our technology can be successfully deployed and produce revenues. The continuing development, marketing and deployment of our technology will depend upon our ability to obtain additional financing. Our technology has generated limited recurring revenues to date. We are funding our operations now through the sale of our securities. We may not be able to retain our listing on the American Stock Exchange. On September 13, 2004, we received a written notice (the "Notice") from the American Stock Exchange (the "Amex") informing us, in relevant part, that we are not in compliance with (i) Section 1003(a)(i) of the Amex rules as a result of our stockholder's equity less than $2,000,000 and losses from continuing operations and/or net losses in two out of three of its three most recent fiscal years, (ii) Section 1003(a)(ii) of the Amex rules as a result of our stockholder's equity of less than $4,000,000 and losses from continuing operations and/or net losses in three out of its four most recent fiscal years, (iii) Section 1003(a)(iv) of the Amex rules whereby, as a result of our substantial sustained losses in relation to our overall operations or our existing financial resources, or our impaired financial condition, it appears questionable, in the opinion of Amex, as to whether we will be able to continue operations and/or meet our obligations as they mature, and (iv) Section 1003(f)(v) of the Amex rules as a result of our common stock selling for a substantial period at a low price per share. The Notice is not a notice of delisting from the Amex or a notice by Amex to initiate delisting proceedings. Specifically, the Notice provides that, in order to maintain the listing of our common stock, we must submit a plan to the Amex by October 14, 2004 (extended by the AMEX to October 21, 2004), advising Amex of the action we have taken, or the action we will take, to bring us into compliance with the continued listing standards of the Amex within a maximum of eighteen months from the date the Notice was received. On October 20, 2004, the Company timely submitted its plan to the AMEX which is currently under review. Amex will accept our plan if we provide a reasonable demonstration of an ability to regain compliance with the continued listing standards within such eighteen month period. If our plan is accepted, we will be able to maintain our listing on the Amex during the plan period for up to eighteen months, subject to periodic review by Amex to determine whether we are making progress in accordance with our plan. Our management intends to timely provide Amex with our plan to achieve compliance with all Amex listing criteria within such eighteen month period and believes we will be able to maintain our Amex listing at all times during such eighteen month period however, there can be no assurance that we will be able to maintain our Amex listing throughout such eighteen month period. Subject to our right of appeal of any Amex staff determination, Amex may initiate delisting proceedings, as appropriate, if (i) we do not submit a plan, (ii) our plan is not accepted, (iii) we do not make progress consistent with the plan during the plan period, or (iv) we are not in compliance with the continued listing standards at the conclusion of the plan period. Trading in our common stock after a delisting, if any, would likely be conducted in the over-the-counter markets in the so-called "pink sheets" or on the National Association of Securities Dealers' Electronic Bulletin Board. As a consequence of a delisting our shareholders would find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock, and our common stock would become substantially less attractive as collateral for margin and purpose loans, for investment by financial institutions under their internal policies or state investment laws or as consideration in future capital raising transactions. Although we have had operations since 1988, because of our move away from temporary healthcare staffing to provide healthcare connectivity solutions at the point of care, we have a relatively short operating history in the healthcare connectivity solutions business and limited financial data to evaluate our business and prospects. In addition, our business model is likely to continue to evolve as we attempt to develop our product offerings and enter new markets. As a result, our potential for future profitability must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies that are attempting to move into new markets and continuing to innovate with new and unproven technologies. We are still in the process of gaining experience in marketing physician connectivity products, providing support services, evaluating demand for products, financing a technology business and dealing with government regulation of health information technology products. While we are putting together a team of experienced executives, they have come from different backgrounds and may require some time to develop an efficient operating structure and corporate culture for our company. Furthermore, our executive management and Board of Directors have been subject to change as executives have left or been terminated and others have been hired to take their places and directors have left and others have been elected or appointed to take their places. Such changes can cause disruption and distraction. Although we have focused our business on healthcare connectivity, we may decide to explore new business models before our core business generates cash flow, if at all. Until feasibility is proven for any such new business models some of our scarce resources may be allocated to endeavors which may never be commercialized. The success of our products and services in generating revenue may be subject to the quality and completeness of the data that is generated and stored by the physician or other healthcare professionals and entered into our interconnectivity systems, including the failure to input appropriate or accurate information. Failure of the Company and its vendors to maintain the quality and completeness of the data or unwillingness by the healthcare professional to generate the required information may result in our losing revenue. As a developer of connectivity technology products, we will be required to anticipate and adapt to evolving industry standards and regulations and new technological developments. The market for our technology is characterized by continued and rapid technological advances in both hardware and software development, requiring ongoing expenditures for research and development, and timely introduction of new products and enhancements to existing products. Our future success, if any, will depend in part upon our ability to enhance existing products, to respond effectively to technology changes and changes in applicable regulations, and to introduce new products and technologies that are functional and meet the evolving needs of our clients and users in the healthcare information systems market. We rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop our products and services. The cost of developing new healthcare information services and technology solutions is inherently difficult to estimate. Our development of proposed products and services may take longer than originally expected, require more testing than originally anticipated and require the acquisition of additional personnel and other resources. In addition, there can be no assurance that the products or services we develop or license will be able to compete with the alternatives available to our customers. New or newly integrated products and services will not become profitable unless they achieve sufficient levels of market acceptance. There can be no assurance that healthcare providers will accept from us new products and services, or products and services that result from integrating existing and/or acquired products and services, including the products and services we are developing to integrate our services into the physician's office or other medical facility, such as our handheld solution. In addition, there can be no assurance that any pricing strategy that we implement for any such products and services will be economically viable or acceptable to the target markets. Failure to achieve broad penetration in target markets with respect to new or newly integrated products and services could have a material adverse effect on our business prospects. The market for our connectivity products and services in the healthcare information systems may be slow to develop due to the large number of practitioners who are resistant to change, as well as the financial investment and workflow interruptions associated with change, particularly in a period of rising pressure to reduce costs in the marketplace. Achieving market acceptance of new or newly integrated products and services is likely to require significant efforts and expenditures. Achieving market acceptance for new or newly integrated products and services is likely to require substantial marketing efforts and expenditure of significant funds to create awareness and demand by participants in the healthcare industry. In addition, deployment of new or newly integrated products and services may require the use of additional resources for training our existing sales force and customer service personnel and for hiring and training additional salespersons and customer service personnel. There can be no assurance that the revenue opportunities from new or newly integrated products and services will justify amounts spent for their development, marketing and roll-out. We could be subject to breach of warranty claims if our software products, information technology systems or transmission systems contain errors, experience failures or do not meet customer expectations. We could face breach of warranty or other claims or additional development costs if the software and systems we sell or license to customers or use to provide services contain undetected errors, experience failures, do not perform in accordance with their documentation, or do not meet the expectations that our customers have for them. Undetected errors in the software and systems we provide or those we use to provide services could cause serious problems for which our customers may seek compensation from us. We attempt to limit, by contract, our liability for damages arising from negligence, errors or mistakes. However, contractual limitations on liability may not be enforceable in certain circumstances or may otherwise not provide sufficient protection to us from liability for damages. If our systems or the Internet experience security breaches or are otherwise perceived to be insecure, our business could suffer. A security breach could damage our reputation or result in liability. We retain and transmit confidential information, including patient health information. Despite the implementation of security measures, our infrastructure or other systems that we interface with, including the Internet, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, attacks by third parties or similar disruptive problems. Any compromise of our security, whether as a result of our own systems or systems that they interface with, could reduce demand for our services. Our products provide applications that relate to patient medication histories and treatment plans. Any failure by our products to provide and maintain accurate, secure and timely information could result in product liability claims against us by our clients or their affiliates or patients. We maintain insurance that we believe currently is adequate to protect against claims associated with the use of our products, but there can be no assurance that our insurance coverage would adequately cover any claim asserted against us. A successful claim brought against us in excess of our insurance coverage could have a material adverse effect on our results of operations, financial condition and/or business. Even unsuccessful claims could result in the expenditure of funds in litigation, as well as diversion of management time and resources. Certain of our products are subject to compliance with the Health Insurance Portability And Accountability Act Of 1996 (HIPAA). Failure to comply with HIPAA may have a material adverse effect on our business. Government regulation of healthcare and healthcare information technology is in a period of ongoing change and uncertainty that creates risks and challenges with respect to our compliance efforts and our business strategies. The healthcare industry is highly regulated and is subject to changing political, regulatory and other influences. Federal and state legislatures and agencies periodically consider programs to reform or revise the United States healthcare system. These programs may contain proposals to increase governmental involvement in healthcare or otherwise change the environment in which healthcare industry participants operate. Particularly, compliance with HIPAA and related regulations are causing the healthcare industry to incur substantial costs to change its procedures. Healthcare industry participants may respond by reducing their investments or postponing investment decisions, including investments in our products and services. Although we expect these regulations to have the beneficial effect of spurring adoption of our software products, we cannot predict with any certainty what impact, if any, these and future healthcare reforms might have on our business. Existing laws and regulations also could create liability, cause us to incur additional costs or restrict our operations. The effect of HIPAA on our business is difficult to predict and there can be no assurance that we will adequately address the business risks created by the HIPAA. We may incur significant expenses relating to compliance with HIPAA. Furthermore, we are unable to predict what changes to HIPAA, or the regulations issued pursuant to HIPAA, might be made in the future or how those changes could affect our business or the costs of compliance with HIPAA. In addition, changes in Medicare and Medicaid regulations could have an adverse effect on the operations and future prospects of our CarePoint business operations. Government regulation of the Internet could adversely affect our business. The Internet and its associated technologies are subject to government regulation. Our failure to accurately anticipate the application of applicable laws and regulations, or any other failure to comply, could create liability for us, result in adverse publicity, or negatively affect our business. In addition, new laws and regulations may be adopted with respect to the Internet or other online services covering user privacy, patient confidentiality, consumer protection and other services. We cannot predict whether these laws or regulations will change or how such changes will affect our business. Government regulation of the Internet could limit the effectiveness of the Internet for the methods of healthcare e-commerce that we are providing or developing or even prohibit the sale of particular products and services. Our Internet-based services are dependent on the development and maintenance of the Internet infrastructure and data storage facilities maintained by third parties. Our ability to deliver our Internet-based products and services is dependent on the development and maintenance of the infrastructure of the Internet and the maintenance of data storage facilities by third parties. This includes maintenance of a reliable network backbone and data storage facilities with the necessary speed, data capacity and security, as well as timely development of complementary products such as high-speed modems, for providing reliable Internet access and services. If the Internet continues to experience increased usage, the Internet infrastructure may be unable to support the demands placed on it. In addition, the performance of the Internet may be harmed by increased usage. The Internet has experienced a variety of outages and other delays as a result of damages to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage as well as the availability of the Internet to us for delivery of our Internet-based products and services. Some of our products and services will not be widely adopted until broadband connectivity is more generally available. Some of our products and services and planned services require a continuous broadband connection between the physician's office or other healthcare provider facilities and the Internet. The availability of broadband connectivity varies widely from location to location and even within a single geographic area. The future availability of broadband connections is unpredictable and is not within our control. While we expect that many physicians' offices and other healthcare provider facilities will remain without ready access to broadband connectivity for some period of time, we cannot predict how long that will be. Accordingly, the lack of these broadband connections will continue to place limitations on the number of sites that are able to utilize our Internet-based products and services and the revenue we can expect to generate form those products and services. Although the Company has ceased operations at its LifeRamp subsidiary, Compliance with legal and regulatory requirements will be critical to LifeRamp's operations should the Company in the future elect to restart the operations. If we, directly or indirectly through our subsidiaries, erroneously disclose information that could be confidential and/or protected health information, we could be subject to legal action by the individuals involved, and could possibly be subject to criminal sanctions. In addition, if LifeRamp is launched and fails to comply with applicable insurance and consumer lending laws, states could bring actions to enforce statutory requirements, which could limit its business practices in such states, including, without limitation, limiting or eliminating its ability to charge or collect interest on its loans or related fees, or limit or eliminate its ability to secure its loans with its borrowers' life insurance policies. Any such actions, if commenced, would have a material and adverse impact on LifeRamp's business, operations and financial condition. We have been granted certain patent rights, trademarks and copyrights relating to our software. However, patent and intellectual property legal issues for software programs, such as our products, are complex and currently evolving. Since patent applications are secret until patents are issued in the United States, or published in other countries, we cannot be sure that we are first to file any patent application. In addition, there can be no assurance that competitors, many of which have far greater resources than we do, will not apply for and obtain patents that will interfere with our ability to develop or market product ideas that we have originated. Furthermore, the laws of certain foreign countries do not provide the protection to intellectual property that is provided in the United States, and may limit our ability to market our products overseas. We cannot give any assurance that the scope of the rights we have are broad enough to fully protect our technology from infringement. Litigation or regulatory proceedings may be necessary to protect our intellectual property rights, such as the scope of our patent. Such litigation and regulatory proceedings are very expensive and could be a significant drain on our resources and divert resources from product development. There is no assurance that we will have the financial resources to defend our patent rights or other intellectual property from infringement or claims of invalidity We also rely upon unpatented proprietary technology and no assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to or disclose our proprietary technology or that we can meaningfully protect our rights in such unpatented proprietary technology. No assurance can be given that efforts to protect such information and techniques will be successful. The failure to protect our intellectual property could have a material adverse effect on our operating results, financial position and business. As of November 3, 2004, we had 283,191,587 outstanding shares of common stock and 77,023,713 shares of common stock reserved for issuance upon the exercise of options, warrants, and shares of our convertible preferred stock and convertible debentures outstanding on such date, leaving 39,784,700 shares available for future issuance. Most of these shares will be immediately saleable upon exercise or conversion under registration statements we have filed with the SEC. The exercise prices of options, warrants or other rights to acquire common stock presently outstanding range from $0.01 per share to $4.97 per share. During the respective terms of the outstanding options, warrants, preferred stock and other outstanding derivative securities, the holders are given the opportunity to profit from a rise in the market price of our common stock, and the exercise of any options, warrants or other rights may dilute the book value per share of our common stock and put downward pressure on the price of our common stock. The existence of the options, conversion rights, or any outstanding warrants may adversely affect the terms on which we may obtain additional equity financing. Moreover, the holders of such securities are likely to exercise their rights to acquire common stock at a time when we would otherwise be able to obtain capital on terms more favorable than could be obtained through the exercise or conversion of such securities. On October 18, 2004 the Company distributed a proxy to its shareholders requesting approval of an amendment to the Company's Restated Certificate of Incorporation to effect a reverse stock split of the Company's Common Stock at a ratio of one (1) for sixty (60). The Board of Directors believes that it is necessary and desirable to reduce the number of outstanding shares of Common Stock through a reverse split, thereby increasing the number of shares of Common Stock available for issuance to investors in a capital raising transaction and to ensure that the Company has a sufficient number of shares of Common Stock issuable upon the exercise of all outstanding options and warrants, including shares which will be reserved for issuance under its stock incentive plans. If the reverse split is not approved, the low market price of the Company's common stock together with the limited number of shares available for future issuance would make it difficult to raise additional capital. We have raised substantial amounts of capital in private placements from time to time. The securities offered in such private placements were not registered under the Securities Act or any state "blue sky" law in reliance upon exemptions from such registration requirements. Such exemptions are highly technical in nature and if we inadvertently failed to comply with the requirements of any of such exemptive provisions, investors would have the right to rescind their purchase of our securities or sue for damages. If one or more investors were to successfully seek such rescission or prevail in any such suit, we could face severe financial demands that could materially and adversely affect our financial position. Financings that may be available to us under current market conditions frequently involve sales at prices below the prices at which our common stock currently trades on the American Stock Exchange, as well as the issuance of warrants or convertible securities at a discount to market price. Investors in our securities may suffer dilution. The issuance of shares of common stock or shares of common stock underlying warrants, options or preferred stock or convertible notes will dilute the equity interest of existing stockholders and could have a significant adverse effect on the market price of our common stock. The sale of common stock acquired at a discount could have a negative impact on the market price of our common stock and could increase the volatility in the market price of our common stock. In addition, we may seek additional financing which may result in the issuance of additional shares of our common stock and/or rights to acquire additional shares of our common stock. The issuance of our common stock in connection with such financing may result in substantial dilution to the existing holders of our common stock. Those additional issuances of common stock would result in a reduction of your percentage interest in our company. Historically, our common stock has experienced significant price fluctuations. One or more of the following factors influence these fluctuations: o unfavorable announcements or press releases relating to the technology sector; o regulatory, legislative or other developments affecting us or the healthcare industry generally; o conversion of our preferred stock and convertible debt into common stock at conversion rates based on then current market prices or discounts to market prices of our common stock and exercise of options and warrants at below current market prices; o sales by those financing our company through convertible securities the underlying common stock of which have been registered with the SEC and may be sold into the public market immediately upon conversion; and o market conditions specific to technology and internet companies, the healthcare industry and general market conditions. In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations, which are often unrelated to the operating performance of specific companies, have had a substantial effect on the market price for many healthcare related technology companies. Factors such as those cited above, as well as other factors that may be unrelated to our operating performance, may adversely affect the price of our common stock. We have not had earnings, but if earnings were available, it is our general policy to retain any earnings for use in our operations. Therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future despite the recent reduction of the federal income tax rate on dividends. Any payment of cash dividends on our common stock in the future will be dependent upon our financial condition, results of operations, current and anticipated cash requirements, preferred rights of holders of preferred stock, plans for expansion, as well as other factors that our Board of Directors deems relevant. We anticipate that our future financing agreements may prohibit the payment of common stock dividends without the prior written consent of those investors. We may have to lower prices or spend more money to compete effectively against companies with greater resources than ours, which could result in lower revenues. The eventual success of our products in the marketplace will depend on many factors, including product performance, price, ease of use, support of industry standards, competing technologies and customer support and service. Given these factors we cannot assure you that we will be able to compete successfully. For example, if our competitors offer lower prices, we could be forced to lower prices which could result in reduced or negative margins and a decrease in revenues. If we do not lower prices we could lose sales and market share. In either case, if we are unable to compete against our main competitors, which include established companies with significant financial resources, we would not be able to generate sufficient revenues to grow our company or reverse our history of operating losses. In addition, we may have to increase expenses to effectively compete for market share, including funds to expand our infrastructure, which is a capital and time intensive process. Further, if other companies choose to aggressively compete against us, we may have to increase expenses on advertising, promotion, trade shows, product development, marketing and overhead expenses, hiring and retaining personnel, and developing new technologies. These lower prices and higher expenses would adversely affect our operations and cash flows. As with any business, growth in absolute amounts of selling, general and administrative expenses or the occurrence of extraordinary events could cause actual results to vary materially and adversely from the results contemplated by the forward-looking statements. Budgeting and other management decisions are subjective in many respects and thus susceptible to incorrect decisions and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditures or other budgets, which may, in turn, affect our results of operations. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate, and therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. In light of the significant uncertainties inherent in the forward-looking information included in this report, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans of our company will be achieved. Critical Accounting Policies and Items Affecting Comparability Quality financial reporting relies on consistent application of our accounting policies that are based on accounting principles generally accepted in the United States. The policies discussed below are considered by management to be critical to understanding our financial statements and often require management judgment and estimates regarding matters that are inherently uncertain. Revenue Recognition We recognize revenue from subscription and other fees as services are performed, provided that the following revenue recognition criteria are met: - Persuasive evidence of an arrangement exists - Service is provided - The fee is fixed and determinable - Collectibility is probable Software and Technology Costs We incur costs for software research and development efforts. Such costs primarily include payroll, employee benefits and other headcount-related costs associated with product development. Technological feasibility for our software products is reached shortly before the products are released commercially. Costs incurred after technological feasibility is established are not material, and accordingly, we expense all software and technology costs as incurred. Segment Information We follow SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, which establishes standards for reporting and displaying certain information about reportable segments. As a result of our sale of certain assets of OnRamp, as of September 30, 2004, we manage and evaluate our operations in one reportable segment: Technology. Goodwill Goodwill represents acquisition costs in excess of the fair value of net tangible assets of businesses purchased. In conjunction with our adoption of SFAS No. 142, Goodwill and Other Intangible Assets, we evaluate our goodwill annually for impairment, or earlier if indicators of potential impairment exist. The determination of whether or not goodwill or other intangible assets have become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of the reporting units. Changes in our strategy and/or market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets. We will continue to evaluate our goodwill for impairment on an annual basis or sooner if indicators of potential impairment exist. Long-lived Assets We review our long-lived assets, including our property and equipment and our intangible assets other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Term Assets. We look primarily to the undiscounted future cash flows in our assessment of whether or not long-lived assets have been impaired. Contingencies We are subject to legal proceedings, lawsuits and other claims related to labor, service and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies are made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters. Equity Transactions In many of our financing transactions, warrants have been issued. Additionally, we issue options and warrants to nonemployees from time to time as payment for services. In all these cases, we apply the principles of SFAS No. 123 to value these awards, which inherently include a number of estimates and assumptions including stock price volatility factors. We based our estimates and assumptions on the best information available at the time of valuation, however, changes in these estimates and assumptions could have a material effect on the valuation of the underlying instruments. RESULTS OF OPERATIONS In June and September 2004, the Company implemented a reduction in work force and salary reduction program, pursuant to which 73 employees were terminated and, with respect to the June 2004 reduction in work force, some of the remaining employees agreed to accept, during the six-month period ending November 30, 2004, in lieu of a portion of their base salaries, a retention bonus equal to an individually negotiated multiple of the amount of their reduction in pay in the form of shares of common stock, payable only if they remained employed with us on November 30, 2004. Included in operating expenses for the three and nine months ended September 30, 2004 are non cash expenses of $1.2 million and $1.5 million, respectively, that have been accrued and will be paid in shares of common stock. Comparison of the three months ended September 30, 2004 to the three months ended September 30, 2003 Revenues - Total revenues from continuing operations for the three months ended September 30, 2004 increased to $94,000, as compared to $1,000 in 2003. Substantially all of this amount was earned from a distribution partner in connection with marketing our product to a targeted group of physicians pursuant to an agreement, the initial phase of which ended in August 2004. Expenses - Total operating expenses for the three months ended September 30, 2004 were $7.3 million, compared to $4.9 million for the three months ended September 30, 2003, an increase of $2.4 million. Software and technology costs increased $1.1 million, or 134%, from the three months ended September 30, 2003, to $1.8 million. The increase is due to the growth in personnel, including $469,000 relating to the six month retention bonus program that commenced in June 2004 and $700,000 higher salaries and wages including our engineering and quality assurance groups, which were formed in December 2003 and the second quarter of 2004, respectively. Selling, general and administrative expenses increased $1.3 million, or 31%, from the three months ended September 30, 2003, to $5.4 million. The increase is due to offsetting factors which are summarized as follows: (a) increases in expenses of approximately $3.1 million relating primarily to: non cash expenses of approximately $1.1 million relating to the reduction in the value of stock previously issued to vendors, consultants and employees for services rendered, $689,000 relating to the six month retention bonus program that commenced in June 2004, $600,000 increase in total rent expense including lease abandonment charges of $346,000, $339,000 increase in legal and professional fees, and 314,000 relating to asset impairment charges, offset in part by (b) reductions in expenses of approximately $1.9 million relating primarily to reductions in salaries and wages of $0.8 million, advertising expenses of $545,000, and consulting fees of $121,000. Other income (expense) for the three months ended September 30, 2004 were $(8.6 million), compared to $(502,000) for the quarter ended September 30, 2003, an increase of $8,087,000. The increase is primarily due to financing costs incurred in July 2004 relating to additional issuances of debt and equity instruments in connection with the anti-dilutive provisions of our March 2004 financing transactions and debt issuance costs relating to the issuance of warrants along with convertible promissory notes which is being amortized over the six month term of the notes. The three months ended September 30, 2004 reflects a loss from discontinued operations of $3.9 million relating to the sale of OnRamp on September 30, 2004 and its operating loss for the three months. Goodwill of $3,357,000 was removed from the balance sheet in the sale of OnRamp. The three months ended September 30, 2004 was impacted by disproportionate deemed dividends totaling $149,000, caused by the modification of warrants held by certain warrant holders, to induce these investors to exercise their warrants and continue to invest in future periods. As a result of the above factors, the net loss applicable to our common shareholders for the three months ended September 30, 2004 increased to $19.9 million, as compared to $5.5 million in 2003. Comparison of the nine months ended September 30, 2004 to the nine months ended September 30, 2003 Revenues - Total revenues for the nine months ended September 30, 2004 increased to $194,000, or 11%, as compared to $174,000 in 2003. Approximately 84 percent of the 2004 amount was earned from a distribution partner in connection with marketing our product to a targeted group of physicians pursuant to an agreement, the initial phase of which ended in August 2004. The revenues in 2003 were in connection with prior software customization agreements with third parties. Expenses - Total operating expenses for the nine months ended September 30, 2004 were $21.8 million, compared to $10.0 million for the nine months ended September 30, 2003, an increase of $11.8 million. Software and technology costs increased $2.9 million, or 147%, from the nine months ended September 30, 2003, to $4.9 million. The increase is due to the growth in personnel, including $498,000 relating to the six month retention bonus program that commenced in June 2004, approximately $700,000 attributable to our engineering and quality assurance groups, which were formed in December 2003 and the second quarter of 2004, respectively, $420,000 relating to higher consulting and travel related costs and $1.4 million relating to technology tools and communication costs. Selling, general and administrative expenses increased $9.0 million, or 114%, from the nine months ended September 30, 2003, to $16.9 million. The increase relates in part to operating expenses incurred by the Company in the period relating to the development of LifeRamp of approximately $2.1 million. The remainder of the increase in the 2004 period over the 2003 period is attributable primarily to the following: increased salaries and related costs for sales, marketing, customer care, executive and administrative personnel of approximately $1.5 million (including non-cash compensation charges of $1.4 million), $1.1 million relating to the six month retention bonus program that commenced in June 2004, non cash expenses totaling $1.1 million relating to the reduction in the value of stock previously issued to vendors, consultants and employees for services rendered, increased legal and professional fees of approximately $1.4 million, $701,000 relating to increased rent and lease abandonment costs; asset impairment charges of $314,000, $365,000 for expansion of the marketing and sales departments, and increased advertising and promotion costs of approximately $153,000. Other income (expense) for the nine months ended September 30, 2004 were $(9.1 million), compared to $(0.6 million) for the period ended September 30, 2003, an increase of $8.5 million. The increase is primarily due to financing costs incurred in July 2004 relating to additional issuances of debt and equity instruments in connection with the anti-dilutive provisions of our March 2004 financing transactions and debt issuance costs relating to the issuance of warrants along with convertible promissory notes which is being amortized over the six month term of the notes. The nine months ended September 30, 2004 reflects a loss from discontinued operations of $4.1 million relating to the sale of OnRamp on September 30, 2004 and its operating loss for the nine months. Goodwill of $3,357,000 was removed from the balance sheet in the sale of OnRamp. The nine months ended September 30, 2004 was impacted by disproportionate deemed dividends totaling $1.0 million, caused by the modification of warrants held by certain warrant holders and the issuance of additional shares of common stock to previous investors, to induce these investors to exercise their warrants and continue to invest in future periods. As a result of the above factors, the net loss applicable to our common shareholders for the nine months ended September 30, 2004 increased to $35.8 million, as compared to $11.7 million in 2003. Liquidity and Capital Resources We had $386,000 in cash as of September 30, 2004 compared to $1,806,000 as of December 31, 2003. The net working capital deficit was $(11,312,000) as of September 30, 2004 compared to a deficit of $(1,098,000) as of December 31, 2003. During the nine months ended September 30, 2004, we made capital expenditures to purchase property and equipment of $810,000. During the period we raised net proceeds of approximately $11.5 million from financing activities; reflecting $5.5 million from the issuance of our preferred and common stock, net of offering costs, $1.65 million from the issuance of promissory notes, $4.2 million from the issuance of convertible promissory notes and $2.3 million from the exercise of options and warrants. Partially offsetting this were payments of debt and notes payable of $1.8 million. We have incurred operating losses for the past several years, the majority of which are related to the development of the Company's healthcare connectivity technology and related marketing efforts. These losses have produced operating cash flow deficiencies, and negative working capital, which raise substantial doubt about our ability to continue as a going concern. Our future operations are dependent upon management's ability to source additional equity capital. We expect to continue to experience losses in the near term, until such time that our technologies can be successfully deployed with physicians to produce revenues. The continuing deployment, marketing and the development of our technologies will depend on our ability to obtain additional financing. We have not generated any significant revenue to date from this technology. We are currently funding operations through the sale of common stock, and there are no assurances that additional investments or financings will be available as needed to support the development and deployment of merged technologies. The need for us to obtain additional financing is acute and failure to obtain adequate financing could result in lost business opportunities, the sale of our company at a distressed price or may lead to the financial failure of our company. We are currently funding our operations through the sale of our securities, and continued to do so in the nine months ended September 30, 2004. In order to raise funds, the Company has typically issued deeply discounted securities in terms of beneficial conversion prices of, and/or additional warrants issued with, the underlying securities. Under our financing agreements, when we sell securities convertible into our common stock we are required to register those securities so that the holder will be free to sell them in the open market. There can be no assurance that additional investments or financings will be available to us on favorable terms, or at all, as needed to support the development and deployment of our technology. Failure to obtain such capital on a timely basis could result in lost business opportunities, the sale of our technology at a distressed price or the financial failure of our Company. See "Forward Looking Statements and Associated Risks". The following table summarizes, as of September 30, 2004, the general timing of future payments under our outstanding loan agreements, lease agreements that include noncancellable terms, and other long-term contractual obligations.
PAYMENTS DUE BY PERIOD TOTALS 2004 2005 2006 2007 THEREAFTER ------ ---- ---- ---- ---- ---------- Promissory note $ 150,000 $ 150,000 Convertible debt 6,320,000 6,120,000 $ 200,000 Operating leases 2,388,000 $216,000 614,000 $558,000 $490,000 510,000 ========== ======== ========== ======== ======== =========
Item 3. Quantitative and Qualitative Disclosures About Market Risk We do not hold or engage in transactions with market risk sensitive instruments. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, including our chief executive officer and chief financial officer, has carried out an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2004, pursuant to Exchange Act Rules 13a-15(e) and 15(d)-15(e). Our auditors, BDO Seidman, LLP, have advised us that, under standards established by the American Institute of Certified Public Accountants ("AICPA"), reportable conditions involve matters that come to the attention of auditors that relate to significant deficiencies in the design or operation of internal controls of an organization that, in the auditors' judgment, could adversely affect the organization's ability to record, process, summarize and report financial data consistent with the assertions of management in the consolidated financial statements. BDO Seidman, LLP has advised our management and our Audit Committee that, in BDO Seidman, LLP's opinion, there were reportable conditions during 2003, some of which persisted throughout the first three quarters of 2004, which constituted material weaknesses in internal control. The Company has taken steps and has a plan to correct the material weaknesses. More specifically, our accounting staffing, records and controls were insufficient to identify and record all accounting entries necessary to reflect our financial position, results of operations and cash flows in accordance with generally accepted accounting principles in the United States, and prepare financial reports in compliance with the rules and regulations of the SEC. In particular, there were numerous accounting errors and misapplications of accounting principles generally accepted in the United States, due in large measure, to the absence of a chief financial officer or other individual with the appropriate experience and background to handle accounting and financial reporting matters arising from the complexity of a number of our transactions. However, BDO Seidman, LLP has advised the Audit Committee that these conditions were considered in determining the nature, timing, and extent of the procedures performed for the audit of our financial statements as of and for the year ended December 31, 2003 and the SAS 100 review of our financial statements for the quarterly periods ended March 31, June 30 and September 30, 2004, and that these conditions did not affect its audit report dated April 4, 2004 with respect to our financial statements as of and for the year ended December 31, 2003, which includes an explanatory paragraph indicating that our recurring losses from operations and working capital deficit raise substantial doubt about our ability to continue as a going concern. Based upon management's review of our internal controls and procedures, our management, including our current chief executive officer and current chief financial officer, has determined that we had inadequate controls and procedures constituting material weaknesses as of December 31, 2003 which persisted during the first three quarters of fiscal year 2004. Our management has implemented and continues to implement potential enhancements to our internal controls and procedures that it believes will remedy the inadequacies in our internal controls and procedures. The following sets forth the steps we have taken through the fiscal period ended September 30, 2004: - In November 2003, we hired a permanent chief financial officer with public company reporting experience. This chief financial officer resigned in September 2004 and was replaced in October 2004. - In December 2003, we hired a staff accountant responsible for, among other things, recording accounts payable. The individual assists the chief financial officer and controller to identify, report and record transactions in a timely manner and provides additional segregation of duties consistent with our internal control objectives. - Management reassigned certain tasks among the expanded accounting department, as well as existing administrative personnel to perform ministerial accounting functions, to improve and better accomplish bookkeeping, recordkeeping and other accounting functions. - In August 2004 we hired a Vice President of Finance who will be wholly dedicated to the areas of internal control, financial accounting and reporting. - The review and sign off on all monthly bank reconciliations by the chief financial officer has been instituted. - The review of all underlying agreements, contracts and financing arrangements prior to execution for accounting ramifications has already been undertaken by the chief financial officer to the extent possible. - We strengthened certain controls over cash disbursements, including adopting a policy that requires dual signatures of two senior officers, at least one of whom is not involved in a transaction, on disbursements in excess of $10,000. - We strengthened certain controls over expense authorization and imposed financial oversight on all expenditure decisions. - We implemented a policy requiring attendance by outside counsel at all Board and Audit Committee meetings, including the timely preparation of minutes of such meetings and reports to management to discuss our implementation of any plans to address conditions constituting the material weaknesses in its internal controls. We have implemented and intend on implementing the following plans to enhance our internal controls in the fiscal quarter ending September 30, 2004 and in subsequent fiscal periods: - The addition of the new Vice President Finance (hired on August 2, 2004) has allowed further redistribution of responsibilities among the expanded accounting department and, more specifically, provide the chief financial officer with the necessary time to perform oversight and supervisory functions in future periods. This includes timely review of all underlying agreements, contracts and financing arrangements, expense reports, entries to the general ledger and periodic filings with the Securities and Exchange Commission. - Our implementation of formal mechanized month-end, quarter-end and year-end closing and consolidation processes. - In July 2004 we appointed two additional independent directors to serve on our Audit Committee. - As a result of the resignation of our chief financial officer in September 2004, we have hired Ronald C. Munkittrick as our new chief financial officer, effective October 12, 2004. While we believe that the remedial actions that have been or will be taken will result in correcting the conditions constituting the material weaknesses in our internal controls as soon as practicable, the exact timing of when the conditions will be corrected is dependent upon future events which may or may not occur. We are making every effort to correct the conditions expediently and expect to correct the conditions, thereby eliminating the material weaknesses no later than the fourth quarter of fiscal year 2004. It is estimated that the cost to implement the actions set forth above will be approximately $300,000 for our fiscal year ending December 31, 2004 and approximately $200,000 for each fiscal year thereafter. In addition, substantial additional costs may be necessary to implement the provisions of section 404 of the Sarbanes-Oxley Act of 2003 as relates to the company's documentation and testing of the effectiveness of internal controls in 2005. PART II - OTHER INFORMATION Item 1. Legal Proceedings From time to time, the Company is involved in claims and litigation that arise out of the normal course of business. Currently, other than as noted below there are no pending matters that in management's judgment may be considered potentially material to us. On June 3, 2003 two former executive officers, John Prufeta and Patricia Minicucci commenced an action against the Company by filing a Complaint in the Supreme Court of the State of New York for Nassau County (Index No. 03-008576) in which they alleged that the Company breached separation agreements entered into in December 2002 with each of them, and that the Company failed to repay amounts loaned by Mr. Prufeta to the Company. Mr. Prufeta sought approximately $395,000 (including a loan of $120,000) and Ms. Minicucci sought approximately $222,000. The Complaint was served on July 23, 2003. On July 15, 2003, the Company paid in full the $120,000 so loaned together with interest, without admitting the claimed default. On February 2, 2004, the Supreme Court of the State of New York for Nassau County issued an order for partial summary judgment in favor of Ms. Minicucci for the unpaid severance obligations of $138,064. The Company made severance payments to both former executives through May 2004 but due to capital constraints has not made any payments since then. We are continuing negotiations with the plaintiffs to settle the dispute amicably. In June 2004, the Company's former law firm commenced and action against the Company by filing a complaint in the Supreme Court of the State of New York for the county of New York (Index No. 108499/04) in which they alleged we breached our retainer agreement by failing to pay $435,280 for legal services allegedly performed. The Company believes it has valid defenses and/or counter claims which the Company intends to vigorously pursue. Item 2. Changes in Securities and Use of Proceeds On July 14, 2004, the Company entered into a Note and Warrant Purchase Agreement (the "Note Purchase Agreement") with Cottonwood Ltd. and Willow Bend Management Ltd., each an accredited investor. Under the terms of the Note Purchase Agreement, the Company issued a convertible promissory note due January 14, 2005 in the aggregate principal amount of $2,100,000 to each of Cottonwood Ltd. and Willow Bend Management Ltd. Each promissory note is convertible into shares of common stock at an initial conversion price of $0.30 cents per share, or 7,000,000 shares of common stock. In addition, the Company issued to each of Cottonwood Ltd. and Willow Bend Management Ltd. warrants exercisable into 4,683,823 shares of common stock at an exercise price of $0.11 cents per share, warrants exercisable into 4,683,823 shares of common stock at an exercise price of $0.15 cents per share, warrants exercisable into 4,683,823 shares of common stock at an exercise price of $0.35 cents per share and warrants exercisable into 4,683,823 shares of common stock at an exercise price of $0.40 cents per share. The warrants have a term of one year Redwood Capital Partners, Inc. acted as the Company's placement agent in connection with the Note Purchase Agreement. As compensation to Redwood for its services as placement agent and in addition to payment in cash of $320,000 to Redwood, the Company agreed to issue to Redwood warrants exercisable into 350,000 shares of common stock exercisable at $0.11 cents per share for a one year term, warrants exercisable into 350,000 shares of common stock exercisable at $0.15 cents per share for a one year term, warrants exercisable into 350,000 shares of common stock exercisable at $0.35 cents per share for a one year term and warrants exercisable into 350,000 shares of common stock exercisable at $0.40 cents per share for a one year term On July 14, 2004, the Company entered into a Letter Agreement (the "Letter Agreement") with Hilltop Services, Ltd. ("Hilltop") in connection with the anti-dilution provisions contained in that certain Common Stock and Warrant Purchase Agreement, dated March 4, 2004, between Hilltop and the Company (the "Hilltop Agreement"). Under the terms of the Letter Agreement and in consideration for the waiver by Hilltop of its anti-dilution rights, the Company issued to Hilltop an additional 24,130,435 shares of common stock, a convertible promissory note in the aggregate principal amount of $1,920,000 convertible into shares of the Company's common stock at a conversion price of $0.30 cents per share, or 6,400,000 shares of common stock, and warrants exercisable into 4,282,354 shares of common stock at an exercise price of $0.11 cents per share, warrants exercisable into 4,282,354 shares of common stock at an exercise price of $0.15 cents per share, warrants exercisable into 4,282,354 shares of common stock at an exercise price of $0.35 cents per share and warrants exercisable into 4,282,354 shares of common stock at an exercise price of $0.40 cents per share. In connection with the above issuance of the common stock and warrants under the Hilltop agreement, two placement agents received an aggregate of 1,720,360 shares of the Company's Common Stock. In August 2004 two individuals each received 500,000 shares of our common stock and warrants exercisable into 1,000,000 shares of common stock at an exercise price of $0.18 cents per share as compensation for financial advisory services performed for the Company. The warrants have a term of five years. In August and September 2004 the Company issued an aggregate of 16,766,816 shares of common stock to various vendors and consultants in connection with settlement and satisfaction of the Company's obligations to such parties. The sale and issuance of the above securities were determined to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act or Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering, where the purchasers were either accredited or sophisticated and represented their intention to acquire securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof, and where the purchasers received or had access to adequate information about the Company. Item 6. Exhibits a. Exhibits EXHIBIT DESCRIPTION NO. 4.1 Note and Warrant Purchase Agreement, dated as of July 14, 2004, relating to the sale of convertible promissory notes by and between the Company, Cottonwood Ltd. and Willow Bend Management Ltd., incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.2 Convertible Promissory Note dated July 14, 2004 issued to Cottonwood Ltd. in the aggregate principal amount of $2,100,000, incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.3 Convertible Promissory Note dated July 14, 2004 issued to Willow Bend Management Ltd. in the aggregate principal amount of $2,100,000, incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.4 Convertible Promissory Note dated July 14, 2004 issued to Hilltop Services, Ltd. in the aggregate principal amount of $1,920,000, incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.5 Warrant dated July 14, 2004 issued to each of Cottonwood Ltd. and Willow Bend Management Ltd. at an exercise price of $0.11 cents, incorporated by reference to Exhibit 4.5 to the Company's Registration 4.6 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to each of Cottonwood Ltd. and Willow Bend Management Ltd. at an exercise price of $0.15 cents, incorporated by reference to Exhibit 4.6 to the Company's Registration 4.7 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to each of Cottonwood Ltd. and Willow Bend Management Ltd. at an exercise price of $0.35 cents, incorporated by reference to Exhibit 4.7 to the Company's Registration 4.8 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to each of Cottonwood Ltd. and Willow Bend Management Ltd. at an exercise price of $0.40 cents, incorporated by reference to Exhibit 4.8 to the Company's Registration 4.9 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an exercise price of $0.11 cents, incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.10 Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an exercise price of $0.15 cents, incorporated by reference to Exhibit 4.10 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.11 Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an exercise price of $0.35 cents, incorporated by reference to Exhibit 4.11 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.12 Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an exercise price of $0.40 cents, incorporated by reference to Exhibit 4.12 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.13 Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at an exercise price of $0.11 cents, incorporated by reference to Exhibit 4.13 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.14 Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at an exercise price of $0.15 cents, incorporated by reference to Exhibit 4.14 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.15 Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at an exercise price of $0.35 cents, incorporated by reference to Exhibit 4.15 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.16 Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at an exercise price of $0.40 cents, incorporated by reference to Exhibit 4.16 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.17 Warrants dated August 18, 2004 issued to Mr. Richard Rosenblum at an exercise price of $0.18 cents, incorporated by reference to Exhibit 4.17 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.18 Warrants dated August 18, 2004 issued to Mr. David Stefansky at an exercise price of $0.18 cents, incorporated by reference to Exhibit 4.18 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.19 Letter Agreement, dated as of July 14, 2004, by and between the Company and Hilltop Services, Ltd, incorporated by reference to Exhibit 4.19 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.20 Settlement Agreement and Release, dated as of August 20, 2004, by and between the Company and Clinton Group, Inc., incorporated by reference to Exhibit 4.25 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 10.1 Asset Purchase Agreement among Ramp Corporation and Berdy Medical Systems, Inc., dated October 18, 2004. 10.2 Employment Agreement between the Company and Ronald C. Munkittrick, dated as of October 12, 2004. 31.1 Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification by Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, and the undersigned has also signed in his capacity as principal financial officer of the Registrant. Dated: November 15, 2004 Ramp Corporation ---------------- (Registrant) /s/ Ron Munkittrick ------------------- Ron Munkittrick Chief Financial Officer EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 4.1 Note and Warrant Purchase Agreement, dated as of July 14, 2004, relating to the sale of convertible promissory notes by and between the Company, Cottonwood Ltd. and Willow Bend Management Ltd., incorporated by reference to Exhibit 4.1 to the Company's Registration = Statement on Form S-3 filed with the SEC on September 24, 2004. 4.2 Convertible Promissory Note dated July 14, 2004 issued to Cottonwood Ltd. in the aggregate principal amount of $2,100,000, incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.3 Convertible Promissory Note dated July 14, 2004 issued to Willow Bend Management Ltd. in the aggregate principal amount of $2,100,000, incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.4 Convertible Promissory Note dated July 14, 2004 issued to Hilltop Services, Ltd. in the aggregate principal amount of $1,920,000, incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.5 Warrant dated July 14, 2004 issued to each of Cottonwood Ltd. and Willow Bend Management Ltd. at an exercise price of $0.11 cents, incorporated by reference to Exhibit 4.5 to the 4.6 Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to each of Cottonwood Ltd. and Willow Bend Management Ltd. at an exercise price of $0.15 cents, incorporated by reference to Exhibit 4.6 to the 4.7 Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to each of Cottonwood Ltd. and Willow Bend Management Ltd. at an exercise price of $0.35 cents, incorporated by reference to Exhibit 4.7 to the 4.8 Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to each of Cottonwood Ltd. and Willow Bend Management Ltd. at an exercise price of $0.40 cents, incorporated by reference to Exhibit 4.8 to the 4.9 Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an exercise price of $0.11 cents, incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.10 Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an exercise price of $0.15 cents, incorporated by reference to Exhibit 4.10 to the Company's Registration Statement on 4.11 Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an exercise price of $0.35 cents, incorporated by reference to Exhibit 4.11 to the Company's Registration Statement on 4.12 Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an exercise price of $0.40 cents, incorporated by reference to Exhibit 4.12 to the Company's Registration Statement on 4.13 Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at an exercise price of $0.11 cents, incorporated by reference to Exhibit 4.13 to the Company's Registration 4.14 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at an exercise price of $0.15 cents, incorporated by reference to Exhibit 4.14 to the Company's Registration 4.15 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at an exercise price of $0.35 cents, incorporated by reference to Exhibit 4.15 to the Company's Registration 4.16 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at an exercise price of $0.40 cents, incorporated by reference to Exhibit 4.16 to the Company's Registration 4.17 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrants dated August 18, 2004 issued to Mr. Richard Rosenblum at an exercise price of $0.18 cents, incorporated by reference to Exhibit 4.17 to the Company's Registration Statement on 4.18 Form S-3 filed with the SEC on September 24, 2004. Warrants dated August 18, 2004 issued to Mr. David Stefansky at an exercise price of $0.18 cents, incorporated by reference to Exhibit 4.18 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.19 Letter Agreement, dated as of July 14, 2004, by and between the Company and Hilltop Services, Ltd, incorporated by reference to Exhibit 4.19 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. 4.20 Settlement Agreement and Release, dated as of August 20, 2004, by and between the Company and Clinton Group, Inc., incorporated by reference to Exhibit 4.25 to the Company's Registration Statement on Form S-3 filed with the SEC on September 24, 2004. *10.1 Asset Purchase Agreement among Ramp Corporation and Berdy Medical Systems, Inc., dated October 18, 2004. *10.2 Employment Agreement between the Company and Ronald C. Munkittrick, dated as of October 12, 2004. *31.1 Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *31.2 Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *32 Certification by Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - ---------------- * Filed herewith EX-10 2 ex101_f10q-9302004.txt 10.1 - ASSET PURCHASE AGREEMENT Exhibit 10.1 ASSET PURCHASE AGREEMENT by and between BERDY MEDICAL SYSTEMS, INC., a Delaware corporation d/b/a Berdy Medical Systems, and RAMP CORPORATION, a Delaware corporation
Table of Contents ----------------- Page ---- ARTICLE 1 CERTAIN DEFINITIONS.............................................................................1 ARTICLE 2 SALE AND PURCHASE OF THE PURCHASED ASSETS.......................................................1 2.1 Purchase of the Purchased Assets................................................................1 2.2 No Assumption of Excluded Liabilities...........................................................3 2.3 Purchase Price..................................................................................5 2.4 Deferred Consideration..........................................................................5 2.5 Allocation of Purchase Price....................................................................5 2.6 Delivery and Assignment of Purchased Assets; Attorney-in-Fact...................................5 2.7 Legending of Securities.........................................................................6 ARTICLE 3 CLOSING.........................................................................................7 3.1 The Closing.....................................................................................7 3.2 Deliveries of the Seller........................................................................7 3.3 Deliveries of the Purchaser.....................................................................8 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE SELLER...................................................9 4.1 Organization; Good Standing.....................................................................9 4.2 Authority; Enforceability.......................................................................9 4.3 Capitalization..................................................................................9 4.4 No Conflict....................................................................................10 4.5 Litigation; Compliance with Law................................................................10 4.6 Consents/Bulk Sales............................................................................10 4.7 Financial Statements...........................................................................11 4.8 Absence of Undisclosed Liabilities.............................................................11 4.9 Taxes..........................................................................................11 4.10 Title to Purchased Assets......................................................................12 4.11 Fixed Assets...................................................................................12 4.12 Intellectual Property Matters..................................................................13 4.13 Material Agreements............................................................................13 4.14 Customers and Suppliers........................................................................14 4.15 Inventory......................................................................................15 4.16 Accounts Receivable............................................................................15 4.17 Authorizations.................................................................................15 4.18 Environmental Matters..........................................................................15 4.19 Related Parties................................................................................16 4.20 Improper or Unlawful Payments..................................................................16 4.21 No Brokers.....................................................................................17 4.22 Product Warranties; Returns....................................................................17 4.23 Insurance......................................................................................17 -i- Table of Contents ----------------- (continued) Page ---- 4.24 Real Property..................................................................................17 4.25 Employees; Employee Benefits...................................................................17 4.26 Affiliated Party Transactions..................................................................19 4.27 Bank Accounts..................................................................................19 4.28 Debt...........................................................................................19 4.29 Investment Undertaking.........................................................................19 4.30 Review of SEC Forms............................................................................20 4.31 No Misstatements or Omissions..................................................................20 4.32 No Fiduciary Relationship, Etc.................................................................20 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER................................................22 5.1 Organization; Good Standing....................................................................22 5.2 Authority; Enforceability......................................................................22 5.3 No Conflict....................................................................................22 5.4 Litigation.....................................................................................22 5.5 Consents.......................................................................................22 5.6 Issuance of Purchaser Common Stock.............................................................23 5.7 No Brokers.....................................................................................23 ARTICLE 6 COVENANTS......................................................................................23 6.1 Further Assurances.............................................................................23 6.2 Transfer and Retention of Records..............................................................23 6.3 Employee Matters...............................................................................23 6.4 Tax Matters....................................................................................24 6.5 Name Changes...................................................................................24 6.6 Purchase of Insurance "Tail"...................................................................24 6.7 Publicity......................................................................................24 6.8 Collection of Accounts Receivable..............................................................25 ARTICLE 7 CONFIDENTIALITY; NONSOLICITATION AND NON-COMPETITION COVENANTS.................................26 7.1 Confidentiality; Non-Competition; Nonsolicitation..............................................26 7.2 Remedies.......................................................................................27 7.3 Independence of Agreements.....................................................................27 7.4 Enforceability.................................................................................28 ARTICLE 8 INDEMNIFICATION................................................................................28 8.1 Survival of Representations and Warranties.....................................................28 8.2 Indemnification by the Seller..................................................................28 8.3 Indemnification by the Purchaser...............................................................29 8.4 Indemnification Procedures - Third-Party Claims................................................29 -ii- Table of Contents ----------------- (continued) Page ---- 8.5 Procedure for Indemnification - Direct Indemnification Claims..................................31 8.6 Right to Indemnification Not Affected by Knowledge or Waiver...................................31 8.7 Time Limitations...............................................................................32 8.8 Limitations on Amount..........................................................................32 8.9 Right To Set-off Against the Consideration Shares..............................................33 8.10 Arbitration with Respect to Set-Off Rights.....................................................33 ARTICLE 9 MISCELLANEOUS..................................................................................34 9.1 Expenses.......................................................................................34 9.2 Amendment......................................................................................34 9.3 Entire Agreement...............................................................................34 9.4 Waiver.........................................................................................34 9.5 Notices........................................................................................34 9.6 Governing Law; Jurisdiction....................................................................35 9.7 Severability...................................................................................36 9.8 Binding Effect; Assignment.....................................................................36 9.9 Headings.......................................................................................36 9.10 Third Parties..................................................................................36 9.11 Counterparts...................................................................................37
-iii- ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT dated as of October 18, 2004 (this "Agreement"), by and between BERDY MEDICAL SYSTEMS, INC., a Delaware corporation d/b/a Berdy Medical Systems (the "Seller") and Ramp Corporation, a Delaware corporation (the "Purchaser"). WHEREAS, the Seller owns the SmartClinic(R), SmartVoice(R), and SmartGist(R) point-of-care software technologies and other assets which, among other things, enable off-line device utilization, interoperability, integration with facility based and reference labs, speech recognition and natural language processing of patient data and medical records (the "Business"). WHEREAS, the Seller desires to sell and transfer to the Purchaser, and the Purchaser desires to purchase and acquire from the Seller, substantially all of the assets, properties and rights of the Seller that are used in, or are related to, the Business, all upon the terms and provisions, and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and legal adequacy of which is acknowledged, the parties agree as follows: ARTICLE 1 CERTAIN DEFINITIONS ------------------- The terms defined in Appendix I attached hereto, whenever used in this Agreement (including, without limitation, the exhibits and schedules attached hereto), shall have the meanings given to them in Appendix I. ARTICLE 2 SALE AND PURCHASE OF THE PURCHASED ASSETS ----------------------------------------- 2.1 Purchase of the Purchased Assets. At the Closing, upon the terms and provisions and subject to the conditions hereof, and based upon the representations, warranties, covenants and agreements of the Seller contained in this Agreement and the Seller Documents and the exhibits and schedules attached hereto and thereto, the Seller shall sell, transfer, assign, convey and deliver to the Purchaser, and the Purchaser shall purchase and acquire from the Seller, free and clear of all Liens, all of the right, title and interest of the Seller in and to the assets of the Seller utilized in, or necessary to conduct, the Business, wherever located and however situated (collectively, the "Purchased Assets"). Without limiting the foregoing, the Purchased Assets shall include: (i) all cash, cash equivalents and marketable securities of the Seller; (ii) all prepaid expenses of the Seller; (iii) all security deposits of the Seller; (iv) all of the Inventory of the Seller; (v) all of the Accounts Receivable, notes and other amounts receivable and the proceeds of any of the foregoing (including, without limitation, all rebates or vendor reimbursements due from any supplier or vendor or buying association with respect to the period prior to the Closing); (vi) all of the Intellectual Property Rights (and all goodwill associated therewith, if any) related to or used in the Business including, without limitation, the trademarks "SmartClinic(R)", "SmartVoice(R)", "SmartGist(R)", trade names, and any and all trademarks and trademark applications of the Seller, and any derivatives or combinations thereof; (vii) all right, title and interest of the Seller in and to the Intangibles; (viii) all of the Seller's books and records relating to the Business, the Purchased Assets and the Assumed Liabilities (excluding the equity ownership records and minute books of the Seller) including, without limitation: quality control records; records relating to the Authorizations; records relating to the adoption and use of any of the Intellectual Property Rights; specifications; sales; purchasing; rebates; customer lists; vendors; suppliers; product registrations; mailing lists; advertising materials; catalogs (digital and print); market research data; promotional and marketing materials (digital and print); print, radio and television commercials; label and shipping carton dies; designs; films; artwork; photography; mechanical art; color separations; prints, plates and graphic material; and all files and correspondence related to any of the foregoing; (ix) all right, title and interest of the Seller to the Fixed Assets owned by the Seller; (x) the Material Agreements; (xi) all governmental approvals, authorizations, consents, licenses, orders, franchises, and other permits of any Governmental Entity owned, held, or utilized by the Seller in connection with the Business, including the Authorizations; (xii) all raw materials, work in process, supplies, spare parts, tooling and shipping and packaging materials; (xiii) the exclusive right of the Purchaser to represent itself as carrying on the Business in continuation thereof, including, without -2- limitation, all telephone, facsimile, and customer service or 800 phone numbers; (xiv) all manufacturer warranties provided to the Seller with respect to any items which are part of the Purchased Assets; and (xv) all goodwill and all other rights, properties, and assets of any kind or character whatsoever directly or indirectly relating to the conduct of the Business, whether tangible or intangible, owned, licensed, or held by the Seller, including, without limitation, the full benefit of all third party representations, warranties, guarantees, indemnities, undertakings, certificates, covenants, agreements and any similar or related documents and all security received by the Seller for the purchase or other acquisition of any part of the Purchased Assets, except to the extent such rights, properties, or assets are expressly excluded by the terms of this Agreement. 2.2 No Assumption of Excluded Liabilities. The Purchaser shall not assume, or have any liability, responsibility or obligation, directly or indirectly, for any liability, responsibility or obligation of the Seller or which in any way relate to or arise from the Business, the Purchased Assets or otherwise (whether known or unknown, fixed or contingent, matured or unmatured) (the "Excluded Liabilities"), and all such Excluded Liabilities shall at and after the Closing remain the sole and exclusive responsibility of the Seller except for those obligations and liabilities of the Seller to be paid or performed after the Closing Date under the Material Agreements (the "Assumed Liabilities"). Without limiting the generality of the foregoing, the Excluded Liabilities shall include without limitation: (i) all costs and expenses incurred by the Seller incident to its negotiation and preparation of this Agreement and its performance and compliance with the agreements and conditions contained herein; (ii) any and all liabilities and obligations for accounts payable, indebtedness, loans, lines of credit, advances, capitalized lease obligations, real property leases, equipment leases, machinery leases or other personal property leases and accrued expenses; (iii) all liabilities or obligations in respect of Taxes (whether imposed on the Seller, shareholders of the Seller, or any of their Affiliates) arising with respect to the Business or the Purchased Assets on or before the Closing Date, or the sale of the Purchased Assets to the Purchaser, including sales or other transfer Tax and payroll tax, whenever such Taxes become due or payable; (iv) all liabilities and obligations, including damages, fines, and penalties, with respect to pending or threatened litigation, suits, claims, demands, or investigations or proceedings by Governmental Authorities to -3- the extent they relate to or arise from occurrences, actions, or non-actions prior to the Closing Date; (v) all liabilities or obligations imposed by any Legal Requirement or associated with, arising out of or arising from (i) noncompliance by the Seller with any Legal Requirement, including, but not limited to, those relating to employment practices and Environmental Requirements prior to the Closing Date, (ii) the occupancy, operation, use or control of any of the property of the Seller prior to the Closing Date, or (iii) the operation of the Business prior to the Closing Date; (vi) all claims, demands, liabilities, obligations, or litigation of any nature whatsoever arising out of or based upon events occurring or conditions existing on or before the Closing Date which relate to products sold or services performed by the Seller on or before the Closing Date (including, without limitation, product returns, credits and exchanges relating to sales of products prior to the Closing Date or any other action or inaction of the Seller), whether founded upon negligence, breach of warranty, strict liability in tort and/or other legal theory seeking compensation or recovery for or relating to injury to persons or damage to property, notwithstanding that the date on which the injury, claim, demand, liability, or obligation was or is either before or after the Closing Date; (vii) all claims, demands, obligations or liabilities, including the cost and expenses of defense thereof, whether arising out of, based upon, or related to workers' compensation or employer's liability claims, negligence, strict liability in tort and/or other legal theory seeking compensation and/or recovery and arising out of injuries and occupational diseases sustained by employees of the Seller on or before the Closing Date; (viii) all liabilities and obligations arising prior to the Closing Date, of any contract, engagement, or commitment, including the Material Agreements; (ix) all wages, compensation, premiums for medical and health insurance, severance premiums, accrued vacation or sick days relating to the employees of the Seller accruing or arising on or prior to the Closing Date; and (x) all costs, expenses, and other liabilities associated with the Seller's employees, including without limitation, all liabilities, debts, and obligations relating to any employee deferred compensation profit sharing plans and savings and stock ownership plans and pension or retirement plans, health, and other employee plans, including, without limitation, any defined benefit pension plan or 401(k) plan. -4- 2.3 Purchase Price. In consideration for the sale, transfer, assignment, conveyance and delivery to the Purchaser of the Purchased Assets (free and clear of any and all Liens) and the representations and warranties, covenants and agreements of the Seller set forth herein and in the Seller Documents and upon the terms and subject to the conditions contained herein, at Closing the Purchaser shall issue and deliver to the Seller an aggregate number of shares (the "Consideration Shares") of the Purchaser's common stock, par value $.001 per share ("Common Stock"), equal to the quotient of $400,000 divided by the Market Value of the Common Stock (as defined below) ("Purchase Price"). For purposes of this Section 2.3, "Market Value of the Common Stock" shall be equal to the volume-weighted average closing bid price per share of Common Stock as quoted on the American Stock Exchange for the five (5) trading days immediately preceding the Closing Date. 2.4 Deferred Consideration. As additional consideration for the purchase and sale of the Purchased Assets, at Closing, Seller, Purchaser and the Secured Creditors (as defined herein) shall enter into an escrow agreement (the "Escrow Agreement"), in the form of Exhibit A attached hereto, pursuant to which, subject to any set off rights contained in the Escrow Agreement for indemnification claims under this Agreement, Purchaser shall agree to deliver to the escrow agent the amount equal to five percent (5%) of all maintenance fees collected by the Purchaser solely in connection with the SmartClinic(R) electronic medical records system business during the two (2) year period commencing on the Closing Date and terminating on the second anniversary of the Closing Date. 2.5 Allocation of Purchase Price. The Purchase Price for the Purchased Assets and the amount of the Assumed Liabilities shall be allocated among the Purchased Assets sold, transferred, assigned and conveyed pursuant to this Agreement, in the manner set forth on Schedule 2.5 attached hereto. Each party shall treat the purchase and sale pursuant to this Agreement consistently with such allocations for all purposes, including, without limitation, determining any Taxes and filing its Form 8594, and shall not take any position inconsistent therewith, whether on a Tax Return, before a Governmental Entity or any judicial or other proceeding. In the event the allocation is disputed by any Governmental Entity, the party receiving notice of such dispute shall promptly notify and consult with the other parties concerning the resolution of such dispute, and shall keep the other parties apprised of the status of such dispute and the resolution thereof. For purposes of the preparation of Form 8594, each party's name, address and taxpayer identification number is set forth on Schedule 2.5 attached hereto. 2.6 Delivery and Assignment of Purchased Assets; Attorney-in-Fact. ------------------------------------------------------------- (a) The Purchased Assets are physically located at the locations set forth on Schedule 2.6 hereof. At or immediately following the Closing, the Seller will put the Purchaser into full physical possession and enjoyment of the Purchased Assets by delivery of the Purchased Assets to a location designated by the Purchaser. With respect to the Purchased Assets that cannot be physically delivered to the Purchaser because they are in the possession of third parties or otherwise, the Seller shall give irrevocable instructions to the party in possession thereof, immediately following the Closing, with copies to the Purchaser, that all right, title, and interest therein have been vested in the Purchaser and that the same are to be held for the Purchaser's exclusive use and benefit. -5- (b) To the extent that the assignment by the Seller to the Purchaser of any Material Agreement or other contract, agreement, instrument, license, understanding, or arrangement to be assigned to the Purchaser hereunder shall require the consent of a party other than the Seller, including those set forth on Schedule 4.6, which has not been obtained prior to the Closing and if the Seller and the Purchaser shall nevertheless elect to consummate the transactions contemplated by this Agreement, this Agreement shall not constitute an agreement to assign the same if an attempted assignment without such consent would constitute a breach thereof unless the Purchaser before, at, or after the Closing elects in a writing delivered to the Seller, specifically identifying such absent consent, to waive such consent. (c) All costs and expenses incurred in connection with the assignment and transfer of the Purchased Assets (including, but not limited to, amounts required to be paid in order to obtain necessary consents for such assignments and transfers) shall be borne solely by the Seller. (d) The Seller hereby constitutes and appoints the Purchaser, and its successors and permitted assigns, the true and lawful attorneys-in-fact of the Seller with full power of substitution, in the name of the Purchaser or the name of the Seller, on behalf of and for the benefit of the Purchaser, to collect all accounts receivable included within the Purchased Assets and other items being transferred, conveyed and assigned to the Purchaser as provided herein, to endorse, without recourse, checks, notes and other instruments included with the Purchased Assets in the name of the Seller for the purpose of collection, to institute and prosecute, in the name of the Seller or otherwise, all proceedings which the Purchaser may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the Purchased Assets being transferred, conveyed and assigned as provided herein and to defend and compromise or settle any and all actions, suits or proceedings in respect of any of such Purchased Assets and Assumed Liabilities and to do all such acts and things in relation thereto as the Purchaser may deem advisable in its sole discretion; provided, however, that Purchaser shall have no authority to compromise or settle any claim relating to the collection of any of the accounts receivable except in accordance with the provisions of Section 6.8 of this Agreement. The Seller acknowledges and agrees that the foregoing powers are coupled with an interest and shall be irrevocable. The Seller further agrees that the Purchaser shall retain for its own account any amounts collected pursuant to the foregoing powers, and the Seller and its Affiliates shall pay to the Purchaser, if and when received, any amounts which shall be received by the Seller or its Affiliates after the Closing in respect of the Purchased Assets to be transferred, conveyed and assigned to the Purchaser as provided herein. 2.7 Legending of Securities. Each certificate for Purchaser Common Stock to be issued to the Seller as part of the Consideration Shares shall bear substantially the following legend: "THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT SUCH -6- REGISTRATION UNDER THE SECURITIES ACT OR AN EXEMPTION THEREFROM." ARTICLE 3 CLOSING ------- 3.1 The Closing. The closing of the purchase and sale of the Purchased Assets hereunder and the other transactions contemplated hereby (the "Closing") shall take place on October 18, 2004 (the "Closing Date"). The Closing shall take place at the offices of Jenkens & Gilchrist Parker Chapin, LLP, counsel to the Purchaser. 3.2 Deliveries of the Seller. At the Closing and subject to the terms, provisions and conditions contained herein, the Seller shall take all actions and do all things necessary to sell, transfer, assign, convey and deliver the Purchased Assets to the Purchaser, free and clear of any and all Liens, and to consummate the transactions contemplated hereby, including, without limitation, delivery or causing to be delivered to the Purchaser the following: (a) Bill of Sale, Assignment and Assumption Agreement (the "Bill of Sale"), in the form of Exhibit B attached hereto, with full covenants of warranty as to the good and indefeasible title of the Seller in the Purchased Assets covered thereby, necessary to sell, transfer and assign all of the Seller's right, title and interest in and to the Purchased Assets, free and clear of any and all Liens; (b) such instruments of sale, assignment, transfer and conveyance as the Purchaser may request in order to record the sale, assignment, transfer and conveyance of any of the Intellectual Property Rights with the United States Patent and Trademark Office, the United States Copyright Office and any other Governmental Entity, domestic or foreign; (c) the employment agreement between HealthRamp, Inc., a wholly owned subsidiary of the Purchaser ("HealthRamp") and Dr. Jack Berdy (the "Berdy Employment Agreement"), executed by Dr. Berdy; (d) the employment agreement between HealthRamp and Mr. Rich Holtmeier (the "Holtmeier Employment Agreement"), executed by Mr. Holtmeier; (e) the Escrow Agreement, in the form of Exhibit A, executed by the Seller and each of the secured creditors of the Seller (the "Secured Creditors"); (f) a certificate of good standing of the Seller, dated as of a recent date, from the Secretary of State of the State of Delaware; (g) a certificate, dated as of the Closing Date, executed by the Secretary of the Seller certifying that attached thereto are (i) true, correct and complete copies of the Certificate of Incorporation and by-laws of the Seller; (ii) true, correct and complete copy of the resolutions adopted by the Board of Directors and the stockholders of the Seller authorizing the execution, delivery and performance of this Agreement and the Seller Documents and the -7- consummation of the transactions contemplated hereby and thereby; and (iii) the incumbency of the officers of the Seller executing this Agreement and the Seller Documents; (h) copies of all consents listed on Schedule 4.6 attached hereto and all Authorizations necessary or required to be obtained in order to consummate the transactions contemplated hereby; (i) evidence reasonably satisfactory to the Purchaser of the payment by the Seller of all Taxes, if any, based upon or relating to the sale, assignment, conveyance and transfer of the Purchased Assets to the Purchaser and the consummation of the transactions contemplated hereby; (j) evidence of filing of such Uniform Commercial Code termination of financing statements and such other termination and release agreements as are required in order to sell, transfer, assign, convey and deliver to the Purchaser all rights, title and interest of the Seller in and to the Purchased Assets, free and clear of all Liens, including, without limitation, consents and release of any Liens from each of the Secured Creditors; (k) all of the Seller's books, records and other data and materials contemplated by Section 2.1 of this Agreement (l) Agreement, Termination and Release (the "Agreement, Termination and Release") in substantially the form attached hereto as Exhibit C from each of the secured creditors of Seller; and (m) such other certificates, documents, receipts and instruments as the Purchaser or its legal counsel may reasonably request. 3.3 Deliveries of the Purchaser. At the Closing and subject to the terms, provisions and conditions contained herein, the Purchaser shall deliver, or cause to be delivered, to the Seller the following: (a) a stock certificate representing the Consideration Shares issued to the Seller; (b) the Berdy Employment Agreement, executed by HealthRamp; (c) the Holtmeier Employment Agreement, executed by HealthRamp; (d) the Escrow Agreement, executed by the Purchaser; (e) a certificate of good standing of the Purchaser, dated as of a recent date, from the Secretary of State of the State of Delaware; (f) a certificate dated as of the Closing Date, executed by the Secretary of the Purchaser certifying that attached thereto is: (i) a true, correct and complete copy of the Certificate of Incorporation and by-laws of the Purchaser; (ii) a true, correct and complete copy of the resolutions adopted by the board of directors of the Purchaser authorizing the execution, -8- delivery and performance of this Agreement and the Purchaser Documents and the consummation of the transactions contemplated hereby and thereby; and (iii) the incumbency of the officers of the Purchaser executing this Agreement and the Purchaser Documents; (g) a letter from the American Stock Exchange approving the listing of the Consideration Shares on the American Stock Exchange; and (h) such other certificates, documents and instruments as the Seller or its legal counsel may reasonably request. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE SELLER ---------- The Seller hereby represents and warrants to the Purchaser as follows: 4.1 Organization; Good Standing. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the power and authority to own and lease its assets and properties and to conduct the Business as it is now being conducted. The Seller is qualified to do business as a foreign company in all jurisdictions where it is required to be qualified, except those jurisdictions whereby the failure to qualify would not have a Material Adverse Effect. 4.2 Authority; Enforceability. The Seller has the corporate power and authority to execute, deliver and perform this Agreement and all other agreements, certificates and documents executed or delivered, or to be executed or delivered, by the Seller in connection herewith (collectively, the "Seller Documents"), and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the Seller Documents by the Seller has been duly authorized by all necessary corporate action on the part of the Seller. This Agreement and each of the Seller Documents have been duly executed and delivered by the Seller and this Agreement and each of the Seller Documents constitute (or, in the case of certain the Seller Documents, when executed and delivered will constitute) the legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with their respective terms. 4.3 Capitalization. The Seller has ___ shares of authorized capital stock consisting of ___ shares of common stock, ___ of which are issued and outstanding, and consisting of _____ shares of preferred stock, _________ of which are issued and outstanding. The Seller has no outstanding (i) securities or instruments convertible into or exercisable for any of the capital stock or other equity interests of the Seller; (ii) options, warrants, subscriptions or other rights to acquire capital stock or other equity interests of the Seller; or (iii) commitments, agreements or understandings of any kind, including employee benefit arrangements, relating to the issuance or repurchase by the Seller of any of its capital stock or other equity interests, or any instruments convertible or exercisable for any such securities or any options, warrants or rights to acquire such securities. -9- 4.4 No Conflict. Except to the extent required under Schedule 4.6, the execution, delivery and performance of this Agreement and the Seller Documents by the Seller and the consummation of the transactions contemplated hereby and thereby do not and will not (i) violate or conflict with any provision of the Certificate of Incorporation or the by-laws of the Seller; (ii) violate, conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under, give rise to a right of termination, amendment or cancellation of, accelerate the performance required by, or result in any payment under, any Material Agreement, instrument or other writing of any nature whatsoever to or by which the Seller is a party or is bound, or by which any of the Purchased Assets or the Business is subject; (iii) violate, conflict with or result in a breach of any Legal Requirement applicable to the Seller; (iv) result in the creation of any Lien on any of the Purchased Assets; or (v) render void or create a right of amendment, termination or rescission under any Material Agreement or other arrangement with a customer of or vendor to the Business. 4.5 Litigation; Compliance with Law. ------------------------------- (a) Schedule 4.5(a) attached hereto contains a true, complete and correct list of all action, suits, proceedings (including, without limitation, all arbitrations and alternative dispute resolution proceedings), or governmental investigations pending or, to the best knowledge of the Seller, threatened against the Seller or any of its properties or assets or any of the Seller's officers, directors or employees which in any way arises out of or relates to the Business or any of the Purchased Assets, in each case, at any time during the last five (5) years. Except as set forth in Schedule 4.5(a) attached hereto, there is no claim, action, suit, proceeding (including, without limitation, all arbitrations and alternative dispute resolution proceedings) or governmental investigation before any court, arbitrator or Governmental Entity pending or, to the best knowledge of the Seller, threatened against the Seller or which relates to or arises out of the Business or any of the Purchased Assets or Assumed Liabilities or the transactions contemplated by this Agreement, nor does the Seller have knowledge of any reasonably likely basis or set of circumstances for any such action, suit, proceeding, claim or investigation: (i) the result of which could have a Material Adverse Effect; (ii) questions the validity of this Agreement or the transactions contemplated hereby; (iii) could impair the ability of the Seller to consummate the transactions contemplated hereby or by the Seller Documents; (iv) could adversely affect and impact the Purchaser's rights to, or enjoyment of, the Purchased Assets and the Business following the Closing; or (v) seeks to delay, prohibit, or restrict in any manner any action contemplated hereby. (b) Except as set forth on Schedule 4.5(b) attached hereto, none of the Purchased Assets or the Seller or any of the Seller's officers, managers or employees, in each case with respect to the Business or the Purchased Assets, is subject or a party to, or bound by or otherwise affected by, any judgment, order, decree, restraint or other directive of or stipulation with any court or other Governmental Authority or tribunal, or in violation of any other Legal Requirement, and the Seller has no knowledge of any reasonable basis for a claim that such a violation exists. The Seller is not aware of any proposed Legal Requirement that might affect any of the operations or prospects of the Business or any of the Purchased Assets or the Assumed Liabilities. -10- 4.6 Consents/Bulk Sales. ------------------- (a) Except as set forth on Schedule 4.6, no filing or registration with, notice to or authorization, consent or approval or other action (including, without limitation, the grant of any waiver) of any Governmental Entity or any other Person is required to be obtained by the Seller in connection with: (i) the sale to the Purchaser of the Purchased Assets or the assumption of the Assumed Liabilities; (ii) the execution, delivery and performance of this Agreement and the Seller Documents and the consummation of the transactions contemplated hereby and thereby; and (iii) following the Closing, the enjoyment and possession by the Purchaser of all of the rights and privileges with respect to the Purchased Assets and the Business. (b) There are no "bulk sales" or similar laws (including, without limitation, any Legal Requirement which may impose transferee liability on the Purchaser or any of its Affiliates or create any Lien on any of the Purchased Assets) applicable to the sale, assignment, conveyance and transfer of the Purchased Assets to the Purchaser and the consummation of the transactions contemplated by this Agreement. 4.7 Financial Statements. Schedule 4.7 attached hereto sets forth a true and correct copy of the Seller's Balance Sheet, Statement of Operations, Stockholders' Equity (Deficit) and Cash Flows as of and for the fiscal years ended December 31, 2003, 2002 and 2001, including the notes thereto and the reports thereon of the Seller's independent auditors (the "Audited Financial Statements") and the Seller's Unaudited Balance Sheet, Statement of Operations, Stockholders' Equity (Deficit) and Cash Flows as of and for the fiscal period ended March 31, 2004 (the "Unaudited Financial Statements" and, together with the Audited Financial Statements, the "Financial Statements"). The Financial Statements (i) were prepared in accordance with GAAP and, if applicable, audited in accordance with GAAS, consistently applied, (ii) were prepared from and are in agreement with the books and records of the Seller, and (iii) fairly presents the financial position of the Seller for the periods set forth in such Financial Statements. 4.8 Absence of Undisclosed Liabilities. Except as set forth on Schedule 4.8 attached hereto or as set forth or adequately reserved against on the Seller's Balance Sheet as of and for the fiscal period ended March 31, 2004 (or disclosed in the notes thereto), the Seller has no liabilities or obligations, other than those incurred in the ordinary course of business and in a manner consistent with past practices. Except as set forth on Schedule 4.8 attached hereto, all liabilities and obligations of the Seller incurred since January 1, 2003 have been incurred in the ordinary course of business in a manner consistent with past practice and do not and will not have a Material Adverse Effect. For purposes of this Section 4.8, all references to the Seller's liabilities shall include, without limitation, all liabilities, whether direct or indirect, absolute, contingent or matured, known or unknown, asserted or unasserted, and liquidated or unliquidated. 4.9 Taxes. (a) Except as set forth on Schedule 4.9(a) attached hereto: (i) The Seller has duly and timely filed (in accordance with any extensions duly granted by the appropriate Governmental Entity) with the appropriate Governmental Entity all Tax Returns required to be filed by the Seller for Taxes, and paid the amount of Tax showing as payable on -11- such Tax Returns, for all periods ending on or prior to the date of the Closing. (ii) No Governmental Entity has proposed, asserted or assessed (tentatively or otherwise) any adjustment that could result in an additional Tax for which the Seller is or may be liable with respect to the Purchased Assets or which could result in a Lien on any of the Purchased Assets that has not been finally settled and fully paid. (iii) There is no pending, proposed or, to the knowledge of the Seller, threatened any audit, examination, investigation, dispute, deficiency assessment, refund litigation, claim, or other administrative or judicial proceeding relating to any Tax for which the Seller is or may be liable and which could result in a Lien on any of the Purchased Assets. (iv) There are no closing agreements within the meaning of Section 7121 of the Code or any similar provision of applicable law, ruling requests, requests to consent to change a method of accounting, Code Section 481 adjustments, subpoenas or requests for information with or by any Governmental Entity that could reasonably be expected to affect any Tax for which the Seller is or may be liable with respect to the Purchased Assets and which could result in a Lien on any of the Purchased Assets. (b) Schedule 4.9(b) attached hereto sets forth for the Seller a list of each jurisdiction in which the Seller has filed a Tax Return with respect to the Purchased Assets and the type of Tax Return filed, and except as set forth thereon, no Governmental Entity where such entity does not file a Tax Return with respect to a particular Tax has made a claim or assertion that such entity is subject to such Tax in such jurisdiction or is required to file a Tax Return with respect to such Tax in such jurisdiction. 4.10 Title to Purchased Assets. Except as set forth on Schedule 4.10 attached hereto, the Seller has good, valid and indefeasible title to or, in the case of licenses, valid and subsisting licenses in the Purchased Assets, in each case free and clear of any and all Liens. The Purchased Assets that are owned, together with those used under license, are free from material defects, are in good operating condition and a good state of maintenance and repair, subject only to normal wear and tear in the ordinary course of business, and are suitable for the continued conduct of the Business in a manner consistent with past practices. At the Closing, the Purchaser will obtain from the Seller good and indefeasible title to all of the Purchased Assets, free and clear of all Liens. 4.11 Fixed Assets. Schedule 4.11 attached hereto contains a true, complete and correct list and brief description of the equipment, machinery, computers and computer hardware, furniture and other items of personal property owned by the Seller and all interests therein which are part of the Purchased Assets (collectively, the "Fixed Assets"). Except as set forth on Schedule 4.11, the Seller has good, valid and indefeasible title to the Fixed Assets owned by the Seller, in each case free and clear of any and all Liens. All of the Fixed Assets are -12- in good operating condition, state of maintenance and repair and working order, subject to normal wear and tear. 4.12 Intellectual Property Matters. Set forth on Schedule 4.12 attached hereto is a list of the Intellectual Property Rights, specifying as to each, as applicable: (i) the nature of the Intellectual Property Right; (ii) all licenses, sublicenses and other agreements (true, correct and complete copies of any such licenses, sublicenses or other agreements are attached to Schedule 4.12) relating in any manner to any Intellectual Property Right; and (iii) the filing and registration information with respect to each Intellectual Property Right that is registered with the United States Patent and Trademark Office, the United States Copyright Office, any state or foreign jurisdiction or other Governmental Authority. There are no Intangibles that are owned by the Seller or any of its Affiliates or family members which are used in or in connection with the Business that are not set forth on Schedule 4.12 attached hereto. Except as set forth on Schedule 4.12 attached hereto, there are no royalties, fees or other amounts payable by or to the Seller with respect to any of the Intellectual Property Rights. The Seller's prior use of the Intellectual Property Rights has not, and the Seller's present use of the Intellectual Property Rights does not, infringe or otherwise violate any rights (including, without limitation, rights of privacy) of any Person, and the Seller has not received a notice of a claim of infringement or knows of any reasonable basis for a claim that such an infringement or violation exists. The Seller has ownership of (free and clear of any and all Liens) or rights by license, lease or other agreement to use (free and clear of any and all Liens and without the payment of any fees or the incurrence of any royalties or other amounts) the Intellectual Property Rights that are necessary to permit the use of the Purchased Assets and to conduct the Business. The Seller or any of its Affiliates or family members or any present or former employee of the Seller does not own or have a propriety or financial interest, directly or indirectly, in any of the Intellectual Property Rights. The Seller is not a party in any pending action, suit or proceeding that involves a claim of infringement or any other claim related to any Intellectual Property Right or, to the best of the knowledge of the Seller, there is no threatened action, suit or proceeding that involves a claim of infringement or any other claim relating to any Intellectual Property Right. None of the Intellectual Property Rights is subject to any outstanding Legal Requirement in order to maintain any federal registration of such Intellectual Property Rights. No Intellectual Property Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting its use by the Seller or restricting the licensing thereof to any Person by the Seller or which could affect the transfer of the Intellectual Property Rights to the Purchaser free and clear of any and all Liens. Upon the execution and recording, where applicable, of such instruments of assignment or conveyance as may be requested by the Purchaser, all Intellectual Property Rights will be fully vested in the Purchaser, free and clear of any and all Liens. 4.13 Material Agreements. ------------------- (a) Schedule 4.13 sets forth a list and a brief description of all material written and oral contracts or agreements relating to the Seller, including without limitation any: (i) contract or series of contracts resulting in a commitment or potential commitment for expenditure or other obligation or potential obligation, or which provides for the receipt or potential receipt, involving in excess of Five Thousand Dollars ($5,000.00) in any instance, or series of related contracts that in the aggregate give rise to rights or obligations exceeding such amount; (ii) agreement which restricts the Seller from engaging in any line of business or from -13- competing with any other Person; (iii) warranties made with respect to products manufactured, packaged, distributed or sold by the Seller; (iv) partnership, shareholder, joint venture, or similar agreement or arrangements to which the Seller is a party; (v) contracts with suppliers and distributors; (vi) any agreements, contracts, license or sublicense agreements, assignments, or understandings with respect to Intellectual Property owned or used by the Seller, or (vii) any other contract, agreement, instrument, arrangement or commitment that is material to the condition (financial or otherwise), results of operation, assets, properties, liabilities, Business or prospects of the Seller or the Purchased Assets, except for bank indebtedness, employment agreements or arrangements or leases of real or personal property (collectively, the "Material Agreements"). The Seller has previously furnished to the Purchaser true, complete and correct copies of all Material Agreements required to be listed on Schedule 4.13. (b) Except as set forth on Schedule 4.13, none of the Material Agreements was entered into outside the ordinary course of business of the Seller, contains any unusual, onerous or burdensome provisions that will impair or adversely effect in any material way the operations of the Seller, or is reasonably likely to be performed at a material loss. (c) The Material Agreements are each in full force and effect and are the valid and legally binding obligations of the Seller and the other parties thereto, enforceable in accordance with their respective terms, subject only to bankruptcy, insolvency or similar laws affecting the rights of creditors generally and to general equitable principles and foreign laws. The Seller has not received notice of default by the Seller under any of the Material Agreements or any other contract or agreement relating to borrowed money to which the Seller is a party or by or to which it or its assets are bound or subject, and no event has occurred which, with the passage of time or the giving of notice or both, would constitute a default by the Seller thereunder. Neither the Seller nor any of the other parties to any of the Material Agreements is in default thereunder, nor has an event occurred which, with the passage of time or the giving of notice or both would constitute a default by such other party thereunder. The Seller has not received notice of the pending or threatened cancellation, revocation or termination of any of the Material Agreements or any other agreements relating to borrowed money to which the Seller is a party or by or to which it or its assets are bound or subject, nor is it aware of any facts or circumstances which could lead to any such cancellation, revocation or termination. The Seller has not received notice, or has no knowledge, that the consummation of the transactions contemplated under this Agreement would result in any party to a Material Agreement canceling, revoking, or terminating such Material Agreement or ceasing to transact business, or materially altering the manner in which it transacts business, pursuant to such Material Agreement. 4.14 Customers and Suppliers. (a) Schedule 4.14(a) attached hereto contains a list of each of the ten (10) largest customers and suppliers (measured by dollar volume of purchases and sales, as applicable) of the Seller for each of the fiscal years ended December 31, 2003 and 2002, and for the period commencing on January 1, 2004 and ending on June __ , 2004. Except as set forth on Schedule 4.14 attached hereto, the Seller is not engaged in any dispute with any customer, supplier or manufacturer with respect to the Purchased Assets or the Business, and the Seller has no knowledge of any matter or fact as of the Closing Date which could reasonably be expected to result in a dispute with any customer, supplier or manufacturer with respect to the Purchased Assets or the Business. -14- (b) Except as set forth on Schedule 4.14(b) attached hereto, to the best knowledge of the Seller, no customer, supplier or manufacturer is considering termination, non-renewal or any modification of its arrangements with the Seller prior to the Closing or with the Purchaser following the Closing. 4.15 Inventory. Schedule 4.15 contains a list of the Inventory as of the Closing Date, setting forth a brief description of each item including, but not limited to, the number of units and cost. All such Inventory arose from bona fide transactions in the ordinary course of business consistent with past practice. None of the Inventory is subject to any write-down or write-off. The Seller is not under any obligation to return any of the Inventory in its possession to any other Person. To the best knowledge of Seller, the Inventory reflected on Schedule 4.15 is: (i) in good, merchantable and marketable condition and (ii) not obsolete, damaged or soiled. None of such Inventory contains any items that are part of any discontinued line of products or goods. 4.16 Accounts Receivable. The Accounts Receivable set forth on Schedule 4.16 are: (i) good and collectible in the ordinary course of business; (ii) the result of bona fide, arm's-length completed transactions in the ordinary course of business consistent with past practices; and (iii) not subject to any deductions, credits, counterclaims, disputes or offsets. 4.17 Authorizations. The Seller owns, holds, possesses or lawfully uses all Authorizations which are in any manner necessary for the ownership and use of the Purchased Assets, free and clear of any and all Liens or other restrictions. Except for the note obligations to the Secured Creditors, the Seller is not in default, nor has the Seller received any notice of any claim of default with respect to any Authorization and, to the knowledge of the Seller, no event has occurred, which with the giving of notice or passage of time or both, would cause or give rise to any default with respect to any Authorization. All such Authorizations are renewable by their terms or in the ordinary course of business without the need to comply with any special qualification procedures or to pay any amounts other than routine filing fees, and will not be adversely affected or terminated by consummation of the transactions contemplated hereby. None of the Authorizations have been amended, assigned, pledged or otherwise transferred. 4.18 Environmental Matters. Except as set forth on Schedule 4.18 attached hereto: (a) The Seller is in compliance with all Environmental Laws and Environmental Permits, except where the failure to comply with such Environmental Laws and Environmental Permits would not have a Material Adverse Effect. (b) The Seller has not received any written notice with respect to the Seller or any Site related to the Business from any Governmental Entity or other Person alleging that the Seller is not in compliance with any Environmental Law or Environmental Permit, and none of them has received any written notice or request for information with respect to, and has not been designated a responsible or potentially responsible party for, remedial action, response costs or investigation. -15- (c) To the best of the knowledge of the Seller, there has been no Release of a Hazardous Substance at, from, in, to, on or under any Site and no Hazardous Substance is present in, on, about or migrating to or from any Site that could reasonably be expected to give rise to any Environmental Claim against the Seller. (d) There are no pending or outstanding corrective actions requested, required or being conducted by any Governmental Entity or Regulatory Authority with respect to the Seller for the investigation, remediation or cleanup of any Site, and there have been no such corrective actions. (e) To the best of the knowledge of the Seller, the Seller has obtained and holds all Environmental Permits necessary for the conduct of its operations and Business as presently conducted. (f) There are no past, pending or, to the best of the knowledge of the Seller, threatened Environmental Claims against the Seller, and the Seller has no knowledge of any facts or circumstances which could reasonably be expected to form the basis of any Environmental Claim against the Seller. (g) The transactions contemplated by this Agreement do not and will not impose any obligations under any Environmental Law or Environmental Permit for any investigation or cleanup or notification to or consent of any Governmental Entity or any other Person. (h) There are no Liens with respect to the Purchased Assets arising under or pursuant to any Environmental Law and, to the best of the knowledge of the Seller, there are no facts, circumstances or conditions that could reasonably be expected to restrict, encumber or result in the imposition of special conditions under any Environmental Law with respect to any of the Purchased Assets. 4.19 Related Parties. Neither the Seller nor any current or former (within the past three (3) years) director, officer, or stockholder of the Seller, or any of their family members (individually a "Related Party" and collectively the "Related Parties"), or any Affiliate of the Seller or any Related Party: (a) owns, directly or indirectly, any interest in any person which is a competitor of the Seller, or of a supplier or customer of the Seller; (b) owns, directly or indirectly, in whole or in part, any property, asset or right, real, personal or mixed, tangible or intangible (including, but not limited to, any of the intangible property) which is utilized in the operation of the Business; (c) has an interest in or is, directly or indirectly, a party to any contract, agreement, lease or arrangement pertaining or relating to the Seller; or (d) to the best of the knowledge of the Seller, has any cause of action or other claim whatsoever against, or owes any amount to, the Seller. 4.20 Improper or Unlawful Payments. Neither the Seller nor any of its officers and agents, Affiliates or, to the best of the knowledge of the Seller, any other Person associated with or acting on behalf of the Seller, or any of their respective Affiliates or family members, has made any illegal or improper payment to, or provided any illegal or improper benefit or inducement for, any governmental official, union official, supplier, customer, union or other -16- Person, in an attempt to influence any such Person to take or to refrain from taking any action relating to the Business or any of the Purchased Assets or to engage in any action by or on behalf of the Seller or any of its respective Affiliates or family members in any way or paid any bribe, payoff, influence payment, kickback or other unlawful payment. 4.21 No Brokers. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Seller directly with the Purchaser and without the intervention of any other Person acting on behalf of the Seller and in such manner as not to give rise to any claim against the Purchaser or any of its Affiliates for any finder's fee, brokerage commission or like payment, and if any such fee, commission or payment is payable, it shall be the sole responsibility of the Seller. 4.22 Product Warranties; Returns. With respect to the Inventory: (a) except as set forth on Schedule 4.22, the Seller is not liable for any unexpired product warranty with respect to any of the Inventory that it distributes or that it has heretofore distributed, sold or manufactured; (b) the Seller has not received any notice of any claim based upon any product warranty with respect to the Inventory; and (c) the Seller does not know or have any reasonable ground to know of any such claim (actual or threatened) based upon any product warranty with respect to any such product. Schedule 4.22 attached hereto sets forth all warranties, express or implied, that the Seller has made or is responsible for in connection with any Inventory. Schedule 4.22 sets forth the percentage of product returns and exchanges for the past three fiscal (3) years. 4.23 Insurance. Schedule 4.23 sets forth a true and complete list of all insurance policies providing insurance coverage of any nature to the Seller. The Seller has previously provided the Purchaser with true and complete copies of all of such insurance policies, as amended to the date hereof. All of such policies are in full force and effect and are valid and enforceable in accordance with their terms, and the Seller has complied with all terms and conditions of such policies, including premium payments. None of the insurance carriers has indicated to the Seller an intention to cancel, or alter the coverage under, any such policy. The Seller does not have any claim pending against any of the insurance carriers under any of such policies and there has been no actual or alleged occurrence of any kind which may give rise to any such claim and has not made any claims under any policy at any time since January 1, 2001. All applications for such policies are accurate in all respects. 4.24 Real Property. Schedule 4.24 contains a true and correct list of each parcel of real property leased by the Seller (as lessor or lessee) and used or held for use in connection with the Business (the "Leased Real Property"). The Seller does not own any real property that is used or held for use in connection with the Business. Except as set forth in Schedule 4.24, there is no, nor has the Seller received any notice of any, default (or any condition or event which, after notice or lapse of time or both, would constitute a default) under any Leased Real Property. The Seller does not owe any brokerage commissions with respect to any such Leased Real Property. -17- 4.25 Employees; Employee Benefits. ---------------------------- (a) Schedule 4.25(a) sets forth a complete and correct list of the names, current annual salary, bonus compensation and title, for each director and officer and each other employee of Seller who is a party to an employment agreement with Seller, all employees who are not at-will employees or who received annual compensation during Seller's fiscal year ended December 31, 2003, or who are entitled to receive compensation, on an annualized basis, whether or not paid to date, in excess of $50,000. (b) Schedule 4.25(b) contains a complete and accurate list of all Employee Benefit Plans. Complete and accurate copies of the following documents, have been delivered to the Purchaser by the Seller: (i) any Employee Benefit Plan which has been reduced to writing, (ii) any written summary of any unwritten Employee Benefit Plan, (iii) any related trust agreement, insurance contract and summary plan description including any modification communicated to any participant, (iv) any annual report filed on Internal Revenue Service ("IRS") Forms 5500, 5500-C or 5500-R filed for the last three (3) years, (v) the most recent determination letter with respect to any Employee Benefit Plan, if any, (vi) any notice that was given by the Seller or any ERISA Affiliate to the IRS or to any governmental entity or any participant or beneficiary, pursuant to statute, within the (2) years preceding the Closing Date, including notices that are expressly mentioned elsewhere in this Agreement, and (vii) any notices that were given by the IRS or the Department of Labor to the Seller or any ERISA Affiliate, or any Employee Benefit Plan within the two (2) years preceding the Closing Date. Each Employee Benefit Plan has been administered in all material respects in accordance with its terms and each of the Seller and the ERISA Affiliates has in all respects met its obligations with respect to such Employee Benefit Plan and has made all required contributions thereto. The Seller and all Employee Benefit Plans are in compliance with the currently applicable provisions of ERISA and the Code and the regulations thereunder. (c) Except as otherwise disclosed in Section 4.25(b), all the Employee Benefit Plans that are intended to be qualified under Section 401(a) of the Code have received determination letters from the Internal Revenue Service to the effect that such Employee Benefit Plans are qualified and the plans and the trusts related thereto are exempt from federal income Taxes under Sections 401(a) and 501(a), respectively, of the Code, no such determination letter has been revoked and revocation has not been threatened, no such Employee Benefit Plan has been amended since the date of its most recent determination letter or application therefor in any respect, and no act or omission has occurred, that would adversely affect its qualification or increase its cost. (d) Neither the Seller nor any ERISA Affiliate has any liability (whether contingent or otherwise) under Section 412 of the Code, Section 302 of ERISA, or Title IV of ERISA. (e) At no time has the Seller or any ERISA Affiliate been obligated to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). (f) No Employee Benefit Plan is funded by, associated with, or related to a "voluntary employee's beneficiary association" within the meaning of Section 501(c)(9) of the Code, a "welfare benefit fund" within the meaning of Section 419 of the Code, a "qualified -18- asset account" within the meaning of Section 419A of the Code or a "multiple employer welfare arrangement" within the meaning of Section 3(40) of ERISA. (g) Neither the Seller nor any ERISA Affiliate has ever been subject to the health care continuation requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985 as amended ("COBRA"), or any amendment to COBRA. (h) No Employee Benefit Plan, plan documentation or agreement, summary plan description or other written communication distributed generally to employees of the Business prohibits the Seller from amending or terminating any such Employee Benefit Plan. (i) None of the assets of any Employee Benefit Plan include any securities or other property issued by the Seller or an ERISA Affiliate. (j) No act or omission has occurred and no condition exists with respect to any Employee Benefit Plan that would subject the Purchaser to any fine, penalty, tax or liability of any kind imposed under ERISA, the Code or any other applicable law. (k) Each Employee Benefit Plan can be terminated within thirty (30) days of the Closing Date, without payment of any additional contribution or amount and without creating any unfunded or unaccrued liability or the vesting or acceleration of any benefits promised by such plan. (l) Except as disclosed in Section 4.25(b), each Employee Benefit Plan covers only employees of the Seller (or former employees or beneficiaries with respect to service with the Seller), so that the transaction contemplated by this Agreement will require no spin-off of assets or other division or transfer of rights with respect to any such plan. 4.26 Affiliated Party Transactions. Except for obligations arising under this Agreement, as of the Closing Date neither Seller nor any of its Affiliates, nor the stockholders of Seller or any of their respective Affiliates or immediate family will have, directly or indirectly, any obligation to or cause of action or claim against Seller, no assets owned by any stockholder of Seller are used by Seller in the operation of its business, no stockholders of Seller have any outstanding indebtedness or other monetary obligation to Seller, and Seller has no obligation to or cause of action or claim against any other stockholders of Seller. 4.27 Bank Accounts. Schedule 4.27 sets forth the names and locations of all banks, depositories and other financial institutions in which Seller has an account or safe deposit box and the names of all persons authorized to draw thereon or to have access thereto. 4.28 Debt. Schedule 4.28 accurately lists as of the date hereof all of Seller's outstanding indebtedness for borrowed money ("Debt"). All Debt may be prepaid at the Closing or thereafter without premium or penalty or other fees payable to the lenders under the terms of the agreements governing the Debt. 4.29 Investment Undertaking. The Seller acknowledges that the Consideration Shares to be issued to the Seller pursuant to this Agreement will be "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933 (the "Securities Act"). The Seller -19- acknowledges that the Seller is acquiring such shares for the Seller's own account for investment purposes and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act. The Seller acknowledges that the Seller understands that Rule 144 requires that such shares issued hereunder may not be disposed of for a period of at least one year from the date of acquisition. The Seller acknowledges that (i) the Seller and each stockholder of the Seller is an "accredited investor", as that term is defined in Rule 501 under the Securities Act, (ii) the Seller has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of an investment in the Purchaser Common Stock and has obtained, in its judgment, sufficient information from Purchaser to evaluate the merits and risks of an investment in the Purchaser Common Stock, (iii) the Seller has been provided the opportunity to obtain information and documents concerning Purchaser and the Purchaser Common Stock, and has been given the opportunity to ask questions of, and receive answers from, the directors and officers of Purchaser concerning Purchaser and the Purchaser Common Stock and other matters pertaining to its investment, (iv) the Seller understands that it must bear the economic risk of the investment in the Consideration Shares indefinitely and (v) such Consideration Shares are "restricted securities" and may not be sold, transferred, pledged, loaned, assigned, hypothecated or otherwise disposed of unless such shares are subsequently registered under the Securities Act and applicable state securities laws or unless an exemption from registration is available. The Seller acknowledges that the offer of the Purchaser Common Stock will not be reviewed by any governmental agency and is being sold to the Seller in reliance upon exemption from the Securities Act. The Seller acknowledges that each certificate representing the Consideration Shares will bear the legend set forth in Section 2.7. 4.30 Review of SEC Forms. The Seller has (i) received and carefully reviewed the Purchaser's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed by Purchaser with the Securities and Exchange Commission since January 1, 2002 (collectively, the "SEC Documents") and (ii) had the opportunity to ask questions and receive answers from Purchaser's officers and directors concerning such forms and the documents incorporated by reference therein and to obtain any documents relating to Purchaser which are on file with the SEC and available for inspection by the public. The Seller is aware of the risks inherent in an investment in Purchaser and specifically the risks of an investment in the Purchaser Common Stock. In addition, Seller is aware and acknowledges that there can be no assurance of the future viability or profitability of Purchaser, nor can there be any assurance relating to the current or future price of the Purchaser Common Stock, as quoted on the AMEX, or market conditions generally. 4.31 No Misstatements or Omissions. No representation or warranty by the Seller contained in this Agreement and no statement contained in any certificate, list, Schedule, Exhibit or other instrument specified or referred to in this Agreement, whether heretofore furnished to the Purchaser or hereafter furnished to the Purchaser pursuant to this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit any material fact necessary to make the statements contained therein, in light of the circumstances under which it was made, not misleading. 4.32 No Fiduciary Relationship, Etc. The Seller represents and warrants to and acknowledges and agrees with the Purchaser that: (a) the Seller's sole relationship with the Purchaser is that of arm's-length seller and purchaser, respectively; (b) no term or provision of -20- this Agreement or any other Seller Document is intended, nor shall any such term or provision be deemed or construed, to (i) impose on the Purchaser or any of its directors, officers, employees, agents, representatives, stockholders and controlling parties and all of their successors and assigns (collectively, the "Representatives") any trust, fiduciary, franchise, agency, advisory or similar duty to or relationship with any other Person or any of its Representatives, or (ii) make the Seller or any of its Representatives a partner, joint venturer, employee, Affiliate, agent or other Representative of the Purchaser, and each such duty, relationship, status, benefit or right that would otherwise be imposed by applicable law with respect to this Agreement is hereby absolutely, irrevocably, unconditionally, expressly and forever waived by the Seller; (c) the Seller has independently and fully reviewed and evaluated the Seller Documents, the obligations and transactions contemplated thereunder and the potential effects of such obligations and transactions on the assets, business, cash flow, expenses, income, liabilities, operations, properties, prospects, reputation or condition (financial or otherwise) of the Seller and its Affiliates, which review and evaluation was made together with the officers and directors and other Representatives of the Seller and (to the extent deemed prudent by the Seller) other legal counsel and financial and other advisors to the Seller, which legal and other counsel and advice the Seller acknowledges and agrees was more than sufficient for such review and evaluation; (d) the Seller has been encouraged to obtain independent legal counsel and advice, has had ample time and opportunity to do so, and has declined of its own volition to do so, and to the extent the Seller has not sought or received sufficient independent counsel in such review or evaluation, the Seller hereby absolutely, unconditionally, irrevocably, expressly and forever assumes any and all attendant risks and waives any and all rights, claims, defenses or objections with respect thereto; (e) no counsel to the Purchaser has in any way provided any tax or other legal counsel, analysis, advice or assurance to, or has in any way otherwise represented, the Seller or any of its Representatives, and no attorney-client relationship has existed or been created, and none shall be deemed or construed to exist, between any counsel to the Purchaser and the Seller (or any of its Representatives), in each case whether in connection with any Seller Document, any of the contemplated transactions or otherwise; (f) none of the Seller, its Affiliates and their respective Representatives is relying upon (A) the expertise, business acumen or advice of the Purchaser or its counsel or other Representatives in connection with any aspect of the Seller Documents, the contemplated transactions or otherwise, or (B) any oral or written advice, analysis, accounting, representation or warranty, tax or legal counsel, promise or other assurance of any kind whatsoever from the Purchaser or any of its respective counsel or other Representatives; and (g) by accepting or approving any certificate, statement, report or other document or information required to be given to the Purchaser (whether as a required notice or report, for approval or otherwise), or any alleged performance of anything required to be observed, performed or fulfilled by the Seller or any of its Representatives, pursuant to this Agreement or any other Seller Document, neither the Purchaser nor any of its Representatives shall have, or shall be deemed or construed to have, made any representation or warranty to or agreement with the Seller or any of its Representatives with respect thereto or affirmed the sufficiency, the legality, enforceability, effectiveness or financial impact or other effect thereof. Each counsel to the Purchaser may rely on this section as if directly addressed to them and is an intended third party beneficiary hereof. -21- ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ----------------------------------------------- The Purchaser hereby represents and warrants to the Seller as follows: 5.1 Organization; Good Standing. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the power and authority to own and lease its assets and properties and to conduct its business as it is now being conducted. The Purchaser is qualified to do business as a foreign corporation in all jurisdictions where it is required to be qualified, except those jurisdictions whereby the failure to qualify would not materially and adversely affect the Purchaser. 5.2 Authority; Enforceability. The Purchaser has the power and authority to execute, deliver and perform this Agreement and all other agreements, certificates and documents executed or delivered, or to be executed or delivered, by the Purchaser in connection herewith (collectively the "Purchaser Documents") and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the Purchaser Documents by the Purchaser have been duly authorized by all necessary action on the part of the Purchaser. This Agreement and each of the Purchaser Documents has been duly executed and delivered by the Purchaser and this Agreement and each of the Purchaser Documents constitutes (or when executed and delivered will constitute) legal, valid and binding obligations of the Purchaser, enforceable against the Purchaser in accordance with their respective terms. 5.3 No Conflict. The authorization, execution, delivery and performance by the Purchaser of this Agreement and the Purchaser Documents and the consummation of the transactions contemplated hereby and thereby do not and will not (a) violate or conflict with any provision of the Purchaser's Certificate of Incorporation or by-laws, (b) violate, conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under, give rise to a right of termination, amendment or cancellation of, accelerate the performance required by, or result in any payment under, any contract, instrument or other writing of any nature whatsoever to or by which the Purchaser is a party or is bound, or by which any of its properties or assets is subject; or (c) violate, conflict with or result in a breach of any Legal Requirement applicable to the Purchaser. 5.4 Litigation. Except as disclosed in the SEC Documents, there is no action, suit, proceeding (including, without limitation, all arbitrations and alternative dispute resolution proceedings) or governmental investigation pending or, to the best knowledge of the Purchaser, threatened against the Purchaser which relates to the transactions contemplated by this Agreement, nor does the Purchaser have knowledge of any reasonably likely basis or set of circumstances for any such action, suit, proceeding, claim or investigation, the result of which could materially and adversely affect the Purchaser or the transactions contemplated hereby or could impair the ability of the Purchaser to consummate the transactions contemplated hereby. 5.5 Consents. Except as set forth in Schedule 5.5 attached hereto, no filing or registration with, notice to, or authorization, consent or approval of, or other action (including, -22- without limitation, the grant of any waiver) of any Governmental Entity or Regulatory Authority or any other Person is required to be obtained by the Purchaser in connection with: (i) the purchase from the Seller of the Purchased Assets and (ii) the execution, delivery and performance of this Agreement and the Purchaser Documents and the consummation of the transactions contemplated hereby and thereby. 5.6 Issuance of Purchaser Common Stock. The Consideration Shares, when issued and delivered to the Seller in accordance with the terms and provisions of this Agreement, will be (i) duly authorized and validly issued, fully paid and non-assessable, (ii) free and clear of any Liens, and (iii) assuming the accuracy of the representations and warranties set forth in this Agreement by the Seller and delivered to the Purchaser, are issued in compliance with the Securities Act. 5.7 No Brokers. Except for vFinance Investments, Inc., all negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by the Purchaser directly with the Seller and the broker designated by the Seller and without the intervention of any other Person on behalf of the Purchaser, and in such a manner as not to give rise to any claim against the Seller or any of the Seller's Affiliates for any finder's fee, brokerage commission or like payment. ARTICLE 6 COVENANTS --------- 6.1 Further Assurances. Prior to and following the Closing, each of the parties hereto shall execute such documents and other instruments and perform such further acts as may be required or reasonably requested by any other party hereto to carry out the provisions hereof and the transactions contemplated hereby including, without limitation, vesting in the Purchaser good and indefeasible title to the Purchased Assets, free and clear of any and all Liens. 6.2 Transfer and Retention of Records. After the Closing, the Seller, upon reasonable prior written notice from the Purchaser shall give Purchaser, and its representatives, employees, counsel and accountants, access, during normal business hours and at the principal place of business of the Seller, to the books and records relating to the Business, but solely with respect to periods prior to the Closing Date, and shall permit such persons to examine and copy such records to the extent reasonably requested in connection with the preparation of Tax and financial reporting matters, audits, legal proceedings, governmental investigations and other business purposes; provided, however, that nothing herein shall obligate the Seller, to (i) take actions that would unreasonably disrupt the normal course of business of the Seller; (ii) violate the terms of any contract to which the Seller is a party or to which the Seller is bound or by which any of the assets of the Seller is subject; (iii) grant access to any of its proprietary, confidential or classified information (including, without limitation, any Confidential and Proprietary Information); or (iv) waive any right to assert the attorney-client privilege or any other privilege with respect to any document. -23- 6.3 Employee Matters. ---------------- (a) Except for the Berdy Employment Agreement and Holtmeier Employment Agreement, the Purchaser shall not be obligated to offer employment to any employee of the Seller and the Purchaser shall not assume or be responsible in any way for the obligations, liabilities or responsibilities to the Seller's employees. (b) The Purchaser shall not be deemed to be a successor employer with respect to the employment of any of the Seller's employees or with respect to any benefit plans maintained for the benefit of the Seller's employees. In the event any of the Seller's employees shall be deemed to have been terminated by reason of the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, all liability for any severance and other similar benefits to any such Seller employee shall be the sole responsibility of the Seller. 6.4 Tax Matters. The Seller (i) shall cause to be prepared and duly and timely filed all Tax Returns with respect to the Purchased Assets for all periods on or prior to the Closing Date for sales, bulk sales, use, real or personal property or other transfer, excise, recording fees and charges and similar Taxes (including, without limitation, any such Tax Returns required to be filed as a result of, or in connection with, the sale, assignment, conveyance and transfer of the Purchased Assets to the Purchaser or the transactions contemplated hereby) and (ii) shall be solely responsible for the payment of such Taxes. Each of the Seller and the Purchaser shall cooperate (and shall cause their tax professionals to cooperate) with each other in connection with any Tax matter relating to the Purchased Assets or Assumed Liabilities or the transactions contemplated by this Agreement arising from periods on or before the Closing Date. 6.5 Name Changes. The Seller covenants and agrees that, within two (2) Business Days after the Closing, it shall file a certificate of amendment to its Certificate of Incorporation and fictitious name registrations, and file appropriate documentation in those jurisdictions in which it is qualified to do business as a foreign corporation, if any, to change its corporate name and fictitious names to eliminate the names "Berdy", "SmartClinic(R)", "SmartVoice(R)" and "SmartGist(R)" to a name that does not include or bear any similarity to said names or any other name or any Intellectual Property Rights included in the Purchased Assets and associated with the Business. The Seller covenants and agrees not to use any names that bear any similarity to such corporate names in connection with a Competitive Business. 6.6 Purchase of Insurance "Tail". On or before the Closing Date, the Seller shall pay the premium for "tail" insurance coverage and maintain in effect such "tail" insurance coverage for a period of three (3) years after the Closing Date providing insurance coverage for product liability claims with respect to products sold by the Seller on or prior to the Closing Date. 6.7 Publicity. No public announcement or other publicity regarding this Agreement or the transactions contemplated hereby shall be made prior to or after the date hereof without the prior written consent of the Purchaser and the Seller as to form, content, timing and manner of distribution. Notwithstanding the foregoing, nothing in this Agreement shall preclude the Purchaser or its Affiliates from making any public announcement or filing pursuant to any federal or state securities laws or stock exchange rules. -24- 6.8 Collection of Accounts Receivable. (a) From and after the Closing Date, the Purchaser shall have the right and authority, and shall use commercially reasonable efforts, to collect the Accounts Receivable, and to endorse all checks received on account of the Accounts Receivable, which are in the Seller's name generally, to the account of the Purchaser in accordance with the billing and collection practices presently applied by the Purchaser in the collection of its accounts and notes receivable. With respect to any particular Accounts Receivable, the Purchaser shall be under no obligation to commence or not to commence litigation to effect collection and may make any adjustment, concession or settlement which in the good faith judgment of the Purchaser is commercially reasonable; provided, however, that Purchaser shall have no authority to make any adjustment, concession or settlement in excess of twenty (20%) percent of the outstanding amount without the prior written consent of the Seller, which consent shall not be unreasonably withheld. (b) The Purchaser shall, on or before the fifteenth day of each calendar month commencing with the first complete calendar month following the Closing Date, deliver to the Seller a written report ("Collection Report") of the following information with respect to the Accounts Receivable: (i) the amount of each Accounts Receivable for each account comprising such Accounts Receivable; and (ii) the amount of cash collections of each Accounts Receivable during the period from the Closing Date through the date of the Collection Report. (c) If the Purchaser has not collected, within one hundred twenty (120) days after the Closing Date, an amount equal to the book value of the Accounts Receivable set forth on Schedule 4.16 hereto (the "Amount of Receivables"), then the Purchaser shall have the right to set off an amount (the "Receivables Reimbursement Payment") equal to (i) the Amount of Receivables minus (ii) the amount collected in cash by the Purchaser during such one hundred twenty (120) day period in respect of the Accounts Receivable. Any right to set off provided under this Section 6.8(c) shall be made as a direct claim against the Consideration Shares or under the Escrow Agreement, at the Purchaser's option. After the expiration of such one hundred twenty (120) day period, any then outstanding Accounts Receivable for which the Purchaser has received a Receivables Reimbursement Payment shall be reassigned to the Seller. (d) If, after the Closing Date, the Seller, or any other Person on behalf of the Seller, shall receive any remittance from any account debtors with respect to the Accounts Receivable (excluding any Accounts Receivable reassigned to the Seller pursuant to Section 6.8(c) above), the Seller or such other Person shall endorse such remittance to the order of the Purchaser and forward it to the Purchaser immediately upon receipt thereof, and any such amounts shall be deemed to have been collected by the Purchaser for purposes of this Section 6.8. (e) In the event that Purchaser should collect any funds that are not for payments of the Accounts Receivable assigned to the Purchaser and are otherwise due and -25- payable to the Seller under this Agreement or any other Seller Document or Purchaser Document, then Purchaser shall promptly remit any such payment to the Seller. ARTICLE 7 CONFIDENTIALITY; NONSOLICITATION AND NON-COMPETITION COVENANTS ------------------------- 7.1 Confidentiality; Non-Competition; Nonsolicitation. ------------------------------------------------- (a) After the Closing Date, the Seller, or any of its Affiliates shall not, directly or indirectly, under any circumstance: (i) disclose to any other Person any Confidential or Proprietary Information (as such term is hereinafter defined), except as may be required by applicable law; (ii) act or fail to act so as to impair the confidential or proprietary nature of any such Confidential or Proprietary Information or the benefits thereof to the Purchaser; (iii) use any such Confidential or Proprietary Information in any manner, other than for the sole and exclusive benefit of the Purchaser and only after obtaining the Purchaser's prior written consent to such use; or (iv) offer or agree to, or cause or assist in the inception or continuation of, any such disclosure, impairment or use of any such Confidential or Proprietary Information or trade secret. After the Closing, all Confidential and Proprietary Information shall be and remain the sole and exclusive property of the Purchaser. For purposes hereof, the term "Confidential and Proprietary Information" shall mean any and all of the following (regardless of the medium in which maintained or stored): (i) confidential or proprietary information or material not in the public domain about or relating to any aspect of the Business or any of the Purchased Assets or the Assumed Liabilities or any trade secrets relating to the Business, including, without limitation, financial information and projections, research and development plans or projects; data and reports; formulas; product-testing information; business improvements, processes, marketing and selling strategies; strategic business plans (whether pursued or not); budgets; licenses; pricing, pricing strategy and cost data; the identities of customers and potential customers; the identities of contact persons at customers and potential customers; the particular preferences, likes, dislikes and needs of customers and contact persons of customers with respect to products, pricing, timing, sales terms, service plans, methods, practices, strategies, forecasts, know-how and other marketing techniques; the identities of key accounts; the identities of suppliers and contractors, and all information about those supplier and contractor relationships such as contact person(s), pricing and other terms; and the terms of contracts or agreements; or (ii) any information, documentation or material not in the public domain, the knowledge of which gives or would likely give the Purchaser or any of its Affiliates an advantage with respect to the Business over any Person not possessing such information. (b) Neither the Seller nor any of its Affiliates shall (i) at any time during the five (5) year period following the Closing Date, directly or indirectly, use its special knowledge, engage or be interested (whether as owner, partner, member, lender, shareholder, consultant, employee, agent, supplier, distributor or otherwise) in any business, activity or enterprise which competes with the Seller or any aspect of the Business (a "Competitive Business"); or (ii) directly or indirectly, induce or influence any customer, vendor, supplier, distributor, consultant or any other Person that had a business relationship with the Seller at any time prior to the Closing to discontinue or reduce the extent of its relationship with the Purchaser -26- or to terminate said relationship. For purposes of this Agreement, the Seller, or any of its Affiliates shall not be deemed to be directly or indirectly interested in a business if their interest, individually or in the aggregate with each other, is limited solely to the ownership of not more than two percent (2%) in the aggregate of the securities of any class of corporation whose shares are listed or admitted to trade on a national securities exchange or are quoted on Nasdaq or the OTC Bulletin Board. (c) At any time during the five (5) year period following the Closing Date, the Seller and its Affiliates shall not, and shall not permit any of their employees, agents or others then under their control to, directly or indirectly, on behalf of the Seller, or the Seller's Affiliates, or any other Person, accept Competitive Business from, or solicit the Competitive Business of, any Person who is a customer or supplier of the Seller or any of its Affiliates, or may be a prospective customer or supplier of the Seller or any of its Affiliates. (d) The Seller and its Affiliates shall not at any time, directly or indirectly, use or purport to authorize any Person to use any name, mark, copyright, logo, trade dress or other identifying words or images which are the same as or similar to those used currently or in the past by the Purchaser, the Seller, or their Affiliates in connection with any product or service, whether or not such use would be in a Competitive Business. (e) Neither the Seller nor any of its Affiliates shall at any time during the five (5) year period following the Closing Date, directly or indirectly, employ or solicit to employ or engage for any other Person, any employee of the Purchaser who was an employee of the Purchaser within two (2) years of the date of such employment, solicitation or engagement, or solicit any such individual to leave such individual's employment or join the employ of another, then or at a later time. (f) The parties agree that nothing in this Agreement shall be construed to limit or negate the common law of torts or trade secrets where it provides the Purchaser with any broader, further or other remedy or protection than those provided in this Article 7. 7.2 Remedies. The Seller acknowledges that because the breach or attempted or threatened breach of any of the provisions of Section 7.1 hereof will result in immediate and irreparable injury to the Purchaser for which the Purchaser will not have an adequate remedy at law and for which monetary damages are not readily calculable, the Purchaser shall be entitled to obtain injunctive or other equitable relief restraining and prohibiting such breach or threatened breach, including, without limitation, a temporary and permanent injunction, enjoining any such breach or attempted or threatened breach (without being required to post a bond or other security or to show any actual damages). The right to an injunction and other equitable relief shall be in addition to, and cumulative with, all other rights and remedies available to the Purchaser at law, in equity or otherwise. 7.3 Independence of Agreements. The provisions of this Article 7 are in addition to and independent of any agreements or covenants contained in the Employment Agreements. -27- 7.4 Enforceability. The Seller acknowledges that, without the provisions of this Article 7 hereof, the Purchaser would not enter into this Agreement or consummate the transactions contemplated hereby. Accordingly, the Seller shall be bound by the provisions hereof to the maximum extent permitted by law, it being the intent and spirit of the parties that such provisions shall be enforced to the fullest extent permitted by law. Without limiting the generality of the foregoing, if any provision of this Article 7 hereof shall be held by any court of competent jurisdiction or another competent authority to be illegal, invalid or unenforceable, such provision shall be reformed so that it will be construed and enforced as if it had been more narrowly drawn so as not to be illegal, invalid or unenforceable, and such illegality, invalidity or unenforceability shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. ARTICLE 8 INDEMNIFICATION --------------- 8.1 Survival of Representations and Warranties. All representations, warranties, covenants and agreements of the parties contained in this Agreement or in any other document or instrument executed or delivered in connection herewith shall survive the Closing (subject to Section 8.7 hereof), notwithstanding any examination or investigation made by or for any party hereto. 8.2 Indemnification by the Seller. The Seller shall indemnify and hold harmless the Purchaser and its Affiliates, and each of their respective directors, officers, employees, agents, representatives, stockholders and controlling parties and all of their successors and assigns (each a "Purchaser Indemnified Person") from, and defend each of them from and against, and will pay each Purchaser Indemnified Person for any and all demands, claims, actions, liabilities, obligations, losses, damages (including, without limitation, special, consequential and punitive damages), costs, penalties, expenses (including, without limitation, interest, costs of investigation and defense and the reasonable fees and expenses of attorneys and other professionals and experts) or diminution in value, whether or not involving a Third Party Claim and without regard to any potential Tax benefit that may be obtained as a result thereof (collectively, "Losses") asserted against, imposed upon or incurred by any such Purchaser Indemnified Person, directly or indirectly, resulting from or arising out of or in connection with or relating to any of the following: (a) any inaccuracy or breach of any representation or warranty of the Seller contained herein or in any Seller Document; (b) any breach of any agreement, covenant or obligation of the Seller contained herein or in any Seller Document; (c) any liability, obligation or responsibility of the Seller or which in any way relates to the Business or the Purchased Assets that is not an Assumed Liability (including, without limitation, any liability for indebtedness, lease obligations, or Taxes or withholdings) arising out of the operation of the Business prior to the Closing Date; -28- (d) any and all claims, actions, suits or any administrative, arbitration, governmental or other proceedings or investigations against any Purchaser Indemnified Person or in which any Purchaser Indemnified Person becomes involved that relate to the Seller or the Business in which the principal event giving rise thereto occurred prior to the Closing Date or which result from or arise out of any action or inaction prior to the Closing Date of the Seller or any manager, officer, employee, agent, representative or subcontractor of the Seller or a state of facts prior to Closing Date, including, without limitation, any claim, action, suit or proceeding or investigation set forth on Schedules 4.5(a), 4.5(b), 4.6, 4.9 and/or Schedule 4.18 to this Agreement, except for any of the foregoing which is an Assumed Liability; and (e) any operations of the Seller following the Closing. 8.3 Indemnification by the Purchaser. The Purchaser shall indemnify and hold harmless the Seller and its Affiliates, and each of its managers, officers, employees, agents, representatives, equityholder and controlling parties and all of their successors and assigns (each a "Seller Indemnified Person"), from and defend each of them from and against and will pay each Seller Indemnified Person for any and all Losses asserted against, imposed upon or incurred by any such Seller Indemnified Person, directly or indirectly, resulting from or arising out of or in connection with or relating to any of the following: (a) any inaccuracy or breach of any representation or warranty of the Purchaser contained herein or in any other Purchaser Document; (b) any breach of any agreement, covenant or obligation of the Purchaser contained herein or in any other Purchaser Document; and (c) any Assumed Liability. 8.4 Indemnification Procedures - Third-Party Claims. (a) The rights and obligations of a party claiming a right to indemnification under this Article 8 (each an "Indemnitee") from another party hereto (each an "Indemnitor") in any way relating to a Third Party Claim shall be governed by the following procedures of this Section 8.4: (i) The Indemnitee shall give prompt written notice to the Indemnitor of the commencement of any action, suit or proceeding, or any written threat thereof, or any state of facts which the Indemnitee reasonably determines will give rise to a claim by the Indemnitee against the Indemnitor based on the indemnity agreements contained in this Article 8, which notice shall set forth the nature and basis of the claim and the amount thereof (or a reasonable estimate of such amount), to the extent known and any other reasonably relevant information in the possession of the Indemnitee (a "Notice of Claim"). No failure to give a Notice of Claim shall affect the indemnification obligations of an Indemnitor hereunder, except to the extent such failure materially prejudices such Indemnitor's ability to successfully defend the matter giving rise to the indemnification claim. -29- (ii) In the event that an Indemnitee furnishes an Indemnitor with a Notice of Claim, then upon the written acknowledgment by the Indemnitor given to the Indemnitee within thirty (30) days after the Indemnitor's receipt of the Notice of Claim, that the Indemnitor is undertaking and will prosecute the defense of the claim under the indemnity agreements contained in this Article 8 and confirming that as between the Indemnitor and the Indemnitee, the claim covered by the Notice of Claim is the obligation of the Indemnitor, with respect to which the Indemnitor is obligated to indemnify and hold harmless the Indemnitee hereunder and that the Indemnitor will be able to pay the full amount of potential liability, including all attorneys' fees, costs and other expenses, in connection with such claim (including, without limitation, any action, suit or proceeding and all proceedings on appeal which legal counsel for the Indemnitee shall deem appropriate) (an "Indemnification Acknowledgment"), then the claim covered by the Notice of Claim may be defended by the Indemnitor; provided, however, that the Indemnitee is authorized to file any motion, -------- ------- answer or other pleading that may be reasonably necessary or appropriate to protect its interests during such thirty (30) day period. In the event the Indemnitor does not furnish an Indemnification Acknowledgment to the Indemnitee within such time period, or does not offer reasonable assurances to the Indemnitee as to Indemnitor's financial capacity to satisfy any final judgment or settlement, the Indemnitee may, upon written notice to the Indemnitor, assume control of the defense (with legal counsel chosen by the Indemnitee) and defend, settle or dispose of the claim, at the sole cost and expense of the Indemnitor. Notwithstanding receipt of an Indemnification Acknowledgment, the Indemnitee shall have the right to employ its own legal counsel in respect of any such claim, action, suit or proceeding, but the fees and expenses of such legal counsel shall be at the Indemnitee's own cost and expense, unless (A) the employment of such legal counsel and the payment of such fees and expenses both shall have been specifically authorized by the Indemnitor or (B) the Indemnitee shall have reasonably concluded, based upon a written opinion of legal counsel to the Indemnitee, a copy of which shall be furnished to the Indemnitor, that there may be defenses available to the Indemnitee which are different from or additional to those available to the Indemnitor (if the Indemnitor is also a party or potential party to the claim) or the claim is one which could have a material adverse effect on the business, operations, assets, properties or prospects of the Indemnitee in which case the costs and expenses incurred by the Indemnitee shall be borne by the Indemnitor. (iii) The Indemnitee or the Indemnitor, as the case may be, depending upon who is controlling the defense of the action, suit or proceeding, shall keep the other fully informed of such claim, action, suit or proceeding at all stages thereof, whether or not the other is represented by legal counsel. Subject to the Indemnitor furnishing the Indemnitee with an Indemnification Acknowledgment in accordance with Section 8.4(a)(ii) -30- hereof, the Indemnitee shall cooperate with the Indemnitor and provide such assistance, at the sole cost and expense of the Indemnitor, as the Indemnitor may reasonably request in connection with the defense of any such claim, action, suit or proceeding, including, but not limited to, providing the Indemnitor with access to and use of all relevant corporate records and making available its officers and employees for depositions, pre-trial discovery and as witnesses at trial, if required. In requesting any such cooperation, the Indemnitor shall have due regard for, and attempt to not be disruptive to, the business and day-to-day operations of the Indemnitee and shall follow the requests of the Indemnitee regarding any documents or instruments which the Indemnitee reasonably believes should be given confidential treatment or is subject to a privilege. (b) The Indemnitor shall not settle any claim, action, suit or proceeding which Indemnitor has undertaken to defend, in accordance with the procedures set forth in this Article 8, without the Indemnitee's prior written consent (which consent shall not be unreasonably withheld or delayed), unless there is no obligation on the part of the Indemnitee to contribute to any payment made to settlement of the claim, action, suit or proceeding, the Indemnitee receives a general and unconditional release with respect to the claim (which shall be in form, substance and scope reasonably acceptable to the Indemnitee), there is no finding or admission of violation of any Legal Requirement by, or effect on any other claims that may be made against the Indemnitee and the relief granted in connection therewith requires no action on the part of, and has no effect on, the Indemnitee or its business or reputation. If the Indemnitee is controlling the defense of the claim, action, suit or proceeding, the Indemnitee shall not settle the claim, action, suit, or proceeding without the Indemnitor's prior written consent (which consent shall not be unreasonably withheld or delayed). (c) Any claim made by a Purchaser Indemnified Person or a Seller Indemnified Person that may be made under more than one subsection under Section 8.2 or 8.3, as applicable, may be made under the subsection that the claiming party may elect in its sole discretion, notwithstanding that such claim may be made under more than one subsection. 8.5 Procedure for Indemnification - Direct Indemnification Claims. A claim for indemnification for any matter not relating to a Third Party Claim may be asserted by notice directly by the Indemnitee to the Indemnitor. 8.6 Right to Indemnification Not Affected by Knowledge or Waiver. ------------------------------------------------------------ (a) The right to indemnification hereunder, payment of Losses or other remedy based upon breach of any representation, warranty, covenant, agreement or obligation of a party hereunder shall not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date (including, without limitation, the due diligence investigation engaged in by the Purchaser and its representatives), with respect to the accuracy or inaccuracy of or compliance or noncompliance with, any such representation, warranty, covenant, agreement or obligation. -31- (b) The waiver of any condition to a party's obligation to effectuate the Closing and consummate the transactions contemplated hereby, where such condition is based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant, agreement or obligation, will not affect the right to indemnification, payment of Losses or other remedy based on such representation, warranty, covenant, agreement or obligation. 8.7 Time Limitations. ---------------- (a) Except for any liability with respect to (i) the representations and warranties set forth in Section 4.5, Section 4.6, Section 4.9, Section 4.18, Section 4.21 and Section 4.22 hereof; (ii) a claim with respect to a breach of any representation or warranty or any covenant, agreement or obligation of the Seller based upon fraud; (iii) the covenants set forth in Section 6.4 and 7.1 hereof; and (iv) the matters subject to Section 8.2(c) and Section 8.2(d) (items (i) through (iv) collectively, the "Extended Period Claims"), the Seller shall have no liability with respect to the matters described in Section 8.2 unless, on or before the date that is the three (3) year anniversary of the Closing Date, the Purchaser notifies the Seller of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by the Purchaser. Notwithstanding the foregoing, a claim for indemnification by the Purchaser or any other Purchaser Indemnified Person with respect to any Extended Period Claim may be made at any time until ninety (90) days after expiration of the applicable statute of limitations and any extensions thereof. Any claim for indemnification made prior to the applicable time limitation set forth in this Section 8.7(a), if any, shall be permitted notwithstanding the subsequent expiration of such time limitation. (b) Except for any liability with respect to any claim with respect to a breach of any representation, warranty, covenant, agreement or obligation of the Purchaser based upon fraud, the Purchaser shall have no liability with respect to the matters described in Section 8.4 unless, on or before the date that is the three (3) year anniversary of the Closing Date, the Seller or the Seller Indemnified Person notify the Purchaser of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by the Seller or the Seller Indemnified Person. Notwithstanding the foregoing, a claim for indemnification by the Seller or a Seller Indemnified Person with respect to a claim with respect to a breach of any representation, warranty, covenant, agreement or obligation of the Purchaser based upon fraud, may be made at any time until ninety (90) days after the expiration of the applicable statute of limitations and any extension thereof. Any claim for indemnification made prior to the time limitation set forth in this Section 8.7(b), if any, shall be permitted notwithstanding the subsequent expiration of such time limitation. 8.8 Limitations on Amount. -------------------- (a) The Seller shall have liability for indemnification with respect to any Loss based upon Section 8.2 hereof from the first dollar of Loss. Anything to the contrary notwithstanding, the Seller shall have no liability for indemnification to the extent that the aggregate amount of all Losses with respect to such matters exceeds an amount equal to the Purchase Price plus the amount of the Deferred Consideration under the Escrow Agreement (the "Indemnification Limit"). -32- (b) Notwithstanding anything to the contrary set forth in Section 8.8(a) hereof, the Indemnification Limit set forth in said Section 8.8(a) shall not apply to any claim by the Purchaser or other Purchaser Indemnified Person with respect to a claim for indemnification with respect to (i) the representations or warranties set forth in Sections 4.5, 4.6, 4.9, 4.18, 4.21 and 4.22; (ii) any claim for indemnification based upon fraud; (iii) any claim for indemnification with respect to a breach of the covenants set forth in Section 6.4 and 7.1; or (iv) any claim for indemnification under Section 8.2(d) hereof. 8.9 Right To Set-off Against the Consideration Shares. Notwithstanding any of the terms and provisions contained herein, should any claims for Losses be made in good faith by a Purchaser Indemnified Party against the Seller, whether pursuant to the provisions of this Article 8 hereof or any of the Seller Documents, the Purchaser shall give notice to the Seller of the claim for which it is exercising its right to set-off and, if the circumstances giving rise to such claim have not been cured by the Seller within ten (10) days after deemed receipt of such notice pursuant to Section 9.5, the Purchaser may, in the exercise of its good faith judgment, set-off and deduct such amount by the cancellation of Consideration Shares with the Company's transfer agent and following such cancellation by the Company, Seller shall have no right, title or interest to the Consideration Shares whatsoever, and such shares shall be null and void; provided, that any amount that may be set-off pursuant to this Section 8.9 shall be reduced by any amounts paid on such claim to the Purchaser Indemnified Party by the Seller pursuant to Article 8 hereof. For purposes of calculating set-off amounts under this Section 8.9, each Consideration Share shall have a value equal to $____, adjusted if and as appropriate to reflect issued or issuable stock or cash dividends, stock splits, combination of shares, or issuance of different or replacement securities affecting such Consideration Share during the term of this Agreement (but not adjusted for market fluctuation in value of Parent Common Stock). 8.10 Arbitration with Respect to Set-Off Rights. Any disagreement, dispute, controversy or claim arising out of or relating solely to Section 8.9 of this Agreement shall be submitted to binding arbitration before the American Arbitration Association ("AAA"), in accordance with its rules of Commercial Arbitration. The decision of the arbitrator shall be final and binding upon the parties, and it may be entered in any court of competent jurisdiction. The arbitration shall take place in New York, New York. The arbitrator shall be bound by the laws of the State of New York applicable to all relevant privileges and the attorney work product doctrine. The arbitrator shall have the power to grant equitable relief where applicable under New York law. The arbitrator shall issue a written opinion setting forth his or her decision and the reasons therefor within thirty (30) days after the arbitration proceeding is concluded. The obligation of the parties to submit any dispute arising under or related to Sections 8.9 of this Agreement to arbitration as provided in this Section 8.10 shall survive the expiration or earlier termination of this Agreement. Notwithstanding the foregoing, either party may seek an injunction or other appropriate relief from a court of competent jurisdiction to preserve or protect the status quo with respect to any matter pending conclusion of the arbitration proceeding, but no such application to a court shall in any way be permitted to stay or otherwise impede the progress of the arbitration proceeding. Each party shall pay its own costs (including, without limitation, attorney's fees and disbursements) and expenses in connection with any arbitration proceeding. Purchaser and Seller hereby consent to the jurisdiction of the AAA in the State of New York for the purpose of any arbitration arising out of any of their obligations arising hereunder. -33- ARTICLE 9 MISCELLANEOUS ------------- 9.1 Expenses. Except as otherwise expressly provided in this Agreement, each party hereto shall pay its own costs and expenses incurred in connection with or incidental to the preparation and negotiations of this Agreement, the carrying out of the provisions of this Agreement and the consummation of the transactions contemplated hereby (including, without limitation, attorneys' fees and expenses). 9.2 Amendment. This Agreement may not be modified, amended, altered or supplemented, except by a written agreement executed by each of the parties hereto. 9.3 Entire Agreement. This Agreement, including the schedules and exhibits hereto, and the instruments and other documents delivered pursuant to this Agreement, the Seller Documents and the Purchaser Documents contain the entire understanding and agreement of the parties relating to the subject matter hereof and supersedes all prior and/or contemporaneous understandings and agreements of any kind and nature (whether written or oral) among the parties with respect to such subject matter including, without limitation, that certain letter of intent dated April 22, 2004 among the Seller and the Purchaser, all of which are merged herein. No representations or warranties have been made by the Seller, or relied upon by the Purchaser, with respect to the subject matter hereof other than those contained herein, or in the Seller Documents. No representations and warranties have been made by the Purchaser, or relied upon by the Seller, with respect to the subject matter hereof other than those contained herein or in the Purchaser Documents. 9.4 Waiver. Any waiver by the Purchaser, on the one hand, and the Seller, on the other hand, of any breach of or failure to comply with any provision or condition of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision or condition, or a waiver of any other breach of, or failure to comply with, any other provision or condition of this Agreement, any such waiver to be limited to the specific matter and instance for which it is given. No waiver of any such breach or failure or of any provision or condition of this Agreement shall be effective unless in a written instrument signed by the party granting the waiver and delivered to the other party hereto in the manner provided for hereunder in Section 9.5. No failure or delay by either party to enforce or exercise its rights hereunder shall be deemed a waiver hereof, nor shall any single or partial exercise of any such right or any abandonment or discontinuance of steps to enforce such rights, preclude any other or further exercise thereof or the exercise of any other right. 9.5 Notices. All notices, demands, consents, requests, instructions and other communications to be given or delivered or permitted under or by reason of the provisions of this Agreement or in connection with the transactions contemplated hereby shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (a) if personally delivered, on the Business Day of such delivery (as evidenced by the receipt of the personal delivery service), (b) if mailed certified or registered mail return receipt requested, four (4) Business Days after being mailed, (c) if delivered by overnight courier (with all charges having been prepaid), on the Business Day after such delivery (as evidenced by the receipt of the -34- overnight courier service of recognized standing), or (d) if delivered by facsimile transmission, on the Business Day of such delivery if sent before 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding Business Day (as evidenced by the printed confirmation of delivery generated by the sending party's telecopier machine). If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed address of which no notice was given (in accordance with this Section 9.5), or the refusal to accept same, the notice, demand, consent, request, instruction or other communication shall be deemed received on the second Business Day the notice is sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications will be sent to the following addresses or facsimile numbers as applicable: If to the Seller: Berdy Medical Systems, Inc. Park 80 West, Plaza II Suite 200 Saddle Brook, New Jersey 07663-5836 Attention: Dr. Jack Berdy Telecopier: If to the Purchaser: Ramp Corporation 33 Maiden Lane New York, New York 10038 Attention: Mr. Andrew Brown, President Telecopier: (509) 757-4801 with a copy to: Jenkens & Gilchrist Parker Chapin LLP The Chrysler Building 405 Lexington Avenue New York, NY 10174 Attention: Martin Eric Weisberg, Esq. Telecopier: (212) 704-6157 or to such other address as any party may specify by notice given to the other party in accordance with this Section 9.5. 9.6 Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THAT STATE, WITHOUT REGARD TO ANY OF ITS PRINCIPLES OF CONFLICTS OF LAWS OR OTHER LAWS WHICH WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION; EXCEPT, HOWEVER, THAT THE APPLICABILITY OF BULK SALES SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY. THIS AGREEMENT SHALL BE CONSTRUED AND -35- INTERPRETED WITHOUT REGARD TO ANY PRESUMPTION AGAINST THE PARTY CAUSING THIS AGREEMENT TO BE DRAFTED. EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EXCEPT FOR THOSE CLAIMS GOVERNED BY THE ARBITRATION PROVISIONS OF SECTION 8.11 OF THIS AGREEMENT EACH OF THE PARTIES UNCONDITIONALLY AND IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, AND THE FEDERAL DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN ANY SUCH COURT, AND AGREES THAT SERVICE OF ANY SUMMONS, COMPLAINT, NOTICE OR OTHER PROCESS RELATING TO SUCH SUIT, ACTION OR OTHER PROCEEDING MAY BE EFFECTED IN THE MANNER PROVIDED IN SECTION 9.5. 9.7 Severability. Without limiting anything set forth in Section 9.4 hereof, the parties agree that should any provision of this Agreement be held to be invalid, illegal or unenforceable in any jurisdiction, that holding shall be effective only to the extent of such invalidity, illegally or unenforceability without invalidating or rendering illegal or unenforceable the remaining provisions hereof, and any such invalidity, illegally or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. It is the intent of the parties that this Agreement be fully enforced to the fullest extent permitted by applicable law. 9.8 Binding Effect; Assignment. This Agreement and the rights and obligations hereunder may not be assigned by any party hereto without the prior written consent of the other parties hereto; provided, that, the Purchaser, in its sole discretion, may assign this Agreement and any of its rights or obligations hereunder to any of its Affiliates or the legal successor to the Purchaser; provided, further, that any such assignment shall not relieve the Purchaser of any of its obligations under this Agreement. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns and the heirs, estate and legal representatives of the Seller. 9.9 Headings. The section headings contained in this Agreement (including, without limitation, section headings and headings in the exhibits and schedules) are inserted for reference purposes only and shall not affect in any way the meaning, construction or interpretation of this Agreement. Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate. References to the singular shall include the plural and vice versa. 9.10 Third Parties. Except as expressly permitted by Section 9.8 hereof, nothing herein is intended or shall be construed to confer upon or give to any Person, other than the parties hereto and the Indemnified Persons, any rights, privileges or remedies under or by reason of this Agreement. -36- 9.11 Counterparts. This Agreement may be executed in two (2) or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, and all of which, when taken together, shall constitute one and the same document. This Agreement shall become effective when one or more counterparts, taken together, shall have been executed and delivered by all of the parties. [The remainder of this page intentionally left blank] -37- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. SELLER: BERDY MEDICAL SYSTEMS, INC. By: ----------------------------------------------- Name: Jack Berdy Title: Chief Executive Officer PURCHASER: RAMP CORPORATION By: ------------------------------------------------ Name: Andrew Brown Title: President and Chief Executive Officer -38- APPENDIX I "Accounts Receivable" means all trade accounts receivable and all notes, bonds and other evidences of indebtedness of and rights to receive payment, including, without limitation, rebates, refunds and similar payments and any rights of the Seller with respect to any third party collection procedures or any other actions or proceedings relating to the Business which have been commenced in connection therewith and any other item that would be characterized as an account receivable in accordance with GAAP (as such term is hereinafter defined). "Affiliate" of any Person (as such term is hereinafter defined) means any stockholder, member, Person or entity controlling, controlled by or under common control with such Person, or any director, officer, manager or key employee of such Person or any of the respective immediate family members of such Person. For purposes of this definition, the term "control", when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" shall have meanings that correspond to the foregoing. "Authorizations" means all licenses, permits, franchises, approvals, authorizations, qualifications, concessions or the like, issued or granted by any federal, state, local or foreign Governmental Entity (as such term is hereinafter defined) or by any nongovernmental entity to any Person or which in any way relate to the Business or the Purchased Assets. "Business Day" means a day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Code" means the Internal Revenue Code of 1986, as amended. "Employee Benefit Plan" means any "employee pension benefit plan" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), any "employee welfare benefit plan" (as defined in Section 3(1) of ERISA), and any other written or oral plan, agreement or arrangement involving direct or indirect compensation, including without limitation insurance coverage, severance benefits, disability benefits, deferred compensation, bonuses, stock options, stock purchase, phantom stock, stock appreciation or other forms of incentive compensation or post-retirement compensation which the Seller or any ERISA Affiliate (as defined herein) on or before Closing has sponsored, maintained or contributed to or has had any obligation, liability (whether contingent or other), or responsibility. -i- "Environment" means all air, surface water, groundwater or land, including, without limitation, land surface or subsurface, including, without limitation, all fish, wildlife, biota and all other natural resources. "Environmental Claim" means any and all administrative or judicial actions, suits, orders, claims, liens, notices, notices of violations, investigations, complaints, requests for information, proceedings or other communications (whether written or oral), whether criminal or civil, pursuant to or relating to any applicable Environmental Law (as such term is hereinafter defined) by any Person (including, but not limited to, any Governmental Entity or citizens' group) based upon, alleging, asserting, or claiming any actual or potential (a) violation of or liability under any Environmental Law, (b) violation of any Environmental Permit (as such term is hereinafter defined), or (c) liability for investigatory costs, cleanup costs, removal costs, remedial costs, response costs, natural resource damages, property damage, personal injury, fines or penalties arising out of, based on, resulting from or related to the presence, Release (as such term is hereinafter defined) or threatened Release into the Environment of any Hazardous Substance (as such term is hereinafter defined) at any location, including, but not limited to, any off-Site (as such term is hereinafter defined) location to which any Hazardous Substance or materials containing any Hazardous Substance were sent for handling, storage, treatment or disposal. "Environmental Law" means any and all current federal, state, local, provincial and foreign, civil and criminal laws, statutes, ordinances, orders, codes, rules, regulations, Environmental Permits, policies, guidance documents, judgments, decrees, injunctions, or agreements with any Governmental Entity, relating to the protection of health and the Environment, worker health and safety, and/or governing the handling, use, generation, treatment, storage, transportation, disposal, manufacture, distribution, formulation, packaging, labeling, or Release of Hazardous Substance, including, but not limited to: the Clean Air Act, 42 U.S.C.ss.7401 et seq.; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.ss.9601 et seq.; the Federal Water Pollution Control Act, 33 U.S.C.ss.1251 et seq.; the Hazardous Material Transportation Act, 49 U.S.C.ss.1801 et seq.; the Federal Insecticide Fungicide and Rodenticide Act, 7 U.S.C.ss.136 et seq.; the Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C.ss.6901 et seq.; the Toxic Substances Control Act, 15 U.S.C.ss.2601 et seq.; the Occupational Safety and Health Act of 1970, 29 U.S.C.ss.651 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. ss.2701 et seq.; and the state analogies thereto; and any common law doctrine, including, but not limited to, negligence, nuisance, trespass, personal injury, or property damage related to or arising out of the presence, Release, or exposure to a Hazardous Substance. "Environmental Permit" means any federal, state, local, provincial, or foreign permits, licenses, consents or Authorizations required by any Governmental Entity under or in connection with any Environmental Law and includes any and all orders, consent orders or binding agreements issued or entered into by a Governmental Entity under any applicable Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder. "ERISA Affiliate" means any entity which is, or within the last six years was, a member of (i) a controlled group of corporations (as defined in Section 414(b) of the Code), (ii) a group of trades or businesses under common control (as defined in Section 414(c) of the Code), -ii- or (iii) an affiliated service group (as defined under Section 414(m) of the Code or the regulations under Section 414(o) of the Code), any of which includes or included the Seller. "GAAP" means generally accepted accounting principles in effect in the United States of America at the time of any determination, and which are applied on a consistent basis. All accounting terms used in this Agreement which are not expressly defined in this Agreement shall have the meanings given to those terms by GAAP, unless the context of this Agreement otherwise requires. "Governmental Entity" means any court, tribunal, arbitrator, executive or regulatory authority, tax authority, agency, commission, official or other instrumentality of the United States of America, any foreign country or any domestic or foreign state, county, city, municipality or other political subdivision. "Hazardous Substance" means petroleum, petroleum hydrocarbons or petroleum products, petroleum by-products, radioactive materials, asbestos or asbestos-containing materials, gasoline, diesel fuel, pesticides, radon, urea formaldehyde, lead or lead-containing materials, polychlorinated biphenyls, and any other chemicals, materials, substances or wastes, in any amount or concentration, which are now or hereafter become defined or regulated as "hazardous substances", "hazardous materials", "hazardous wastes", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "pollutants", "regulated substances", "solid wastes" or "contaminants" or words of similar import under any Environmental Law. "Intangibles" means the Intellectual Property Rights, including, without limitation, all trade secrets, designs and methodologies, formulae, recipes, research and development, inventions (whether or not patentable) and other proprietary processes and information of any kind not directly used in connection with the Business but being developed or considered for development any time during the last five (5) years by the Seller or by others for the benefit of the Seller for use in connection with the Business. "Intellectual Property Rights" means all United States of America and foreign: patents; copyrights, trademarks; trade names; service marks; brand names; business and product names; uniform resource locators ("URL's"); internet domain names; internet websites and the electronic files, content and layout related thereto; email addresses; listings in telephone books and directories and internet directories; browser, search engines and hyper-links; logos; symbols; trade dress; design and representation or expressions of any of the foregoing; all registrations or applications for registration of any of the foregoing; and all databases and compilations, including any and all data and collections of data; source codes; object codes; computer programs (including any and all software implementation of algorithms, models and methodologies), and computer software in any form or medium, in each case that are owned by the Seller and/or were, are or may be used in connection with the Business or held for use or being developed by the Seller or by others for the benefit of the Seller for use in connection with the Business; and all trade secrets; industrial or manufacturing models; tools, methods and processes; formulae; recipes; research and development; inventions (whether or not patentable); know-how; manufacturing, engineering and other drawings and blueprints; technology; information systems (IS); information technology (IT); technical information; engineering data; -iii- design and engineering specifications; and other proprietary processes and information of any kind owned by the Seller and which were, are or may be used in connection with the Business or any of the Purchased Assets. "Inventory" means all of the Seller's inventories of products, whether raw materials, work-in-process or finished goods, all goods used in the Business, all of the Seller's merchandising, promotional and packaging supplies and materials which are held at, or are in transit from or to, any of the locations at which any aspect of the operations of the Seller and/or the Business is conducted, or which are used by or held for the benefit of the Seller, and any other item of the Seller which in accordance with GAAP would be characterized as inventory. "knowledge", "known", "best knowledge" and language of similar import shall mean those matters of which the applicable Person is "aware" and shall include all matters actually or constructively known or which should be known by such Person, and which, in the case of the Seller, shall include any of its stockholders, directors, officers and employees, in each case, after due diligence and investigation. "Legal Requirement" of a Person means any statute, rule, regulation or other provision of law, or any order, judgment or other direction of a court, arbitration panel or other tribunal resolution or any Governmental Entity, or any other requirement, permit, registration, license or Authorization applicable to such Person, or to any of its properties. assets or business. "Liens" means any liens, charges, encumbrances, options, rights of first refusal, security interests, claims, mortgages, pledges, charges, easements, obligations or any other encumbrances (including, without limitation, any conditional sale or other title retention agreement or any lease in the nature thereof and any agreement to grant or to permit or suffer to exist any of the foregoing) or third party rights or equitable interests of any nature whatsoever. "Material Adverse Effect" shall mean an adverse effect on the assets, properties, operations, prospects or condition (financial or otherwise) of the Business or the Purchased Assets resulting in any Losses of the Seller which Losses equal or exceed the amount of $1,000 individually or $5,000 in the aggregate. "Person" means any natural individual, corporation, partnership, joint venture, trust, limited liability company, association, organization, firm or other entity. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a Hazardous Substance into the Environment. "Site" means any real property currently or previously leased, used or operated by the Seller, any predecessors of the Seller or any entities previously owned by the Seller, including, without limitation, all soil, subsoil, surface waters and groundwater thereat. "Tax" or "Taxes" means any and all taxes, charges, fees, levies, deficiencies or other assessments of any nature whatsoever, including, without limitation, any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (pursuant to Section 59A of the Code or -iv- otherwise), custom duties, capital stock, net worth, franchise, recording, employee's income withholding, foreign withholding, social security (or its equivalent), unemployment, disability, real property, personal property, intangible property, sales, use, transfer, value added, occupancy, registration, customs, recording, gains, alternative or add-on minimum, estimated or other taxes, charge, fee, levy, deficiency or other assessment of whatever kind or nature, including any interest, penalties or additions to tax in respect of any of the foregoing, whether disputed or not, and any obligation to indemnify, assume or succeed to the liability of any other Person in respect of any of the foregoing (including, without limitation, as a transferee (pursuant to Section 6901 of the Code or otherwise), as a result of Treasury Regulation ss.1.1502-6 or similar provision of applicable law, or as a result of a tax sharing or similar agreement, arrangement or understanding). "Tax Return" means any federal, state, local or foreign return, declaration, report, claim for refund or credit, document, or other information or filing (including any schedule or exhibit thereto) that is filed or required to be supplied to any Governmental Entity or Regulatory Authority in respect of or relating to any Tax, and any amendment thereof, whether on a consolidated, combined, unitary or separate basis. "Third Party Claim" means a claim or demand made by any Person who is not a party to this Agreement including, without limitation, any corporation, Governmental Entity or other third party against an Indemnitee. -v- TABLE OF EXHIBITS Exhibit A - Escrow Agreement Exhibit B - Bill of Sale Exhibit C - Agreement, Termination and Release E-1 SCHEDULES Schedule 2.5 Purchase Price Allocation chedule 2.6 Locations of Purchased Assets Schedule 4.5(a) Litigation Schedule 4.5(b) Legal Compliance Schedule 4.6 Seller Consents/Approvals Schedule 4.7 Financial Statements Schedule 4.8 Liabilities Schedule 4.9(a) Tax Matters Schedule 4.9(b) Tax Return Jurisdictions Schedule 4.10 Exceptions to Title Schedule 4.11 Fixed Assets Schedule 4.12 Intellectual Property Rights Schedule 4.13 Material Agreements Schedule 4.14(a) Customers and Suppliers Schedule 4.14(b) Changes to Customers/Suppliers Schedule 4.15 Inventory Schedule 4.16 Accounts Receivable Schedule 4.18 Environmental Matters Schedule 4.22 Product Warranties Schedule 4.23 Insurance Policies Schedule 4.24 Leased Real Property Schedule 4.25(a) Employees Schedule 4.25(b) Employee Benefit Plans Schedule 4.27 Bank Accounts Schedule 4.28 Debt Schedule 5.5 Purchaser Consents/Approvals E-2 EX-10 3 ex102_f10q-9302004.txt 10.2 - EMPLOYMENT AGREEMENT (R. MUNKITTRICK) Exhibit 10.2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of October 12, 2004 (this "Agreement"), between Ramp Corporation (the "Company"), and Ronald Munkittrick (the "Executive"). RECITALS WHEREAS, the Company desires to employ the Executive and the Executive desires to accept such employment by the Company on the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties hereto agree as follows: 1. Employment. The Company hereby employs the Executive as an Executive Vice President and Chief Financial Officer, and the Executive hereby accepts such employment by the Company, upon the terms and conditions hereinafter set forth. The Executive shall perform such services as the Chief Financial Officer of the Company as the Chairman of the Board, the Chief Executive Officer or the Board of Directors of the Company (collectively the "Supervising Persons"), shall in good faith direct. 2. Term. Subject to the provisions for earlier termination provided in this Agreement, the term of the Executive's employment shall initially be for a 12-month period commencing on the date hereof (the "Effective Date"), and ending on October 12, 2005 (the "Initial Term"). Unless either party, upon not less than 90 days' prior written notice to the other (a "Notice of Termination") before the end of the Initial Term, elects not to renew this Agreement, the Executive's employment under this Agreement shall renew on the same terms and conditions as set forth herein. Such Notice of Termination shall not be required with respect to any termination pursuant to Sections 6, 7, 8 or 9 below and an election not to renew pursuant to this Section 2 shall not constitute a "Termination Without Cause" for purposes of Section 8 and Section 11(b). 3. Duties. ------ (a) During the Employment Period, the Executive shall be employed as Chief Financial Officer and an Executive Vice President of the Company. Such title may be changed from time to time by the Company, so long as the Executive maintains the substantially similar level of authority and responsibility. The Executive shall serve under and report to the Supervising Persons. The Company and each of their direct or indirect subsidiaries, divisions, partnerships, limited liability companies, joint ventures and affiliates are hereinafter referred to collectively as the "Group." (b) During the Employment Period, the Executive shall perform for the Group the services normally rendered by a similarly situated executive, as well as such other services and duties commensurate with the Executive's position with the Company as the Supervising Persons may direct. The Executive shall abide by the Company's and the Group's policies, standards, rules and regulations (including without limitation any ethical rules or standards) as in effect from time to time after obtaining knowledge thereof, and shall in all respects use his best efforts to conform to and comply with the lawful directions and instructions given to the Executive by the Supervising Persons. (c) During the Employment Period, the Executive shall: (i) use his best efforts to perform the Executive's duties with efficiency, diligence, care and conscientiousness; (ii) provide to the Supervising Persons such information regarding the Group's business and operations as any of them shall require; and (iii) at all times act consistently with the Executive's duties and obligations to the Company and the Group and use the Executive's best efforts to promote and serve the interests of the Company and the Group. 4. Time to be Devoted to Employment. During the Employment Period, the Executive shall devote the Executive's full business time, attention and energies to the business of the Company and the Group and shall not engage in any other business, without prior consent of a Supervising Person, which shall not be unreasonably withheld, whether or not such activity is pursued for gain, profit or other pecuniary advantage; provided, however, the Executive may own up to 5% of the capital stock of any entity that is publicly-traded on a U.S. national stock exchange or quotation system, so long as the Executive does not control, directly or indirectly, through one or more entities or groups (whether formal or informal), the voting or disposition of greater than 5% of the aggregate beneficial ownership interest of any such entity. 5. Compensation; Benefits and Reimbursement. For all services rendered by the Executive in any capacity during the Employment Period, including, without limitation, services as an officer, director or member of any committee of the Company or any member of the Group, the Executive shall be compensated as follows (subject, in each case to the provisions of Sections 6-10 below): (a) During the Employment Period, the Company shall pay, or cause to be paid, to the Executive a base salary (the "Base Salary") at a rate of $195,000 on an annualized basis, which shall be payable in accordance with the customary payroll practices of the Company. Provided, however, that Executive will receive a reduced salary equal to Base Salary minus $75,000 ( $120,000) on an annualized basis through December 31, 2004 and a reduced salary equal to Base Salary minus $45,000 ($150,000) on an annualized basis from January 1, 2005- March 31, 2005. After March 31, 2005 the Executive will be paid the Base Salary. Additionally, Executive will participate in the employee restricted stock ownership plan at a level of 3.2%. (b) Executive shall be entitled to receive a discretionary bonus from the Company within a month of December 31, 2005 as reasonably determined by the Chief Executive Officer. No bonus shall be required, and any bonus paid under this provision will be at the sole discretion of the Chief Executive Officer of the Company. (c) During the Employment Period, the Executive shall be entitled to the following: (i) participation in the Company's and/or the Group's pension and benefit plans as the Company and/or the Group generally maintains from time to time during the Employment Period for the benefit of its similarly situated employees, in each case subject to the eligibility requirements and other terms and provisions of such plans or programs; provided, however, the Company and/or the Group may modify or discontinue any such benefits, plans or programs and change employee contribution amounts to benefit costs without notice in its discretion. The Company will pay 100% of the cost of the Executive's family health coverage. Prior to joining the Company sponsored health insurance program, the Company will reimburse the Executive for the cost of COBRA not to exceed the cost the Company would otherwise have incurred had the Executive joined the Company sponsored health insurance plan. Notwithstanding the foregoing in this Section 5(c)(i), Executive shall continue to be entitled to all benefits to which Executive shall be entitled under this Section 5(c)(i) immediately prior to a change in control of the Company for a period of two years after such change in control. (ii) reimbursement for all reasonable and necessary out-of pocket expenses incurred in the ordinary course of the Executive's employment during the Employment Period, including travel and entertainment expenses, according to the Company's expense account and reimbursement policies in place from time to time and provided that the Executive shall submit appropriate documentation sufficient for tax purposes to substantiate the expenditure as an income tax deduction. Each such expenditure shall be reimbursable only if it is of a nature qualifying it as a proper deduction on the federal and state income tax returns of the Company, or with the prior written approval of a Supervising Person. Further, the Executive must obtain the prior consent of a Supervising Person with respect to any single expense in excess of $2,500 or any aggregate expenses that exceed $10,000 in any one-month period. (iii) During the Employment Period, the Executive will accrue vacation at the rate of 1.67 days for each full month worked, up to a maximum of twenty (20) days per year. Vacation accruals may not exceed twenty (20) days (the "Maximum Accrual"). Accordingly, once the Maximum Accrual is reached, all further vacation accruals will cease. Vacation accruals will recommence after Executive has taken vacation and his vacation accrual has dropped below the Maximum Accrual. To the extent this Section 5(c)(iv) conflicts with any Company policy, the provisions hereof shall prevail. (d) If a change in control of the Company occurs and if within 365 days thereafter Executive's employment hereunder shall be terminated by the Company without Cause, then, in addition to all other payments and benefits provided for elsewhere in this Agreement: (i) the Company shall pay or cause to be paid to Executive, cash compensation in an amount equal to twice Executive's then current Base Salary on the date of such termination of Executive's employment; (ii) the Company shall pay or cause to be paid to Executive, a cash performance bonus in an amount equal to twice the aggregate amount of cash which Executive was entitled to receive from the Company as bonus compensation with respect to the twelve-month period immediately preceding the date of termination of Executive's termination hereunder; (iii) Any unvested Options or other stock incentive (including without limitation the restricted stock ownership plan referenced in Section 5(a)) described in Section 5 hereof shall vest and in the case of Options, become exercisable immediately and remain exercisable for the remaining original term of the Options; and (iv) Notwithstanding subsections (i) and (ii) above, if the change in control shall result from the sale of the Company for less than Thirty One Million Dollars ($31,000,000), each such subsection shall be interpreted as if the word "twice" had been omitted. (e) For the purpose of this Amendment, a "change in control" means: (A) the direct or indirect acquisition, whether in one or a series of transactions by any person (as such term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")), or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act), of (1) beneficial ownership (as defined in the Exchange Act) of issued and outstanding shares of stock of the Company, the result of which acquisition is that such person or such group possesses in excess of 25% of the combined voting power of all then-issued and outstanding stock of the Company, or (2) the power to elect, appoint, or cause the election or appointment of at least a majority of the members of the Board (or such other governing body in the event the Company or any successor entity is not a corporation); (B) a merger or consolidation of the Company with a person or a direct or indirect subsidiary of such person, provided that the result of such merger or consolidation, whether in one or a series of related transactions, is that the holders of the outstanding voting stock of the Company immediately prior to the consummation of such transaction do not possess, whether directly or indirectly, immediately after the consummation of such merger or consolidation, in excess of 25% of the combined voting power of all then-issued and outstanding stock of the merged or consolidated person, its direct or indirect parent, or the surviving person of such merger or consolidation; or (C) a sale or disposition, whether in one or a series of transactions, of all or substantially all of the Company's assets. 6. Involuntary Termination. ----------------------- (a) To the extent permitted by law, in the event of the Executive's physical or mental disability that prevents the Executive from performing the services required to be performed by the Executive under this Agreement for a period of at least 120 consecutive days or 150 non-consecutive days in any 12-month period (such condition being herein referred to as a "Disability"), the Company may, at its option, terminate this Agreement and the Executive's employment hereunder, effective upon giving the Executive notice to that effect. In the event of a dispute as to the Executive's ability to perform the Executive's duties, the Company may refer the same to a licensed practicing physician of the Company's choice, and the Executive agrees to submit to such non-invasive tests and examination as such physician shall deem appropriate. (b) If the Executive dies during the Employment Period, this Agreement and the Executive's employment hereunder shall be deemed to be terminated as of the date of Executive's death (such termination, as well as a termination for Disability under Section 6(a) above being referred to herein as an "Involuntary Termination"). 7. Termination For Cause. The Company may terminate this Agreement and the employment of the Executive hereunder at any time during the Employment Period for Cause by giving the Executive written notice of such termination, which termination shall take effect immediately upon receipt of such notice (a "Termination for Cause"). For the purposes of this Agreement, "Cause" shall mean: (a) any breach of the Executive's obligations under this Agreement in any material respect, if such breach is not cured within 15 days after written notice from the Company describing the alleged breach; provided, however, a breach of Sections 12, 13, 14 or 17 shall not be subject to any cure period; (b) gross incompetence, willful misconduct or willful neglect in the execution of the Executive's duties hereunder; (c) fraud, misappropriation, theft, gross malfeasance or dishonesty on the part of Executive in connection with the performance of his duties to the Company or otherwise in his dealings or arrangements with the Company, any member of the Group or any of its or their respective clients, customers, suppliers or vendors; (d) conviction of the Executive of a felony or a crime involving moral turpitude; (e) (i) violation of the Executive's fiduciary obligations to the Company or (ii) conduct by the Executive which is inconsistent with the Executive's position and which results or is reasonably likely to result, in an adverse effect (financial or otherwise) on the business or reputation of the Company or any other member of the Group; (f) repeated or continued absence from work during normal business hours for reasons other than illness, incapacity or permitted vacation; (g) violation by the Executive in any material respect of any policies, rules, regulations, standards or practices of the Company or the Group in place from time to time the customary penalty for which is termination of employment; or (h) failure to comply with any lawful written directive of the Board of directors or any appropriate committee thereof. 8. Termination Without Cause. The Company may terminate this Agreement and the employment of the Executive hereunder, for no reason or any reason whatsoever (other than for Cause), at any time upon 90 days' prior written notice and payment of 90 days' Base Salary to the Executive (a "Termination Without Cause"). No payments under this Section 8 will impair any payments owed to the Executive under Section 11(b), with those payments explicitly being in addition to any payments due under this Section 8. 9. Voluntary Termination. The Executive may terminate this Agreement and his employment with the Company hereunder at any time by giving 90 days' prior written notice of termination to the Company; provided, however, that the Company reserves the right to accept the Executive's notice of termination and to accelerate such notice and make the Executive's termination effective immediately, or on any other date prior to the Executive's intended last day of work as the Company deems appropriate. 10. Expiration of Initial Term. This Agreement and the Executive's employment hereunder shall automatically terminate upon the expiration of the Initial Term, provided that either party shall have given a Notice of Termination in accordance with the terms and provisions of Section 2 above. 11. Effect of Termination. Upon any termination of this Agreement and the employment of the Executive whether pursuant to any of Sections 6, 7, 8, 9 or 10 hereof or otherwise, neither the Executive nor Executive's beneficiaries or estate shall have any further rights or claims against the Company or the Group under this Agreement or otherwise, except as hereinafter set forth in this Section 11 and the right to receive any benefits to which the Executive is entitled to pursuant to any Federal state or local laws, including, without limitation, COBRA laws: (a) the unpaid portion of the Base Salary provided for in Section 5(a) above to the effective date of termination; and (b) reimbursement for any expenses for which the Executive shall not have theretofore been reimbursed as provided in Section 5(c)(ii) above. 12. Confidentiality and Non-Disclosure. (a) The Executive recognizes that, as a valued employee of the Company, Executive occupies a position of trust with respect to business information of a secret, proprietary or confidential nature that is the property of the Company and/or the Group and which has been or will be used by or imparted to Executive from time to time in the course of the performance of Executive's duties hereunder. Executive acknowledges and agrees that such Confidential Information is important, material and confidential trade secrets and proprietary information of the Company and/or the Group, and materially affect the successful conduct of the Company's and/or the Group's business and its goodwill. Executive therefore agrees that: (i) The Executive shall use Confidential Information only in the good faith performance of the Executive's duties hereunder. The Executive shall not at any time during the Employment Period or thereafter, directly or indirectly, use Confidential Information for the Executive's personal benefit, for the benefit of any other individual or entity, or in any manner adverse to the interests of the Company, the Group or its or their respective clients and customers; (ii) The Executive will not, directly or indirectly, disclose Confidential Information at any time (during or after the Employment Period) except to authorized Company personnel; (iii) The Executive will safeguard Confidential Information by all reasonable steps and abide by all policies and procedures of the Company and the Group in effect from time to time and of which he has obtained knowledge regarding storage, copying and handling of documents; and (iv) Promptly on the termination of Executive's employment for whatever reason or otherwise on demand, the Executive shall return (or in the event of Executive's death, Executive's personal representative shall return) to the Company any and all materials, substances, models, software, prototypes, documents and the like containing and/or relating to Confidential Information, together with all other property of the Company, the Group and its and their respective customers and clients. The Executive shall not retain any copies or reproductions of correspondence, memoranda, reports, notebooks, drawings, photographs, databases, diskettes, or other documents or electronically stored information of any kind relating to the business, potential business of affairs of the Company, the Group and its and their respective clients and customers. (b) "Confidential Information" means and includes (i) all knowledge, documents, information, data and material concerning the Company and the Group or any of their respective businesses, operations, affairs or financial condition, and (ii) all information that has been disclosed to the Company or any other member of the Group by any third party under an agreement or circumstances requiring such information to be kept confidential. Confidential Information shall include, without limitation, the names, procedures, projects, rates, fees, and practices of the Company and the Group and their respective clients; pricing information relating to the Company and the Group and their respective vendors and suppliers; compensation paid to employees and other terms of employment; proprietary software and programs; financial or research models or processes and related data; and financial information concerning the Company and the Group. Confidential Information shall not include (i) information that is in the public domain through no fault of Executive; (ii) information published or disseminated by the Company or the Group in the ordinary course of business without restriction; and (iii) information received from a third party not under an obligation to keep such information confidential and without breach of this Agreement by Executive. (c) The terms and provisions of this Section 12 shall survive the termination of this Agreement and the Executive's employment hereunder. 13. Non-Solicitation and Non-Competition ------------------------------------ (a) The Executive acknowledges and understands that, in view of the position that the Executive will hold as an employee of the Company, the Executive's relationship with the Company and the Group will afford the Executive extensive access to Confidential Information of the Company and the Group. The Executive therefore agrees that during the course of the Executive's employment with the Company or any member of the Group and for a period of 12 months after termination of the Executive employment with the Company or any member of the Group (for any reason or no reason) (collectively, "Restricted Period"), the Executive shall not in any State within the United States of America that the Company or the Group then conducts or proposes to conduct business, either directly or indirectly, as an owner, stockholder, member, partner, joint venturer, officer, director, consultant, independent contractor, agent or employee, engage in any business or other commercial activity which is engaged in or is seeking to engage in a "competitive business". As used in this Agreement, the term "competitive business" shall mean any individual or enterprise engaged in point-of-care technology and related connectivity solutions to any segment of the healthcare marketplace. (b) During the Restricted Period, the Executive shall not, directly or indirectly, either on the Executive's own behalf or on behalf of any other individual or commercial enterprise: contact, communicate, solicit or transact any business with or assist any third party in contracting, communicating, soliciting or transacting any business with (i) any of the customers or clients of the Company or of the Group, (ii) any prospective customers or clients of the Company or of the Group being solicited at the time of the Executive's termination, or (ii) any individual or entity who or which was within the most recent 12-month period a customer or client of the Company or of the Group, for the purpose of inducing such customer or client or potential customer or client to be connected to or benefit from any competitive business or to terminate its or their relationship with the Company or of the Group. (c) The Executive further agrees that during the Restricted Period, the Executive will not, directly or indirectly (including without limitation through the use of "headhunters", recruiters or other employment agencies) or by action in concert with others, solicit, recruit or otherwise induce or influence (or seek to induce or influence) any person or entity who or which is or will be hereafter employed or engaged (as an employee, agent, independent contractor or otherwise) by the Company or the Group to terminate its, his or her employment or engagement with the Company or the Group. Further, the Executive agrees that this restriction does not allow him to (i) disclose to any third party the names, backgrounds or qualifications of any of the Company's or the Group's employees or agents, or otherwise identify them as potential candidates for employment or engagement; or (ii) participate in any pre-employment interviews with any such employee or agent. (d) The terms and provisions of this Section 13 shall survive the termination of this Agreement and the Executive's employment hereunder. 14 Inventions. ---------- (a) The Executive will disclose promptly and fully to the Company and the Supervising Persons and to no one else: (i) all procedures, inventions, developments, ideas, improvements, discoveries, works, modifications, processes, software programs, works of authorship, documentation, formulae, techniques, designs, methods, trade secrets, technical specifications and technical data, suggestions, proposals, know-how and show-how, concepts, expressions or other developments whatsoever or any interest therein (whether or not patentable or registrable under copyright, trademark or similar statutes or subject to analogous protection) made, authored, devised, developed, discovered, reduced to practice, conceived or otherwise obtained by the Executive ("Inventions"), solely or jointly with others, during the course of the Executive's employment with the Company which (a) are related to the business of the Company or the Group, any of the products or services being researched, developed, distributed, manufactured, licensed or sold by the Company or the Group, or the demonstrably anticipated products or services of the Company or the Group or which may be used in relation with any of the foregoing or (b) result from tasks assigned to the Executive by the Company or Supervising Persons; and (ii) any Invention made using the time, materials or facilities of the Company or the Group, even if such Invention does not relate to the business of the Company or the Group. The determination as to whether an Invention is related to the business of the Company or the Group shall be made solely by an authorized representative of the Company. The "business of the Company or the Group" as used in this Section 14 includes the actual business currently conducted by the Company or any member of the Group, as well as any business in which the Company or any other member of the Group demonstrably proposes to engage during the Employment Period. The Executive agrees that all such Inventions listed above and the benefits thereof are and shall immediately become the sole and absolute property of the Company from conception, as "works made for hire" (as that term is used under the U.S. Copyright Act of 1976, as amended) or otherwise. The Executive shall have no interest in any Inventions. To the extent that title to any Inventions or any materials comprising or including any Invention does not, by operation of law, vest in the Company, the Executive hereby irrevocably assigns to the Company all of the Executive's right, title and interest, including, without limitation, tangible and intangible rights such as patent rights, trademarks and copyrights, that the Executive may have or may acquire in and to all such Inventions, benefits and/or rights resulting therefrom, and agrees promptly to execute any further specific assignments related to such Inventions, benefits and/or rights at the request of the Company. The Executive also hereby assigns to the Company, or waives if not assignable, all of the Executive's "moral rights" in and to all such Inventions, and agrees promptly to execute any further specific assignments or waivers related to moral or other rights at the request of the Company. (b) The Executive agrees to assist the Company (including without limitation, signing all documents and supplying all information such as disks, code, print outs and descriptions that the Company may deem necessary or desirable) without charge for so long as the Executive is an employee of the Company and for as long thereafter as may be necessary (but at the Company's expense, including consulting fees at the same rate as the last salary in effect, if the Executive is no longer an employee of the Company): (1) to apply, obtain, register and renew for, and vest in, the Company's benefit alone (unless the Company otherwise directs), patents, trademarks, copyrights, mask works, and other protection for such Inventions in all countries, and (2) in any controversy or legal proceeding relating to Inventions. In the event that the Company is unable to secure the Executive's signature after reasonable effort in connection with any patent, trademark, copyright, mask work or other similar protection relating to an Invention, the Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Executive's agent and attorney-in-fact, to act for and on the Executive's behalf and stead to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, trademarks, copyrights, mask works or other similar protection thereon with the same legal force and effect as if executed by the Executive. The Executive agrees and understands that compliance with the covenants and agreements contained in this Section 14 is not conditioned upon the payment of any additional or special consideration. (c) The obligations of this Section 14 shall continue beyond the termination of this Agreement and the Executive's employment with the Company, whether or not the Inventions are patentable or registrable under copyright, trademark or similar statutes or subject to analogous protection, if conceived or made by the Executive during the Employment Period and shall be binding upon the Executive and his assigns, executors, administrators and other legal representatives. For purposes of this Agreement, any Invention relating to the business of the Company or the Group upon which the Executive files patent applications or seeks analogous protection or which is otherwise disclosed to the Company within one year after the termination of this Agreement shall be presumed to relate to an Invention conceived by Executive during the Employment Period, subject to proof to the contrary by good faith, written and duly corroborated records establishing that such Invention was conceived and made by the Executive after termination of his employment by the Company and that no Confidential Information was utilized by Executive with respect to that Invention. 15. Extraordinary Relief. The Executive acknowledges and understands that the provisions of Sections 12, 13, 14 and 17 of this Agreement are of a special and unique nature that are reasonably necessary to protect the legitimate business interests of the Company and the Group, the breach of which would cause the Company and/or the Group irreparable injury, and which cannot adequately be compensated for in damages by an action at law. The Executive further acknowledges that the restrictions set forth in Section 13 will not prevent the Executive form earning a livelihood during the Restricted Period. In the event of a breach or threatened breach by the Executive of any provision of such Sections, the Company or the Group may seek an injunction restraining the Executive from such actual or threatened breach, and shall not be required to post a bond or to prove that irreparable injury would result from the alleged breach of the aforesaid Sections. Nothing contained herein shall be construed as prohibiting the Company or the Group from pursuing any other remedies (including, without limitation, an action for damages) available for any actual or threatened breach of this Agreement, and the pursuit of any injunction or any other remedy shall not be deemed an exclusive election of such remedy. Further, in addition to any other rights or remedies available to the Company or the Group, in the event that the Company makes a good faith determination that the Executive breached his obligations under Sections 12, 13, 14 or 17, any outstanding obligations of the Company hereunder shall immediately terminate. The restrictions and limitations herein regarding non-disclosure, non-solicitation, non-disparagement and inventions are in addition to, and not in derogation of, applicable law with respect to non-disclosure, non-solicitation, non-competition and inventions in general. All time periods in this Agreement shall be computed by excluding from such computation any time during which the Executive is in violation of any provision of this Agreement and any time during which there is pending in any court of competent jurisdiction or arbitration forum any action (including any appeal from any final judgment) brought by any person, whether or not a party to this Agreement, in which action the Company or the Group seeks to enforce the agreements and covenants in this Agreement or in which any person contests the validity of such agreements and covenants or their enforceability or seeks to avoid their performance or enforcement which is determined adversely against the Executive or such other party. 16. Assistance in Litigation. Executive shall, upon reasonable notice, furnish such information and proper assistance to the Company and the Group as it may reasonably require, at the expense of the Company and the Group, which shall include consulting fees at the rate of the employee's last salary, in connection with any litigation in which it is, or may become, a party either during or after the Employment Period. 17. No Disparagement. ---------------- (a) The Executive shall not, except in connection with a legal proceeding or order (including a proceeding relating to this Agreement), from and after the date hereof, regardless of the expiration or termination of this Agreement, make any (i) statement to any person or entity which has a business relationship with the Company or the Group or (ii) public statement, in each instance, that criticizes, ridicules, disparages or is derogatory of the Company or the Group, or any of their respective stockholders, investors, officers, directors, agents or employees or any of their products, services or procedures, whether or not such disparaging or derogatory statements are true. (b) The Company and the Group shall not, except in connection with a legal proceeding or order (including a proceeding relating to this Agreement), from and after the date hereof, regardless of the expiration or termination of this Agreement, make any (i) statement to any person or entity which has a business relationship with the Company or the Group or (ii) public statement, in each instance, that criticizes, ridicules, disparages or is derogatory of the Executive, whether or not such disparaging or derogatory statements are true. (c) The provisions of this Section 17 shall survive the termination of this Agreement and the Executive's employment hereunder. 18. Notices. All notices, claims, certificates, demands and other communications hereunder shall be in writing and sent by facsimile transmission or e-mail, by nationally-recognized overnight courier, delivered personally against receipt, or mailed (by registered or certified mail, return receipt requested and postage prepaid), as follows: if to the Executive, to: Ronald Munkittrick Ramp Corporation 33 Maiden Lane 5th Floor New York NY 10038 The address as provided by the Executive to the Company, with a copy to such person or entity as the Executive shall from time to time request by notice to the Company; if to the Company: Ramp Corporation 33 Maiden Lane 5th Floor New York, NY 10038 Tel: (212) 440-1500 Fax: (509) 757-4801 Attention: Andrew Brown or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. Any such notice or communication shall be deemed to have been delivered (a) in the case of personal delivery, on the date of such delivery, (b) in the case of courier delivery, upon receipt of confirmation of delivery, (c) in the case of telecopy transmission or e-mail, upon confirmation of receipt by hardcopy and (d) in the case of mailing, on the fifth business day following posting. 19. Entire Agreement; Severability. This Agreement and the other writings referred to herein or delivered pursuant hereto which form a part hereof contain the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements, agreements or understandings (whether written or oral) with respect thereto. In the event that any one or more of this provisions contained in this Agreement shall be deemed by a court of competent jurisdiction or arbitration panel to be unenforceable in any respect, then such provision shall be deemed limited and restricted to the extent that the court or arbitrator shall deem the provision to be enforceable. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision hereof 20. Successors and Assigns; Assignment. The terms and provisions of this Agreement shall be binding upon and inure to the benefit of the Company and the Executive and their successors and permitted assigns. This Agreement is personal in its nature and neither party may assign or transfer this Agreement or any rights or obligations hereunder, except that the Company shall have the right to assign its rights hereunder to another member of the Group. 21. Governing Law. Any and all actions or controversies arising out of this Agreement or the Executive's employment, including, without limitation, tort claims, shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflict of laws. 22. Arbitration. Except with respect to either party's right to seek injunctive and other equitable relief (including, without limitation, to enforce the provisions of Sections 12, 13, 14 and 17), in consideration of the Company employing Executive or continuing to employ Executive and the mutual promises set forth herein, Executive and the Company agree, for themselves and for their representatives, successors, and assigns, that any controversy or claim arising out of or relating to this Agreement, its enforcement or interpretation, or because of an alleged breach, default, or misrepresentation in connection with any of its provisions, or arising out of or relating in any way to Executive's employment with Company or termination thereof, shall be submitted to and settled by final and binding arbitration in New York, New York, before a single arbitrator, in accordance with the procedures required under New York law. (a) To the extent not inconsistent with law, the following will govern any arbitration hereunder: (i) The National Rules for the Resolution of Employment Disputes of the American Arbitration Association will apply. The arbitrator may award any form of remedy or relief (including injunctive relief) that would otherwise be available in court, consistent with applicable laws. Any award pursuant to said arbitration shall be accompanied by a written opinion of the arbitrator setting forth the reason for the award. The award rendered by the arbitrator shall be conclusive and binding upon the parties hereto, and judgment upon the award may be entered, and enforcement may be sought in, any court of competent jurisdiction. (ii) The Company shall bear the costs of the arbitrator and forum fees and each party shall bear its own respective attorney fees and all other costs, unless otherwise required or allowed by law and awarded by the arbitrator, provided further that if any matter of dispute raised by a party or any defense or objection thereto was unreasonable, the arbitrator may assess, as part of the arbitration award, all or any part of the arbitration expenses (including reasonable attorney's fees) of the other party and the arbitration fees against the party raising such unreasonable matter of dispute or defense or objection thereto. (b) This pre-dispute resolution agreement covers all matters directly or indirectly related to Executive's recruitment, employment, or termination of employment by the Company, including, but not limited to, alleged violations of Title VII of the Civil Rights Act of 1964, sections 1981 through 1988 of Title 42 of the United States Code and all amendments thereto, Employee Retirement Income Security Act of 1974 ("ERISA"), the Americans with Disabilities Act of 1990 ("ADA"), the Age Discrimination in Employment Act of 1967 ("ADEA"), the Older Workers Benefits Protection Act of 1990 ("OWBPA"), the Fair Labor Standards Act ("FLSA"), the Occupational Safety and Health Act ("OSHA"), the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the New York Human Rights Laws, the New York City Human Rights Laws, the Texas Commission on Human Rights Act, the Utah Anti-Discrimination Act and any and all claims under federal, state, and local laws against employment discrimination or otherwise pertaining to the Executive's employment or termination thereof, but excluding Worker's Compensation Claims. (c) In the event that either party files, and is allowed by the courts to prosecute, a court action against the other, the plaintiff in such action agrees not to request, and hereby waives such party's right to a trial by jury. (d) THE EXECUTIVE AND THE COMPANY UNDERSTAND THAT, ABSENT THIS AGREEMENT, THEY WOULD HAVE THE RIGHT TO SUE EACH OTHER IN COURT AND THE RIGHT TO A JURY TRIAL, BUT, BY THIS AGREEMENT, THEY GIVE UP THOSE RIGHTS AND AGREE TO RESOLVE ANY AND ALL GRIEVANCES BY ARBITRATION. 23. Waivers. The provisions of this Agreement may not be waived, temporarily or permanently, except pursuant to a writing executed by the party against whom enforcement of such waiver would be sought. The waiver by any party of a breach of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 24. Amendments; Modifications. The terms and provisions of this Agreement may not be modified or amended without the written agreement of each of the parties. 25. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. Delivery of an executed counterpart by facsimile shall be equally as effective as delivery of an manually executed counterpart. 26. Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meanings or interpretations of this Agreement. 27. Survival. The representations, warranties, covenants and agreements of the parties hereto shall survive any cancellation, termination, rescission, amendment, modification or expiration of this Agreement and any termination of the Executive's employment with the Company for any reason. 28. Indemnification. The Executive shall be entitled to indemnification in his capacity as an officer of the Company as provided in the Company's organizational documents and applicable law. 29. Executive's Ability to Contract for the Company. The Executive shall not have the right to make any contracts or commitments for or on behalf of the Company or the Group, to sign or endorse any commercial paper, contracts, advertisements, or instrument of any nature, or to enter into any obligation binding the Company or the Group to the payment of money or otherwise, except to the extent Executive is so authorized in writing by a Supervising Person or by resolution of the Company's Board of Directors. 30. Executive's Representations. The Executive represents and warrants that: (i) the Executive has the legal capacity to execute and perform this Agreement; (ii) this Agreement is a valid and binding agreement enforceable against the Executive according to its terms; (iii) the Executive is free to enter into this Agreement and to perform each of its terms and covenants; (iv) the Executive is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, (v) the Executive's execution and performance of this Agreement is not a violation or a breach of any other agreement or understanding to which the Executive is a party or by which the Executive may be bound; and (vi) the Executive shall not disclose to the Company or any member of the Group or induce the Company or any member of the Group to use any secret or confidential information belonging to others, including, without limitation, the Executive's former employers. The Executive agrees to indemnify and hold the Company and the Group harmless from any and all costs and expenses, including attorney's fees, incurred by the Company and the Group as a result of any breach by Executive of the representations and warranties set forth in this Section 30. IN WITNESS WHEREOF, the parties have duly executed and delivered this Employment Agreement the date first above written. Ramp Corporation By: ------------------------------------- Name: Andrew Brown Title: Chairman and C.E.O. EXECUTIVE ---------------------------------------- Name: Ronald Munkittrick EX-31 4 ex311_f10q-9302004.txt 31.1 - A. BROWN'S 302 CERTIFICATION Exhibit 31.1 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Andrew Brown, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ramp Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 15, 2004 /s/ Andrew Brown ----------------------- Andrew Brown Chief Executive Officer EX-31 5 ex312_f10q-9302004.txt 32.2 - R. MUNKITTRICK'S 302 CERTIFICATION Exhibit 31.2 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ron Munkittrick, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ramp Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 15, 2004 /s/ Ron Munkittrick ----------------------- Ron Munkittrick Chief Financial Officer EX-32 6 ex32_f10q-9302004.txt 32 - BROWN AND MUNKITTRICK 906 CERTIFICATION Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Ramp Corporation (the "Company") on Form 10-Q for the quarterly period ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Andrew Brown, Chairman, Chief Executive Officer and President of the Company, and I, Ron Munkittrick, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the Report fully complies with requirements of Section 13(a) of 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 15, 2004 /s/ Andrew Brown - ------------------------ ---------------- Andrew Brown Chairman, Chief Executive Officer and President Date: November 15, 2004 /s/ Ron Munkittrick - ------------------------ ------------------- Ron Munkittrick Chief Financial Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within this electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished in accordance with Securities and Exchange Commission Release Nos. 34-47551 and 34-47986 and shall not be considered "filed" as part of this 10-Q. This certification is made solely for purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. -----END PRIVACY-ENHANCED MESSAGE-----