Exhibit 10.1


 


EXECUTION
COPY


 


EBIX,
INC.


 


SECURED
CONVERTIBLE NOTE

PURCHASE AGREEMENT


 


July 11, 2008


 

















 


SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT


 


THIS SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT (the “Agreement”)
is made effective as of July 11, 2008, by and between Ebix, Inc., a
Delaware corporation (the “Company”), and Whitebox VSC Ltd., a limited
partnership organized under the laws of the British Virgin Islands (the “Investor”),
with respect to the following recitals.


 


RECITALS


 


A.            The Company desires
to issue and sell and the Investor desires to purchase secured convertible
promissory notes in substantially the form attached to this Agreement as Exhibit A
(collectively, the “Notes”), which shall be convertible on the terms
stated therein into common stock, par value $.10 per share (the “Common
Stock”), of the Company; and


 


B.            As a further
inducement for Investor to purchase the Notes, the Company desires to provide a
security interest in all assets of the Company as collateral to further secure
the performance of the Company’s obligations under the Notes, as set forth in
that certain Security Agreement to be entered into between the Company and the
Investor within thirty (30) days after the date hereof (the “Security
Agreement”).


 


AGREEMENT


 


NOW, THEREFORE, in
consideration of the respective representations, warranties, covenants and
agreements contained herein, and for other valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:


 


ARTICLE I

DEFINITIONS


 


Section 1.1 
Specific Definitions.  As
used in this Agreement, the following terms shall have the meanings set forth
or as referenced below:


 


“Action” shall have the meaning ascribed to such term in Section 4.10.


 


“Affiliate” of a specified person (natural or juridical) means a
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, that person, as
such terms are used in and construed under Rule 405 under the Securities
Act.  With respect to the Investor, any
investment fund or managed account that is managed on a discretionary basis by
the same investment manager as the Investor will be deemed to be an Affiliate
of the Investor.


 


“Agreement” means this Agreement and all Exhibits and Schedules
hereto.


 


“Closing” shall have the meaning ascribed to such term in Section 3.1.


 


“Closing Date” shall have the meaning ascribed to such term in Section 3.1.


 


“Code” shall have the meaning ascribed to such term in Section 4.35.


 

















 


“Common Stock” means the Company’s common stock, par value $0.10
per share.


 


“Conversion Price” means the conversion price in effect on any
given date, which initially shall be equal to $84.00, but which shall be
subject to adjustment as described herein and in the Note.


 


“Common Stock Equivalents” means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including, without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time convertible
into or exercisable or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.


 


“Conversion Shares” or “Shares” means the shares of
Common Stock issued or issuable upon conversion of any of the Convertible Note.


 


“Convertible Note” or “Note” means the promissory note,
in the form attached hereto as Exhibit A, to be issued by the
Company to the Investor.


 


“Disclosure Schedules” means the Disclosure Schedules of the
Company delivered concurrently herewith.


 


“Effective Date” means the date that the Registration Statement
filed by the Company is first declared effective by the SEC.


 


“Environmental Laws or Regulations” means any federal, state or
local statute, law, ordinance or regulation that relates to or deals with
hazardous substances, human health or the environment, and all regulations
promulgated by a regulatory body pursuant to any of the foregoing statutes,
laws, regulations, or ordinances.


 


“ERISA” shall have the meaning ascribed to such term in Section 4.35.


 


“Evaluation Date” shall have the meaning ascribed to such term
in Section 4.18.


 


“Exchange Act” shall mean the Securities Exchange Act of 1934,
as amended to date.


 


“Exempt Issuance” means (a) the vesting of shares of Common
Stock or options to employees, officers, consultants or directors of the
Company pursuant to the Company’s 1996 Stock Option Plan, as amended (provided
that any such vesting shall not exceed 10% of the Company’s outstanding shares
and/or options, in the aggregate, in any twelve-month period), (b) the
issuance of securities upon the exercise or exchange of or conversion of any
securities issued pursuant to the Purchase Agreement and/or other securities
exercisable or exchangeable for or convertible into shares of Common Stock
issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to increase
the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, and (c) the issuance of securities
issued pursuant to acquisitions or strategic transactions approved by a
majority of the disinterested directors of the 


 


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Company, provided any such issuance shall only be to a
person which is, itself or through its subsidiaries, an operating company in a
business synergistic with or complementary to the business of the Company and
in which the Company receives benefits in addition to the investment of funds,
but shall not include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose primary
business is investing in securities.


 


“Financial Statements” means the Company’s audited financial
statements as of and for the year ended December 31, 2007 and unaudited
quarterly financial statements of the Company for the quarter ended March 31,
2008.


 


“GAAP” shall have the meaning ascribed to such term in Section 4.8.


 


“Guaranty” means that certain Guaranty to be entered into by and
among the Company and certain of its Affiliates in favor of the Investor within
thirty (30) days after the Closing Date.


 


“Indemnifiable Losses” shall have the meaning ascribed to such
term in Section 9.1.


 


“Intellectual Property” means (i) all proprietary rights,
privileges and priorities provided under U.S., state and foreign law relating
to U.S. and foreign patents and patent applications, trademarks, service marks
and registrations thereof and applications therefor, copyrights and copyright
registrations and applications, mask works and registrations thereof, know-how,
and trade secrets; (ii) proprietary inventions, discoveries, ideas,
technology, data, information, and processes; (iii) proprietary drawings,
designs, licenses, computer programs and software, and technical information
including but not limited to proprietary information embodied in material
specifications, processing instructions, equipment specifications, product
specifications, confidential data, electronic files, research notebooks,
invention disclosures, research and development reports and the like related
thereto; and (iv) all amendments, modifications, and improvements to any
of the foregoing.


 


“Intellectual Property Rights” shall have the meaning ascribed
to such term in Section 4.15.


 


“Knowledge” means actual knowledge of a fact or the knowledge
which such person could reasonably be expected to have based on reasonable
inquiry.  The knowledge of an entity
shall include the knowledge of the individuals who are executive officers of
such entity at the time in question.


 


“Legend Removal Date” shall have the meaning ascribed to such
term in Section 6.10(c).


 


“Liens” means liens, mortgages, charges, security interests,
claims, voting trusts, pledges, encumbrances, options, assessments,
restrictions, or third-party or spousal interests of any nature.


 


“Mandatory Conversion Notice” shall have the meaning ascribed to
such term in Section 2.2(b).


 


“Mandatory Conversion Notice Date” shall have the meaning
ascribed to such term in Section 2.2(b).


 


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“Material Adverse Effect” means any effect that may be
materially adverse to (a) the business, operations, results of operations,
prospects, assets (including intangible assets), liabilities or condition
(financial or otherwise) of the Company and its Affiliates, taken as a whole,
or (b) the ability of the Company to perform its obligations under this
Agreement or any of the Transaction Documents or any other agreement or
instrument to be entered into in connection with this Agreement.


 


“Material Permits” shall have the meaning ascribed to such term
in Section 4.13.


 


“Note” shall have the meaning ascribed to such term in Section 2.1.


 


“Person” means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.


 


“Plan” or “Plans” shall have the meaning ascribed to such
term in Section 4.35.


 


“Proceeding” means an action, claim, suit, investigation or
proceeding (including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.


 


“Product Liability” means any liability, claim or expense,
including but not limited to attorneys’ fees and medical expenses, arising in
whole or in part out of a breach of any express or implied product warranty by
the Company, strict liability in tort, negligent manufacture of product,
negligent provision of services, product recall, or any other allegation of
liability arising from the design, testing, manufacture, packaging, labeling
(including instructions for use), or sale of products.


 


“Prospectus” shall have the meaning ascribed to such term in Section 9.1.


 


“Purchase Price” shall have the meaning ascribed to such term in
Section 2.1.


 


“Purchased Securities” means the Convertible Note and the
Conversion Shares.


 


“Registration Statement” means a registration statement meeting
the requirements set forth in Section 6.12 below and covering the resale
by the Investor of the Conversion Shares. 
The term “Registration Statement” shall include any preliminary or final
prospectus, exhibit, supplement or amendment included in or relating to such
Registration Statement.


 


“Required Approvals” shall have the meaning ascribed to such
term in Section 4.5.


 


“Required Minimum” means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in the
future pursuant to the Transaction Documents, including any Conversion Shares
issuable upon exercise or conversion in full of all Notes, ignoring any
conversion or exercise limits set forth therein.


 


4

















 


“Rule 144” means Rule 144 promulgated by the SEC
pursuant to the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the SEC
having substantially the same effect as such Rule.


 


“Schedule of Exceptions” shall have the meaning ascribed to such
term in Article 4.


 


“SEC” means the United States Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.


 


“SEC Reports” shall have the meaning ascribed to such term in Section 4.8.


 


“Securities Act” means the United States Securities Act of 1933,
as amended, and all regulations promulgated thereunder.


 


“Security Agreement” means the security agreement to be entered
into by and between the Company and the Investor within thirty (30) days after
the Closing Date.


 


“Short Sales” means all “short sales” as defined in Rule 200
of Regulation SHO under the Exchange Act (but shall not be deemed to include
the location and/or reservation of borrowable shares of Common Stock).


 


“Subsidiary” means any subsidiary of the Company as set forth on
Schedule 4.1 and shall, where applicable, include any subsidiary of the
Company formed or acquired after the date hereof.


 


“Threshold Period” shall have the meaning ascribed to such term
in Section 2.2(b).


 


“Trading Day” means a day on which the Nasdaq Stock Market (or
such other Trading Market on which the Company’s Common Stock is then traded)
is open for trading.


 


“Trading Market” means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in question:
the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global
Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC
Bulletin Board.


 


“Transaction Documents”
means the Notes, the Security Agreement, the Guaranty, the Security Agreement,
any Intercreditor Agreement as may be required to be delivered hereunder and
such other documents, instruments and agreements executed in connection with
the consummation of the transactions contemplated hereby.


 


“VWAP” means, for any date, the price determined by the first of
the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted for trading as
reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New
York City time) to 4:02 p.m. (New York City time); (b)  if the OTC
Bulletin Board is not a Trading Market, the volume weighted average price of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board; (c) if the Common Stock is not then quoted for trading on
the 


 


5

















 


OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so reported;
or (d) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.


 


Section 1.2 
Definitional Provisions.


 


(a)   The words “hereof,” “herein,” and “hereunder”
and words of similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provisions of this Agreement.


 


(b)   The terms defined in the singular shall have
a comparable meaning when used in the plural, and vice versa.  Terms referring to a masculine gender shall
be deemed to refer to the feminine or neuter genders, as applicable.


 


(c)   References to an “Exhibit” or to a “Schedule”
are, unless otherwise specified, to one of the Exhibits or Schedules attached
to or referenced in this Agreement, and references to an “Article” or a
“Section” are, unless otherwise specified, to one of the Articles or Sections
of this Agreement.


 


(d)   The term “person” includes any individual,
partnership, joint venture, corporation, limited liability company, trust,
entity, unincorporated organization or government or any department or agency
thereof.


 


(e)   The term “dollars” or “$” shall refer to the
currency of the United States of America.


 


(f)    All references to time shall refer to
Minneapolis, Minnesota time.


 


ARTICLE II

PURCHASE AND SALE OF CONVERTIBLE NOTES


 


Section 2.1 
Purchase and Sale of Notes. 
Subject to the terms and conditions of this Agreement, the Investor
agrees to purchase at the Closing, and the Company agrees to sell and issue to
the Investor at the Closing, a Note, in substantially the form attached hereto
as Exhibit A, in the original principal amount of $15,000,000 (the
“Note”), at a purchase price equal to 100% of the principal amount
thereof (the “Purchase Price”). 
The Note will be secured pursuant to the Security Agreement.


 


Section 2.2 
Note Conversion.


 


(a)           Optional Conversion.  The Investor may, at its option, purchase
shares of the Company’s Common Stock by converting amounts outstanding under
the Note or, if applicable, the Additional Note and the Subsequent Note, at the
applicable Conversion Price as provided therein (in each case, a “Note
Conversion Closing”).  At each Note
Conversion Closing, the Company shall issue certificates representing any
shares 


 


6

















 


purchased under this Section 2.2 in a form
acceptable to the Investor and Investor’s counsel, and the Investor shall pay
the Conversion Price of $84.00 per share (subject to adjustment as provided
therein) for such shares by surrendering the applicable Note(s) to the
Company.


 


(b)           Mandatory Conversion.  Notwithstanding anything herein to the
contrary, if after the Closing Date, (i) the average price of the
Company’s Common Stock on the Trading Market exceeds $168.00 per share (subject
to adjustment for stock splits, dividends and other appropriate adjustments)
for any 30 consecutive Trading Days (the “Threshold Period”), the
Company shall have the option, within two (2) Trading Days after the end
of any such Threshold Period, deliver a written notice to the Investor (a “Mandatory
Conversion Notice” and the date of such notice, the “Mandatory
Conversion Notice Date”) to cause the Investor to surrender the Note and
seek immediate conversion of the remaining amounts due under the Note on such
Mandatory Conversion Notice Date into the Company’s Common Stock at the
conversion price of $84.00 per share (subject to adjustment as provided under
the Note).


 


Section 2.3 
Use of Proceeds.  The
Company shall use the cash proceeds of the sale of the Notes (a) for the
Company’s strategic acquisition and working capital needs and (b) to pay
any legal fees and expenses incurred in connection with the drafting,
negotiation, due diligence and execution of this Agreement and the other
Transaction Documents (including those documents delivered in connection with
the issuance of the Note and the Conversion Shares to the Investor on the
Closing Date) (which, in the case of counsel to Investors, shall be limited to
$30,000 in accordance with the terms set forth in Section 11.7 below).


 


ARTICLE III

THE CLOSING


 


Section 3.1 
Closing.  The purchase and
sale of the Notes shall take place at the offices of the Company, at 10:00 a.m.,
on July 11, 2008, or such other time as may be designated by the Company
in writing (the “Closing”).  At
the Closing, the Company shall deliver to the Investor the Note that the
Investor is purchasing against delivery to the Company by the Investor of a
check or wire transfer in the amount of $15,000,000.00 payable to the Company’s
order (or by wire of funds in such amount to the Company’s designated bank
account).


 


Section 3.2 
Closing Deliveries.


 


(a)   Company Deliveries.  On the Closing Date, the Company shall
deliver or cause to be delivered to the Investor the following:


 


(i)            this Agreement duly executed by the
Company; and


 


(ii)           a Note registered in the name of the
Investor in the principal amount of $15,000,000.


 


7

















 


(b)   Investor Deliveries.  On the Closing Date, the Investor shall
deliver or cause to be delivered to the Company the following:


 


(i)            this Agreement duly executed by the
Investor; and


 


(ii)           the payment of the Purchase Price by
the Investor, in the manner specified in Section 3.1 above.


 


ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY


 


Attached hereto as Schedule A is the Schedule of Exceptions containing
sections numbered to correspond to the sections of this Article 4 (the “Schedule
of Exceptions”).  Except as
specifically set forth in the corresponding section of such Schedule of
Exceptions (or in any other section of the Schedule of Exceptions so long as
the applicability of such disclosure to the particular representation and
warranty which such disclosure is intended to modify is reasonably apparent),
the Company and its Affiliates hereby represents and warrants to the Investor as
follows as of the date hereof and as of the Closing Date:


 


Section 4.1 
Subsidiaries.  All of the
direct and indirect subsidiaries (the “Subsidiaries”) of the Company are
set forth on Schedule 4.1.  The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all of the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.


 


Section 4.2 
Organization and Qualification. 
The Company and each of the Subsidiaries is an entity duly incorporated
or otherwise organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. 
Neither the Company nor any Subsidiary is in violation or default of any
of the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case
may be, could not have or reasonably be expected to result in a Material
Adverse Effect, and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.


 


Section 4.3 
Authorization; Enforcement. 
The Company has the requisite corporate power and authority to enter
into and to consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required
by the Company, its board of directors or its shareholders in connection
therewith other than in 


 


8

















 


connection with the Required Approvals (as defined in Section 4.5
below).  Each Transaction Document has
been (or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’
rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) insofar
as indemnification and contribution provisions may be limited by applicable
law.


 


Section 4.4 
No Conflicts.  The
execution, delivery and performance of the Transaction Documents by the
Company, the issuance and sale of the Purchased Securities and the consummation
by the Company of the other transactions contemplated hereby and thereby do not
and will not (i) conflict with or violate any provision of the Company’s
or any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the properties
or assets of the Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject
to the Required Approvals (as defined in Section 4.5 below), conflict with
or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or any Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected
to result in a Material Adverse Effect.


 


Section 4.5 
Filings, Consents and Approvals. 
The Company is not required to obtain any consent, waiver, authorization
or order of, give any notice to, or make any filing or registration with, any
court or other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than (i) filings required
pursuant to Section 6.14 of this Agreement, (ii) the filing with the
SEC of the Registration Statement, (iii) application(s) to each
applicable Trading Market for the listing of the Securities for trading thereon
in the time and manner required thereby, and (iv) the filing of Form D
with the SEC and such filings as are required to be made under applicable state
securities laws (collectively, the “Required Approvals”).


 


Section 4.6 
Issuance of the Securities. 
The Purchased Securities are duly authorized and, when issued and paid
for in accordance with the applicable Transaction Documents, will be duly and
validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than restrictions on transfer provided for in the
Transaction Documents.  The Conversion
Shares, when issued in accordance with the terms of the Transaction Documents,
will be validly issued, fully paid and nonassessable, free and clear of all
Liens imposed by the Company other than restrictions on transfer provided for
in the Transaction Documents.  The 


 


9

















 


Company has reserved from its duly authorized capital stock the maximum
number of shares of Common Stock issuable pursuant to this Agreement and the
other Transaction Documents.


 


Section 4.7 
Capitalization.  The
capitalization of the Company is as set forth on the Schedule of Exceptions,
which shall also include the number of shares of Common Stock owned of record,
and, to the knowledge of the Company, beneficially, by Affiliates of the
Company as of the date hereof. The Company has not issued any capital stock
since its most recently filed periodic report
under the Exchange Act, other than the exercise of employee stock
options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase
plans and pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the
Exchange Act.  No Person has any right of
first refusal, preemptive right, right of participation, or any similar right
to participate in the transactions contemplated by the Transaction Documents.  Except as set forth on the Schedule of
Exceptions or as a result of the purchase and sale of the Purchased Securities,
there are no outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exercisable or exchangeable for, or giving
any Person any right to subscribe for or acquire, any shares of Common Stock,
or contracts, commitments, understandings or arrangements by which the Company
or any Subsidiary is or may become bound to issue additional shares of Common
Stock or Common Stock Equivalents.  The
issuance and sale of the Purchased Securities will not obligate the Company to
issue shares of Common Stock or other securities to any Person (other than the
Investor) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities.  No further
approval or authorization of any shareholder, the Board of Directors of the
Company or others is required for the issuance and sale of the Purchased
Securities.  There are no stockholder
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party (other than those
contemplated in connection with the Transaction Documents) or, to the knowledge
of the Company, between or among any of the Company’s shareholders.


 


Section 4.8 
SEC Reports; Financial Statements.  The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the Company was required by law or regulation to file such
material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to herein
as the “SEC Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to
the expiration of any such extension.  As
of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act, as
applicable, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.  The financial statements of the Company
included 


 


10

















 


in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the SEC with
respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.


 


Section 4.9 
Material Changes; Undisclosed Events, Liabilities or Developments.  Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report filed prior to the date hereof, (i) there
has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the
Company has not incurred any liabilities (contingent or otherwise) other than (A) increasing
its revolving line of credit with LaSalle Bank N.A. to a total of $25,000,000, (B) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (C) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or disclosed
in filings made with the SEC, (iii) the Company has not altered its method
of accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its shareholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing Company stock
option plans.  The Company does not have
pending issues before the SEC except a question regarding the change of control
provision in the previous convertible note signed with the investor that the
investor has retroactively deleted. . 
Except for the issuance of the Purchased Securities contemplated by this
Agreement or as set forth on Schedule 4.9, no event, liability or
development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least 1 Trading Day prior to the
date that this representation is made.


 


Section 4.10 
Litigation.  There is no
action, suit, inquiry, notice of violation, proceeding or investigation pending
or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Purchased Securities
or (ii) could, if there were an unfavorable decision, have or reasonably
be expected to result in a Material Adverse Effect.  Neither the Company nor any Subsidiary, nor
any director or officer thereof, is or has been the subject of any Action which
has resulted in a final judgment involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of fiduciary
duty.  There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the SEC involving the Company or any current or former
director or officer of the Company.  The
SEC has not issued any stop order or other order 


 


11

















 


suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.


 


Section 4.11 
Labor Relations.  No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could reasonably be
expected to result in a Material Adverse Effect.  None of the Company’s or its Subsidiaries’
employees is a member of a union that relates to such employee’s relationship
with the Company or such Subsidiary, and neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement.  No executive officer, to the knowledge of the
Company, is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement or
any restrictive covenant in favor of any third party, and the continued
employment of each such executive officer does not subject the Company or any
of its Subsidiaries to any liability with respect to any of the foregoing
matters.  The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.


 


Section 4.12 
Compliance.  Neither the
Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a claim that
it is in default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state and local
laws applicable to its business and all such laws that affect the environment,
except in each case as could not have or reasonably be expected to result in a
Material Adverse Effect.


 


Section 4.13 
Regulatory Permits.  The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in
the SEC Reports, except where the failure to possess such permits could not
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.


 


Section 4.14 
Title to Assets.  The
Company and the Subsidiaries have good and marketable title in fee simple to
all real property owned by them and good and marketable title in all personal
property owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for Liens that
do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and the Subsidiaries and Liens for the payment of federal, state or
other taxes, the payment of which is neither delinquent nor subject to
penalties.  Any real property and
facilities held under lease by the Company and the Subsidiaries are held 


 


12

















 


by them under valid, subsisting and enforceable leases with which the
Company and the Subsidiaries are in compliance in all material respects.


 


Section 4.15 
Patents and Trademarks. 
The Company and the Subsidiaries have, or have rights to use, all
patents, patent applications, trademarks, trademark applications, service
marks, trade names, trade secrets, inventions, copyrights, licenses and other
intellectual property rights and similar rights necessary or material for use
in connection with their respective businesses as described in the SEC Reports
and which the failure to so have could have a Material Adverse Effect
(collectively, the “Intellectual Property Rights”).  Neither the Company nor any Subsidiary has
received a notice (written or otherwise) that any of the Intellectual Property
Rights used by the Company or any Subsidiary violates or infringes upon the
rights of any Person.  To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights.  The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.


 


Section 4.16 
Insurance.  The Company and
the Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary
in the businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance coverage at
least equal to the aggregate Subscription Amount.  Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.


 


Section 4.17 
Transactions With Affiliates and Employees.  Except as set forth in the SEC Reports, none
of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $100,000 other than for (i) payment of salary or
consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee benefits,
including stock option agreements under any stock option plan of the Company.


 


Section 4.18 
Sarbanes-Oxley; Internal Accounting Controls.  The Company is in material compliance with
all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as
of the Closing Date.  The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i) transactions
are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in
accordance with 


 


13

















 


management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
information required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms.  The Company’s certifying officers have
evaluated the effectiveness of the Company’s disclosure controls and procedures
as of the end of the period covered by the Company’s most recently filed
periodic report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently
filed periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures
based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no
changes in the Company’s internal control over financial reporting (as such
term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.


 


Section 4.19 
Certain Fees.  No brokerage
or finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
the Transaction Documents.  The Investor
shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the Transaction
Documents.


 


Section 4.20 
Private Placement. 
Assuming the accuracy of the Investor representations and warranties set
forth in Article 5, no registration under the Securities Act is required
for the offer and sale of the Purchased Securities by the Company to the Investor
as contemplated hereby. The issuance and sale of the Purchased Securities
hereunder does not contravene the rules and regulations of the Trading
Market.


 


Section 4.21 
Investment Company.  The
Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as
amended.  The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act of 1940, as amended.


 


Section 4.22 
Registration Rights.  Other
than pursuant to this Agreement, no Person has any right to cause the Company
to effect the registration under the Securities Act of any securities of the Company,
other than registration statements which have already been filed and declared
effective or that have been filed and await declaration of effectiveness by the
SEC.


 


Section 4.23 
Listing and Maintenance Requirements.  The Company’s Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act, nor has the Company received any notification that the SEC is
contemplating terminating such registration. 
The Company has not, 


 


14

















 


in the 12 months preceding the date hereof, received any notice from
any Trading Market on which the Common Stock is or has been listed or quoted to
the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market. The Company is, and has no
reason to believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.


 


Section 4.24 
Application of Takeover Protections.  The Company and its board of directors have
taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s articles of incorporation (or similar charter documents) or
the laws of its state of incorporation that is or could become applicable to
the Investor as a result of the Investor and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company’s issuance of the
Purchased Securities and the Investor’s ownership of the Purchased Securities.


 


Section 4.25 
Disclosure.  Except with
respect to the material terms and conditions of the transactions contemplated
by the Transaction Documents, the Company confirms that neither it nor any
other Person acting on its behalf has provided the Investor or its agents or
counsel with any information that it believes constitutes or might constitute
material, non-public information.   The
Company understands and confirms that the Investor will rely on the foregoing
representation in effecting transactions in securities of the Company.  All disclosure furnished by or on behalf of
the Company to the Investor regarding the Company, its business and the transactions
contemplated hereby, including the SEC Reports and the Disclosure Schedules to
this Agreement, is true and correct and does not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which
they were made, not misleading. The press releases and the SEC Reports filed or
disseminated by the Company during the twelve months preceding the date of this
Agreement taken as a whole do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made and when made, not misleading.  The Company acknowledges and agrees that the
Investor is not making and has not made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in Article 5 below.


 


Section 4.26 
No Integrated Offering. 
Assuming the accuracy of the Investor’s representations and warranties
set forth in Article 5, neither the Company, nor any of its Affiliates,
nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would cause this offering of the Purchased
Securities to be integrated with prior offerings by the Company for purposes of
(i) the Securities Act which would require the registration of any such
securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.


 


Section 4.27  
Solvency.  Based on the
consolidated financial condition of the Company as of the Closing Date, after
giving effect to the receipt by the Company of the proceeds from the sale of
the Purchased Securities hereunder, (i) the fair saleable value of the
Company’s assets 


 


15

















 


exceeds the amount that will be required to be paid on or in respect of
the Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof; and (iii) the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid.  The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt).  The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. 
All material secured and unsecured indebtedness of the Company is set
forth in the Company’s SEC Reports.


 


Section 4.28 
Tax Status.  Except for
matters that would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect, the Company and each
Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon,
and the Company has no knowledge of a tax deficiency which has been asserted or
threatened against the Company or any Subsidiary.


 


Section 4.29 
No General Solicitation. 
Neither the Company nor any person acting on behalf of the Company has
offered or sold any of the Purchased Securities by any form of general
solicitation or general advertising.  The
Company has offered the Securities for sale only to the Investor and, to the
extent applicable, other “accredited investors” within the meaning of Rule 501
under the Securities Act.


 


Section 4.30 
Foreign Corrupt Practices. 
Neither the Company, nor to the knowledge of the Company, any agent or
other person acting on behalf of the Company, has (i) directly or
indirectly, used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or employees
or to any foreign or domestic political parties or campaigns from corporate
funds, (iii) failed to disclose fully any contribution made by the Company
(or made by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended.


 


Section 4.31 
No Disagreements with Accountants and Lawyers.  There are no disagreements of any kind
presently existing, or reasonably anticipated by the Company to arise, between
the Company and the accountants and lawyers formerly or presently employed by
the Company which could affect the Company’s ability to perform any of its
obligations under any of the Transaction Documents, and the Company is current
with respect to any fees owed to its accountants and lawyers.


 


16
















 


Section 4.32  Acknowledgment Regarding Investor’s
Purchase of Securities.  The Company
acknowledges and agrees that the Investor is acting solely in the capacity of
an arm’s-length purchaser with respect to the Transaction Documents and the
transactions contemplated thereby.  The
Company further acknowledges that the Investor is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect
to the Transaction Documents and the transactions contemplated thereby and any
advice given by the Investor or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
thereby is merely incidental to the Investor’s purchase of the Purchased
Securities.  The Company further
represents to the Investor that the Company’s decision to enter into this
Agreement and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.


 


Section 4.33  Regulation M Compliance.  The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any
action designed to cause or to result in the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of
any of the Purchased Securities, (ii) sold, bid for, purchased, or, paid
any compensation for soliciting purchases of, any of the Purchased Securities,
or (iii) paid or agreed to pay to any Person any compensation for
soliciting another to purchase any other securities of the Company, other than,
in the case of clauses (ii) and (iii), compensation paid to the Company’s
placement agent in connection with the placement of the Purchased Securities.


 


Section 4.34  Form S-3 Eligibility.  The Company is presently not eligible to
register the resale of the Securities for resale by the Investor on Form S-3
promulgated under the Securities Act till August 2008 and therefore will
register the resale of the Securities for resale on Form S-1 promulgated
under the Securities Act.


 


Section 4.35 
Employee Benefit Plans.


 


(a)   Except as set forth in the Schedule of
Exceptions, (i) the Company does not maintain or contribute to or have any
obligation to contribute to, or have any direct or indirect liability, whether
contingent or otherwise, with respect to any plan, program, agreement,
arrangement or commitment which is an employment, consulting or deferred
compensation agreement, or an executive compensation, incentive bonus or other
bonus, employee pension, profit-sharing, savings, retirement, stock option,
stock purchase, severance pay, life, health, disability or accident insurance
plan, or vacation, or other employee benefit plan, program, arrangement,
agreement or commitment, whether or not subject to ERISA (as defined below)
(including any funding mechanism now in effect or required in the future as a
result of the transaction contemplated by this Agreement or otherwise), whether
oral or written (individually a “Plan,” and collectively, the “Plans”);
and (ii) neither the Company nor any person who would be considered a
single employer with the Company pursuant to Section 414(b), (c), (m) or
(o) of the Code (as defined below) maintains or contributes to, or has had
during the preceding six years maintained or contributed to, or has had during
such period the obligation to maintain or contribute, or may have any liability
with respect to, any Plan subject to Title IV of ERISA or Section 412 of
the Code or any “multiple employer plan” within the meaning of the Code or
ERISA.  No Plan is (i) a
nonqualified deferred compensation retirement plan, contract 


 


17

















 


or arrangement; (ii) a
qualified defined contribution plan (as defined in Section 3(34) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”),
or Section 414(i) of the Internal Revenue Code of 1986, as amended
(the “Code”)); (iii) a qualified defined benefit plan (as defined
in Section 3(35) of ERISA or Section 414(j) of the Code); or (iv) an
employee welfare benefit plan (as defined in Section 3(1) of ERISA).


 


(b)   To the extent required (either as a matter of
law or to obtain the intended tax treatment and tax benefits), all employee
benefit plans (as defined in Section 3(3) of ERISA), which the
Company maintains or to which it contributes, comply in all material respects
with the requirements of ERISA and the Code. 
With respect to the Plans, (i) all required contributions which are
due have been made and a proper accrual has been made for all contributions due
in the current fiscal year; (ii) there have been no prohibited
transactions (as defined in Section 406 of ERISA or Section 4975 of
the Code) and (iii) no event has occurred in connection with which the
Company or any Plan could be subject to any material liability under ERISA, the
Code or otherwise.


 


(c)   The Company does not contribute (and has not
ever contributed or had any obligation to contribute) to any multi-employer
plan, as defined in Section 3(37) of ERISA. The Company has no actual or
potential liabilities under Section 4201 of ERISA for any complete or
partial withdrawal from a multi-employer plan. 
The Company has no actual or potential liability for death or medical
benefits after separation from employment, other than (i) death benefits
under the employee benefit plans or programs (whether or not subject to ERISA)
set forth in the Schedule of Exceptions and (ii) health care continuation
benefits described in Section 4980B of the Code.


 


(d)   To the Company’s knowledge, neither the
Company nor any of its directors, officers, employees or other “fiduciaries,”
as such term is defined in Section 3(21) of ERISA, has committed any
breach of fiduciary responsibility imposed by ERISA or any other applicable law
with respect to the Plans which would subject the Company or any of its
directors, officers or employees to any liability under ERISA or any applicable
law.


 


(e)   The Company has not incurred any liability
for any tax or civil penalty or any disqualification of any employee benefit
plan (as defined in Section 3(3) of ERISA) imposed by Sections 4980B
and 4975 of the Code and Part 6 of Title I and Section 502(i) of
ERISA.


 


Section 4.36  Outstanding Borrowing.  The Company’s SEC Reports set forth all
material indebtedness of the Company as of the date hereof, the liens that
relate to such indebtedness and that encumber the Company’s assets and the name
of each lender thereof.  No holder of
indebtedness of the Company is entitled to any voting rights in any matters
voted upon by the holders of the Common Stock.


 


18

















 


ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE INVESTOR


 


The Investor represents and warrants to the Company
for itself as follows:


 


Section 5.1  Authorization.  The Investor has full power and authority to
enter into and perform under this Agreement in accordance with its terms.  This Agreement has been duly authorized by
all necessary action on the part of the Investor, has been duly executed and
delivered by each the Investor, and is the valid and binding agreement of each
the Investor and is enforceable against each the Investor in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting the enforcement of
creditors’ rights generally and to judicial limitations on the remedy of
specific enforcement and other equitable remedies.


 


Section 5.2  Purchase Entirely for Own Account.  This Agreement is made with the Investor in
reliance upon the Investor’s representation to the Company, which by the
Investor’s execution of this Agreement the Investor hereby confirms, that the
Purchased Securities will be acquired for investment for the Investor’s own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same.  By executing this Agreement, the Investor
further represents that the Investor does not have any contract, undertaking,
agreement or arrangement with any third-party to sell, transfer or grant
participations to such third-party or to any third-person, with respect to any
of the Purchased Securities.


 


Section 5.3  Reliance Upon Investor’s Representations;
Restrictions on Resale.  The Investor
understands that none of the Notes or Conversion Shares have been registered
under the Securities Act or any state securities laws by reason of their
contemplated issuance in transactions exempt from the registration requirements
of the Securities Act pursuant to Section 4(2) thereof or Rule 505
or 506 promulgated under the Securities Act and applicable state securities
laws, and that the reliance of the Company and others upon these exemptions is
predicated in part upon this representation by the Investor.  The Investor further understands that the
Notes and the Conversion Shares may not be transferred or resold without (i) registration
under the Securities Act and any applicable state securities laws, or (ii) an
exemption from the requirements of the Securities Act and applicable state
securities laws.  The Investor also
understands that any Conversion Shares will be issued without prior registration
thereof under the Securities Act or applicable state securities laws in
reliance upon Section 4(2) of the Securities Act and transactional
exemptions from registration under applicable state securities laws based upon
appropriate representations of the Investor. 
As such, the Conversion Shares will be subject to transfer restrictions
similar to restrictions applicable to the Convertible Notes.  The Investor understands (i) that an
exemption from such registration is not presently available pursuant to Rule 144
promulgated under the Securities Act by the SEC and (ii) that in any event
the Investor may not sell any securities acquired hereunder pursuant to Rule 144
prior to the expiration of a one-year period (or such shorter period as the SEC
may hereafter adopt) after the Investor has acquired such securities.  The Investor understands that any sales
pursuant to Rule 144 can be made only in full compliance with the
provisions of Rule 144.


 


19

















 


Section 5.4  Receipt of Information.  The Investor represents that the Company has
provided the Investor at a reasonable time prior to the execution of this
Agreement sufficient opportunity to ask questions and receive answers from the
Company’s management concerning the Company’s business, management and
financial affairs and the terms and conditions of the offering of the Purchased
Securities and the Conversion Shares and to obtain any additional information
(which the Company possesses or can acquire without unreasonable effort or
expense) as may be necessary to verify the accuracy of information furnished to
the Investor.  The Investor has reviewed
the representations concerning the Company contained in this Agreement.  The foregoing, however, does not limit or modify
the representations and warranties of the Company in this Agreement or the
right of the Investor to rely thereon.


 


Section 5.5  Investment Experience.  The Investor represents that it is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Notes and the Conversion Shares.  If other than an individual, Investor also
represents it has not been organized for the purpose of acquiring the Notes and
Conversion Shares.


 


Section 5.6  Accredited Investor.  The Investor is an “accredited investor”
within the meaning of SEC Rule 501 of Regulation D promulgated under the
Act, as presently in effect.


 


Section 5.7  Legends.  To the extent applicable, each certificate or
other document evidencing any of the Purchased Securities shall be endorsed
with the legends set forth below, and the Investor covenants that, except to
the extent such restrictions are waived by the Company, the Investor shall not
transfer the shares represented by any such certificate without complying with
the restrictions on transfer described in the legends endorsed on such
certificate:


 


“THE SHARES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR
COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED.”


 


The
Company shall make a notation regarding the restrictions on transfer of the
Conversion Shares or other Purchased Securities in its books and the Conversion
Shares and other Purchased Securities shall be transferred on the books of the
Company only if transferred or sold pursuant to an effective registration
statement under the Securities Act covering the securities to be transferred or
an opinion of counsel reasonably satisfactory to the Company that such
registration is not required; provided, however, that (i) the
Company will not require opinions of counsel for transactions made pursuant to Rule 144
except in unusual circumstances and (ii) the 


 


20

















 


Company
will not require opinions of counsel for transfers to affiliated entities
managed by the same manager or managing partner or management company, or
managed by an entity controlling, controlled by or under common control with
such manager, managing partner or management company so long as the transferor
certifies in writing to the Company that the transferor is not receiving any
consideration in connection with the transfer and so long as the transferee
will be subject to the terms of these restrictions to the same extent as if
such transferee were an original Investor hereunder.


 


ARTICLE VI

COVENANTS


 


The Company covenants that for so long as any Notes
remain outstanding:


 


Section 6.1  Financial Statements, Reports, Etc.  The Company shall furnish to the Investor:


 


(a)   within ninety (90) days (or such shorter
period of time as shall be required by the SEC in connection with the filing of
the Company’s quarterly reports with the SEC under the Exchange Act) after the
end of each fiscal year of the Company ending on or after December 31,
2008, a balance sheet of the Company as of the end of such fiscal year and the
related statements of income, stockholders’ equity and cash flows for the
fiscal year then ended, prepared in accordance with GAAP and certified by a
firm of independent public accountants;


 


(b)   within forty-five (45) days (or such shorter
period of time as shall be required by the SEC in connection with the filing of
the Company’s annual reports with the SEC under the Exchange Act) after the end
of each fiscal quarter in each fiscal year (other than the last fiscal quarter
in each fiscal year) an unaudited balance sheet of the Company and the related
unaudited statements of income, stockholders’ equity and cash flows, and
certified by the Chief Financial Officer of the Company, such balance sheet to
be as of the end of such fiscal quarter and such statements of income,
stockholders’ equity and cash flows to be for such fiscal quarter and for the
period from the beginning of the fiscal year to the end of such fiscal quarter,
in each case with comparative statements for the corresponding period in the
prior fiscal year;


 


(c)   promptly after receipt by the Company of
notice thereof, notice of all actions, suits, claims, proceedings,
investigations and inquiries that could have a Material Adverse Effect; and


 


(d)   promptly, from time to time, such other
information regarding the business, financial condition, operations, property
or affairs of the Company and its subsidiaries as the Investor may reasonably
request.


 


Section 6.2  Inspection, Consultation and Advice.  The Company shall permit the Investor and
such persons as the Investor may designate, at the Investor’s expense, upon
reasonable notice and at such times as the Investor may reasonably request to
visit and inspect any of the properties of the Company, examine its books and
records (including without 


 


21

















 


limitation product
complaint histories and related information) and take copies and extracts
therefrom, discuss the affairs (including, without limitation, operations and
relations with suppliers), finances and accounts of the Company with its
officers, employees and public accountants (and the Company hereby authorizes
said accountants to discuss with the Investor and any such designees such affairs,
finances and accounts), and consult with the management of the Company as to
such affairs, finances and accounts of the Company and its subsidiaries, all at
reasonable times and upon reasonable notice.


 


Section 6.3  Transactions with Affiliates.  Except as specifically disclosed on
Schedule 6.3 attached hereto, the Company shall not use any proceeds of
Purchased Securities to make distributions or loans to any shareholders of the
Company or to repay existing indebtedness for borrowed money obligations.


 


Section 6.4  Conditions to Closing.  The Company shall use best efforts to cause
the conditions set forth in Article 8 to be satisfied with respect to the
Closing as soon as practicable.


 


Section 6.5  Reserve for Shares.  The Company shall at all times reserve and
keep available such number of its duly authorized but unissued shares of Common
Stock as is necessary to comply with the terms of this Agreement and the
Convertible Notes and Conversion Shares. 
The Company shall at all times reserve and keep available out of its
duly authorized but unissued shares of Common Stock such number of its duly
authorized shares of Common Stock as is necessary to comply with the terms of
this Agreement, its certificate of incorporation and the Conversion Shares.  If at any time the number of shares of
authorized but unissued Common Stock are not sufficient to comply with the
terms of this Agreement, the Convertible Notes, and the Conversion Shares, the
Company will promptly take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares of Common Stock as are sufficient for such purpose.  The Company will obtain any authorization,
consent, approval or other action by or make any filing with any court or
administrative body that may be required under applicable securities laws in
connection with the issuance of any shares issued by it in order to comply with
the terms of this Agreement, the Convertible Notes, and the Conversion Shares.


 


Section 6.6  Compliance with Law.  The Company will conduct its business in
compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without
limitation, all applicable local, state and federal environmental laws and
regulations, the failure to comply with which would have a Material Adverse
Effect.


 


Section 6.7  Use of Proceeds.  The Company shall use the cash proceeds of
the Purchased Securities to fund acquisitions and for the Company’s working
capital needs and shall not use such proceeds for the satisfaction of any
portion of the Company’s debt (other than payment of trade payables in the
ordinary course of the Company’s business and prior practices), or to redeem
any Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.


 


Section 6.8  Certain Actions Requiring Investor
Approval.  The Company shall not,
without the written consent of the Investor, other than in the ordinary course
of business, issue 


 


22

















 


any debt
securities that are senior or pari passu in right of payment to or with
the Convertible Notes (except for any debt securities that are outstanding as
of the date hereof).


 


Section 6.9  Dividends.  Neither the Company nor any of its
Subsidiaries shall pay dividends to its respective stockholders unless such
dividend on the next Interest Payment Date under the Notes on an as-if
converted basis.


 


Section 6.10  Transfer Restrictions.


 


(a)   The Conversion Shares may only be disposed of
in compliance with state and federal securities laws.  In connection with any transfer of Conversion
Shares other than pursuant to an effective registration statement or Rule 144,
to the Company or to an Affiliate of the Investor or in connection with a
pledge as contemplated in Section 6.10(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Conversion
Shares under the Securities Act.  As a
condition of transfer of Conversion Shares other than pursuant to an effective
registration statement or Rule 144, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights of
an Investor under this Agreement.


 


(b)   The Investor agrees to the imprinting, so
long as is required by this Section 6.10, of a legend on any of the
Conversion Shares in the following form:


 


[NEITHER] THIS
SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
[CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY.  THIS SECURITY
[AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH SECURITIES.


 


The Company
acknowledges and agrees that the Investor may from time to time pledge pursuant
to a bona fide margin agreement with a registered broker-dealer or grant a
security interest in some or all of the Conversion Shares to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under
the Securities Act and who 


 


23

















 


agrees to be
bound by the provisions of this Agreement and, if required under the terms of
such arrangement, the Investor may transfer pledged or secured Conversion
Shares to the pledgees or secured parties. 
Such a pledge or transfer would not be subject to approval of the Company,
and no legal opinion of legal counsel of the pledgee, secured party or pledgor
shall be required in connection therewith. 
Further, no notice shall be required of such pledge.  At the Investor’s expense, the Company will
execute and deliver such reasonable documentation as a pledgee or secured party
of Conversion Shares may reasonably request in connection with a pledge or
transfer of the Conversion Shares, including, if the Conversion Shares are
subject to registration pursuant to Section 6.12 hereof, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under
the Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.


 


(c)   Certificates evidencing the Conversion Shares
shall not contain any legend (including the legend set forth in Section 6.10(b) hereof):
(i) while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities Act, or (ii) following
any sale of such Conversion Shares pursuant to Rule 144, or (iii) if
such Underlying Shares are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the SEC). The Company shall cause its counsel to issue a legal opinion to its
transfer agent promptly after the Effective Date if required by the transfer
agent to effect the removal of the legend hereunder.  If all or any portion of a Note is converted
or exercised (as applicable) at a time when there is an effective registration
statement to cover the resale of the Conversion Shares, or if such Conversion
Shares may be sold under Rule 144(k) or if such legend is not otherwise
required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the SEC),
then such Conversion Shares shall be issued free of all legends.  The Company agrees that following the
Effective Date or at such time as such legend is no longer required under this Section 6.10(c),
it will, no later than seven Trading Days following the delivery by the
Investor to the Company or the Transfer Agent of a certificate representing
Conversion Shares, as applicable, issued with a restrictive legend (such third
Trading Day, the “Legend Removal Date”), deliver or cause to be
delivered to the Investor a certificate representing such shares that is free
from all restrictive and other legends. 
The Company may not make any notation on its records or give
instructions to the transfer agent that enlarge the restrictions on transfer
set forth in this Section 6.10. 
Certificates for Conversion Shares subject to legend removal hereunder
shall be transmitted by the transfer agent to the Investor by crediting the
account of the Investor’s prime broker with the Depository Trust Company
System.


 


(d)   In addition to the Investor’s other available
remedies, the Company shall pay to the Investor, in cash, as liquidated damages
and not as a penalty, for each $100 of Conversion Shares (based on the VWAP of
the Common Stock on the date such Conversion Shares are submitted to the
transfer agent) delivered for removal of the restrictive legend and subject to Section 6.10(c),
$10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days after
such damages have begun to accrue) for each Trading Day after the second
Trading Day following the Legend Removal Date until 


 


24

















 


such certificate is
delivered without a legend.  Nothing
herein shall limit the Investor’s right to pursue actual damages for the
Company’s failure to deliver certificates representing any Conversion Shares as
required by the Transaction Documents, and the Investor shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.


 


(e)   The Investor agrees that the removal of the
restrictive legend from certificates representing Conversion Shares as set
forth in this Section 6.10 is predicated upon the Company’s reliance that
the Investor will sell any Conversion Shares pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom, and that if
Conversion Shares are sold pursuant to a Registration Statement, they will be
sold in compliance with the plan of distribution set forth therein.


 


Section 6.11  Securities Law Disclosure; Publicity.  The Company shall, by 12:00 p.m. (New
York City time) on the fourth Trading Day following the date hereof (or such
shorter time period as shall be required by Form 8-K or otherwise agreed
to by the parties), issue a Current Report on Form 8-K disclosing the
material terms of the transactions contemplated hereby and attaching the
Transaction Documents as exhibits thereto. 
The Company and the Investor shall consult with each other in issuing
any other press releases with respect to the transactions contemplated hereby,
and neither the Company nor the Investor shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of the Investor, or without the
prior consent of the Investor, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication.  Notwithstanding the
foregoing, the Company shall not include the name of the Investor in any filing
with the SEC or any regulatory agency or Trading Market, without the prior
written consent of the Investor, except (i) as required by federal
securities law in connection with (A) any registration statement
contemplated by Section 6.12 hereof and (B) the filing of final
Transaction Documents (including signature pages thereto) with the SEC and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Investor with prior
notice of such disclosure permitted under this clause (ii).


 


Section 6.12  Registration of Shares.  The Company shall:


 


(a)           file in a timely manner a Form D
relating to the sale of the Shares under this Agreement, pursuant to Regulation
D under the Securities Act and to provide a copy thereof, promptly upon request
of the Investor;


 


(b)           as soon as practicable after the
Closing Date, the Company will use its best efforts to prepare and file with
the SEC within ninety (90) days following the Closing Date a Registration
Statement on Form S-3 (or, if the Company is ineligible to use Form S-3,
then on such other form as is available for such registration) registering
under the Securities Act the sale of the Shares by the Investor from time to
time on the facilities of any national securities exchange on which the Common
Stock is traded or in privately negotiated transactions (the “Registration
Statement”);


 


25

















 


(c)           use its reasonable best efforts to
cause the SEC to notify the Company of the SEC’s willingness to declare the
Registration Statement effective on or before 180 days after the Closing Date;


 


(d)           cause the Shares to be duly listed
for trading on the Nasdaq Global Market concurrently with the effectiveness of
the Registration Statement;


 


(e)           in the event that the SEC requires
the Company to identify the Investor as an “underwriter” in the Registration
Statement, cooperate with the Investor in allowing the Investor to conduct
customary “underwriter’s due diligence” with respect to the Company and satisfy
its obligations in respect thereof.  In
addition, at the Investor’s request, the Company will furnish to the Investor,
on the date of the effectiveness of the Registration Statement and thereafter
no more often than on a quarterly basis, (i) a letter, dated such date,
from the Company’s independent certified public accountants to underwriters in
an underwritten public offering, addressed to such Investor, and (ii) an
opinion, dated as of such date, of counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, including a standard “Rule 10b-5”
opinion for such offering, addressed to such Investor;


 


(f)            notify Investor promptly upon the
Registration Statement, and any post-effective amendment thereto, being
declared effective by the SEC;


 


(g)           prepare and file with the SEC such
amendments and supplements to the Registration Statement and the Prospectus
contained in such Registration Statement and take such other action, if any, as
may be necessary to keep the Registration Statement effective until the earlier
of (i) the date on which the Shares may be resold by the Investor without
registration and without regard to any volume limitations by reason of Rule 144(k) under
the Securities Act or any other rule of similar effect, (ii) all of
the Shares have been sold pursuant to the Registration Statement or Rule 144
under the Securities Act or any other rule of similar effect, or (iii) the
second anniversary of the Closing Date;


 


(h)           promptly furnish to the Investor with
respect to the Shares registered under the Registration Statement such
reasonable number of copies of the Prospectus, including any supplements to or
amendments of the Prospectus, in order to facilitate the public sale or other
disposition of all or any of the Shares by the Investor;


 


(i)            during the period when copies of the
Prospectus are required to be delivered under the Securities Act or the
Exchange Act, file all documents required to be filed with the SEC pursuant to Section 13,
14 or 15 of the Exchange Act within the time periods required by the Exchange
Act and the rules and regulations promulgated thereunder;


 


(j)            file documents required of the
Company for customary Blue Sky clearance in all states requiring Blue Sky
clearance and provide evidence of such filings promptly upon request of the
Investor; provided, however, that
the Company shall not be required 


 


26

















 


to qualify to do business or consent to service of
process in any jurisdiction in which it is not now so qualified or has not so
consented; and


 


(k)           pass all expenses in connection with
the procedures in paragraphs (a) through (i) of this Section 6.12
and the registration of the Shares pursuant to the Registration Statement to
the Investor, by providing detailed receipts for the expenses incurred.


 


Section 6.13  Reservation and Listing of Shares.


 


(a)   The Company shall maintain a reserve from its
duly authorized shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations in full
under the Transaction Documents.


 


(b)   The Company shall, if applicable: (i) in
the time and manner required by the principal Trading Market, prepare and file
with such Trading Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the Required Minimum on the
date of such application, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing on such Trading Market as
soon as possible thereafter, (iii) provide to the Investor evidence of
such listing, and (iv) maintain the listing of such Common Stock on any
date at least equal to the Required Minimum on such date on such Trading Market
or another Trading Market; provided that such listing shall include any
additional shares that may be issuable under the Note as a result of any
adjustments to the Conversion Price that would affect the number of Conversion
Shares issuable to the Investor.


 


ARTICLE VII

CONDITIONS TO OBLIGATION OF THE COMPANY


 


The obligation of the Company to sell Purchased Securities to the
Investor at the Closing is subject to the satisfaction, on or before the
Closing, of the conditions set forth in this Article 7.


 


Section 7.1  Representations and Warranties.  The representations and warranties contained
in Article 5 shall be true, complete and correct as of the date hereof
and, as of the Closing Date as though such representations and warranties had
been made on and as of such date.


 


Section 7.2  Performance.  The Investor shall have performed and
complied in all material respects with all agreements contained herein, and in
the agreements, documents and instruments contemplated hereby which are
required to be performed or complied with by them prior to or at the date of
the Closing.


 


Section 7.3  Required Consents.  The Company shall have obtained the written
consent or approval of each person whose consent or approval is required in
connection with this Agreement.


 


Section 7.4  Litigation.  No suit, action or other proceeding shall be
pending or, to the knowledge of Company, threatened by any third party or by or
before any court or governmental 


 


27

















 


agency in which it
is sought to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby, and no investigation that might result in any such suit,
action or other proceeding shall be pending or, to the knowledge of the
Company, threatened.


 


Section 7.5  Legislation.  No statute, rule, regulation, order, or
interpretation shall have been enacted, entered or deemed applicable by any
domestic or foreign government or governmental or administrative agency or
court which would make the transactions contemplated by this Agreement illegal.


 


ARTICLE VIII

CONDITIONS TO THE OBLIGATIONS OF INVESTOR


 


The obligation of the Investor to purchase the Purchased Securities at
the Closing is subject to the satisfaction, on or before the Closing, of the
conditions set forth in this Article 7.


 


Section 8.1  Representations and Warranties.  The representations and warranties contained
in Article 4 shall be true, complete and correct as of the date hereof
and, as of the Closing Date (as though such representations and warranties had
been made on and as of such date), and the Chief Executive Officer and Chief
Financial Officer of the Company shall have certified to such effect to the
Investor in writing.


 


Section 8.2  Performance.  The Company shall have performed and complied
in all material respects with all agreements contained herein, and in the
agreements, documents and instruments contemplated hereby which are required to
be performed or complied with by it prior to or at the date of the Closing, and
the Chief Executive Officer and Chief Financial Officer of the Company shall
have certified to the Investor in writing to such effect and to the further
effect that all of the conditions set forth in this Article 8 have been
satisfied.


 


Section 8.3  All Proceedings to be Satisfactory.  All corporate and other proceedings to be
taken by the Company in connection with the transactions contemplated hereby
and all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor and their counsel, and the Investor and their counsel
shall have received all such counterpart originals or certified or other copies
of such documents as they reasonably may request.


 


Section 8.4 
Supporting Documents.


 


(a)   The Investor and their counsel shall have
received copies of the following documents:


 


(i)            a certificate of the Secretary of
State of the state of incorporation of the Company dated as of a date within
three days prior to the Closing Date as to the corporate existence of the
Company and listing all documents of the Company on file with such Secretary of
State;


 


(ii)           a certificate of the Secretary of the
Company dated the Closing Date and certifying: 
(A) the Company’s and each Affiliate’s then-current Certificate of
Incorporation and Bylaws; (B) that attached thereto is a true and 


 


28

















 


complete copy of any
applicable resolutions adopted by the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement and the
Transaction Documents, and the issuance, sale and delivery of the Purchased
Securities and the Conversion Shares, and that all such resolutions are in full
force and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement and the Transaction Documents; and (C) to
the incumbency and specimen signature of each officer of the Company and its
Affiliates executing this Agreement, the Transaction Documents, and any
certificate or instrument furnished pursuant hereto, and a certification by
another officer of the Company as to the incumbency and signature of the
officer signing the certificate referred to in this subsection (ii); and


 


(iii)          such additional supporting documents
and other information with respect to the operations and affairs of the Company
as any Investor or the Investor’s counsel reasonably may request.


 


Section 8.5  Required Consents.  The Company shall have obtained the written
consent or approval, in form and substance reasonably satisfactory to the
Investor, of each person whose consent or approval is required in connection
with this Agreement.


 


Section 8.6  Litigation.  No suit, action or other proceeding shall be
pending or, to the knowledge of the Company, threatened by any third party or
by or before any court or governmental agency in which it is sought to restrain
or prohibit or to obtain damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby, and no
investigation that might result in any such suit, action or other proceeding
shall be pending or, to the knowledge of Company, threatened.


 


Section 8.7  Legislation.  No statute, rule, regulation, order, or
interpretation shall have been enacted, entered or deemed applicable by any
domestic or foreign government or governmental or administrative agency or
court which would make the transactions contemplated by this Agreement illegal.


 


Section 8.8  No Material Adverse Changes.  Since the date of this Agreement, no events
shall have occurred or circumstances arisen which are reasonably expected,
individually or in the aggregate, to have or result in a Material Adverse
Effect upon the Company.  The Company
shall fully cooperate as reasonably requested by the Investor to enable the
Investor to determine that this condition has been satisfied.


 


Section 8.9  Liens. 
There shall exist as of the Closing no Liens, other than Permitted
Liens, on any assets or properties of the Company.


 


Section 8.10 
Transaction Documents; Additional Agreements.


 


(a)   Except as specified in
Sections 8.10(b)-(d) below, the Company and the Investor shall have
executed and delivered each of the Transaction Documents to which it 


 


29

















 


is a party.  Each such document or agreement shall
constitute the valid and binding obligation of such party, enforceable against
such party in accordance with its terms.


 


(b)   The Company and the
Investor shall have executed and delivered the Security Agreement not later
than thirty (30) days after the Closing Date, and such agreement or arrangement
shall constitute the valid and binding obligation of the parties thereto
enforceable in accordance with its terms.


 


(c)   The Company and certain of its Subsidiaries
or Affiliates and the Investor shall have executed and delivered the Guaranty
not later than thirty (30) days after the Closing Date, and such agreement or
arrangement shall constitute the valid and binding obligation of the parties
thereto enforceable in accordance with its terms.


 


(d)   If required in connection with the Company’s
existing line of credit facility, the Company, the Investor and LaSalle Bank
shall have entered into an intercreditor agreement or other arrangement not
later than thirty (30) days after the Closing Date, and any such agreement or
arrangement shall constitute the valid and binding obligation of the parties
thereto enforceable in accordance with its terms.


 


Any failure to deliver the documents in the time
periods set forth in this Section 8.10 shall constitute a default under
the Note.


 


Section 8.11  Prior Preemptive Rights.  All of the Company’s obligations regarding
preemptive or first refusal rights with respect to the issuance of its
securities shall have been terminated in their entirety or duly waived pursuant
to a written instrument in form and content satisfactory to the Investor and
the Investor’s counsel with respect to (a) the issuance of the Purchased
Securities and (b) the issuance of the Conversion Shares.


 


Section 8.12  No Default.  Since the date hereof, no default (or event
which, with the passage of time and/or the giving of notice, would constitute a
default) of the Company shall have occurred under this Agreement or any of the
Transaction Documents.


 


Section 8.13  Payment of Fees.  The Company shall have paid up to $30,000 of
the fees and expenses of the Investor’s legal counsel as required under Section 11.7.


 


ARTICLE IX

INDEMNIFICATION


 


Section 9.1  Indemnification of Investor.  The Company shall indemnify, defend and hold
harmless the Investor and its respective subsidiaries, officers, directors and
owners from and against and in respect of any and all demands, claims, actions
or causes of action, assessments, losses, damages, liabilities, interest and
penalties, costs and expenses (including, without limitation, reasonable legal
fees and disbursements incurred in connection therewith and in seeking
indemnification therefor, and any amounts or expenses required to be paid or
incurred in connection with any action, suit, proceeding, claim, appeal,
demand, assessment or judgment) (“Indemnifiable Losses”), resulting
from, arising out of, or imposed upon or incurred by any person to be
indemnified hereunder (i) by reason of any breach of any representation,
warranty, covenant or agreement of the Company contained in this Agreement or
any agreement, 


 


30

















 


certificate
contemplated by this Agreement or any agreement, certificate, or document
executed and delivered by the Company pursuant hereto or in connection with any
of the transactions contemplated by this Agreement or (ii) any
Indemnifiable Losses arises under the Securities Act, the Exchange Act, or any
other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained or incorporated by
reference in the Registration Statement, including financial statements and
schedules, and all other documents filed as a part thereof, including any
information deemed to be a part thereof as of the time of effectiveness
pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434,
under the Securities Act, or in the prospectus related thereto, in the form
first filed with the SEC pursuant to Rule 424(b) under the Securities
Act or filed as part of the Registration Statement at the time of effectiveness
if no Rule 424(b) filing is required (the “Prospectus”) or any
amendment or supplement to the Registration Statement or Prospectus, or arise
out of or are based upon the omission or alleged omission to state in any of
them a material fact required to be stated therein or necessary to make the
statements in any of them, in light of the circumstances under which they were
made, not misleading, and will reimburse the Investor for reasonable legal and
other expenses as such expenses are incurred by the Investor or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided, however, that the Company will
not be liable in any such case to the Investor to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon (i) an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Investor expressly for use in
the Registration Statement, the Prospectus or any amendment or supplement
thereto, or (ii) the failure of the applicable Investor to comply with the
covenants and agreements contained in Section 5.2 of this Agreement
regarding the resale of the Shares, or (iii) the inaccuracy of any
representations and warranties made by the Investor in this Agreement or (iv) any
untrue statement or omission of a material fact required to make such statement
not misleading in any Prospectus that is corrected in any subsequent Prospectus
or supplement thereto that was delivered to the Investor a reasonable amount of
time before the pertinent sale or sales by the Investor or (v) a direct
claim against the Company by such Investor if such Investor is a person that is
under common control with any Investor (as opposed to a third-party claim
against such Investor).


 


Section 9.2  Indemnification of the Company.  The Investor shall indemnify, defend and hold
harmless the Company and each of its subsidiaries, officers, directors and
stockholders from and against and in respect of any and all Indemnifiable
Losses resulting from, arising out of, or imposed upon or incurred by any
person to be indemnified hereunder by reason of (i) any breach of any
representation, warranty, covenant or agreement by the Investor contained in
this Agreement or any agreement, certificate or document executed and delivered
by the Investor pursuant hereto or in connection with any of the transactions
contemplated by this Agreement, (ii) any failure on the part of such
Investor to comply with the covenants and agreements contained in Section 5.2
of this Agreement regarding the resale of the Shares or (iii) any untrue
or alleged untrue statement of any material fact contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the 


 


31

















 


omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of such Investor expressly for use therein and such Investor will
reimburse the Company, each of its directors, each of its officers who signed
the Registration Statement and each controlling person for reasonable legal and
other expenses as such expenses are incurred by the Company, each of its
directors, each of its officers who signed the Registration Statement and each
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that
the Investor shall not be liable for any such untrue or alleged untrue
statement or omission or alleged omission of which the Investor has delivered
to the Company in writing a correction of such untrue statement or omission of
a material fact a reasonable amount of time before the occurrence of the
transaction from or upon which such loss, claim, damage, liability or expense
arose or was based.


 


Section 9.3  Third-Party Claims.  If a claim by a third party is made against
an indemnified party and if the indemnified party intends to seek indemnity
with respect thereto under this Article 9, such indemnified party shall
promptly notify the indemnifying party of such claim; provided, however,
that failure to give timely notice shall not affect the rights of the
indemnified party so long as the failure to give timely notice does not
adversely affect the indemnifying party’s ability to defend such claim against
a third party.  The indemnified party
shall not settle such claim without the consent of the indemnifying party,
which consent shall not be unreasonably withheld or delayed.  If the indemnifying party acknowledges in
writing its indemnity obligations for Indemnifiable Losses resulting therefrom,
the indemnifying party may participate at its own cost and expense in the
settlement or defense of any claim for which indemnification is sought.


 


Section 9.4  Cooperation as to Indemnified Liability.  Each party hereto shall cooperate fully with
the other parties with respect to access to books, records, or other
documentation within such party’s control, if deemed reasonably necessary or
appropriate by any party in the defense of any claim which may give rise to
indemnification hereunder.


 


ARTICLE X

TERMINATION AND DEFAULT


 


Section 10.1  Termination.  The obligation of the parties hereto to
consummate the remaining transactions contemplated hereby may be terminated and
abandoned at any time at or before the Closing if any of the following events
occurs:


 


(a)   by and at the written option of the Investor
or the Company if the Closing shall not have occurred on or before July 17,
2008, provided that the terminating party shall not have breached in any
material respect its obligations under this Agreement in any manner that shall
have been the proximate cause of or resulted in, the failure to complete the
Closing by such date; or


 


32
















 


(b)   by Investor if there shall have
occurred any event that would constitute a Material Adverse Effect for the
Company; or


 


(c)   by the mutual written consent
of each of the parties; or


 


(d)   by
and at the option of the Investor or the Company if any governmental authority
shall have issued an order, decree, or ruling or taken any other action
restraining, enjoining or otherwise prohibiting in any material respects the
transactions contemplated hereby and such order, decree, ruling or other action
shall have become final and nonappealable.


 


Section 10.2 
Effect.


 


(a)   Upon termination of this
Agreement, the Investor’s rights and obligations to purchase any Convertible
Notes or Conversion Shares pursuant to Article 2 hereof shall terminate.


 


(b)   Termination of this Agreement
by a party shall not relieve any other party hereto of any liability for breach
of representation, warranty, covenant or agreement by such other parties
including liability for monetary damages and/or specific performance.


 


ARTICLE XI

OTHER PROVISIONS


 


Section 11.1  Further Assurances.  At such time and from time to time on and
after the date hereof upon request by the Investor, the Company will execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such further acts, certificates and assurances that may be
reasonably required for the better conveying, transferring, assigning,
delivering, assuring and confirming to the Investor, or to the Investor’s
respective successors and assigns, all of the Conversion Shares or to otherwise
carry out the purposes of this Agreement and the agreements, documents and
instruments contemplated hereby.


 


Section 11.2  Complete Agreement.  The Schedules and Exhibits to this Agreement
shall be construed as an integral part of this Agreement to the same extent as
if they had been set forth verbatim herein. 
This Agreement and the Schedules and Exhibits hereto constitute the
entire agreement between the parties hereto with respect to the subject matters
hereof and thereof and supersede all prior agreements whether written or oral
relating hereto.


 


Section 11.3  Survival of Representations, Warranties
and Agreements.  The representations,
warranties, covenants and agreements contained herein shall survive the Closing
and remain in full force and effect; provided, however, that the
representations and warranties shall expire on the second anniversary of the
date of the Closing hereunder.  No
independent investigation of the Company by the Investor, its counsel, or any
of its agents or employees shall in any way limit or restrict the scope of the
representations and warranties made by the Company in this Agreement.


 


Section 11.4  Consent, Waiver, Amendment, Etc.  The failure of any party hereto to enforce at
any time any of the provisions of this Agreement shall not, absent an express
written 


 


33

















 


waiver signed by
the party making such waiver specifying the provision being waived, be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part thereof or the right of the party
thereafter to enforce each and every such provision.  No waiver of any breach of this Agreement
shall be held to be a waiver of any other or subsequent breach.  Except as otherwise specifically provided
herein, in each case in which approval of the Investor is required by the terms
of this Agreement, such requirement shall be satisfied by a vote or the written
consent of the Investor.  With the
written consent of the Investor, the obligations of the Company under this
Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively), and with the same approval the Company
may amend or eliminate any of the provisions of this Agreement; provided,
however, that no such waiver or amendment shall, without the written
consent of the holders of all Purchased Securities at the time outstanding,
amend this Section 11.4.  Written
notice of any such waiver, amendment, or consent shall be given to the record
holders of the Purchased Securities who have not previously consented thereto
in writing.  Neither this Agreement nor
any provision hereof may be changed, waived, discharged or terminated orally,
but only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought, except
to the extent provided in this Section 11.4.


 


Section 11.5  Notices.  All notices or other communications to a
party required or permitted hereunder shall be in writing and shall be
delivered personally or by facsimile (receipt confirmed electronically) to such
party (or, in the case of any entity, to an executive officer of such party) or
shall be sent by a reputable express delivery service or by certified mail,
postage prepaid with return receipt requested, addressed as follows:


 


if to
the Investor to:


 


Whitebox VSC Ltd.

Suite 300

3033 Excelsior Boulevard

Minneapolis, MN 55416


Attn:  Dale Willenbring


 


with a
copy to:


 


Theodore C. Cadwell, Jr., Esq.

Dorsey & Whitney LLP

50 S. 6th Street

Suite 1500

Minneapolis, MN 55402


 


if to
the Company to:


 


Ebix, Inc.

5 Concourse Parkway


Suite 3200

Atlanta, GA 30328

Attn: Robin Raina


 


34

















 


with a
copy to:


 


Charles
Harrell


Carlton
Fields, P.A.


1201
West Peachtree Street, Suite 3000


Atlanta, GA 30309


 


Any party may change the above-specified recipient
and/or mailing address by notice to all other parties given in the manner
herein prescribed.  All notices shall be
deemed given on the day when actually delivered as provided above (if delivered
personally or by facsimile) or on the day shown on the return receipt (if
delivered by mail or delivery service).


 


Section 11.6  Public Announcement.  In the event any party proposes to issue any
press release or public announcement concerning any provisions of this
Agreement or the transactions contemplated hereby, such party shall so advise
the other parties hereto, and the parties shall thereafter use their reasonable
best efforts to cause a mutually agreeable release or announcement to be
issued.  No party will publicly disclose
or divulge any provisions of this Agreement or the transactions contemplated
hereby without the other parties’ written consent, except as may be required by
applicable law (including applicable rules and regulations of the SEC) or
stock exchange regulation, and except for communications to employees.


 


Section 11.7  Expenses.  Subject to the following sentence, the
Company and the Investor shall each pay their own expenses incident to this
Agreement and the preparation for, and consummation of, the transactions
provided for herein.  Whether or not a
Closing occurs, the Company shall reimburse the Investor for up to $30,000 of
its legal fees and expenses incurred in connection with the drafting,
negotiation, due diligence and execution of this Agreement and the Transaction
Documents and the consummation of the transactions contemplated herein and
therein.  The Company shall also
reimburse the Investor for all legal fees and expenses incurred in connection
with the drafting, negotiation and execution of any waivers or amendments to
this Agreement or any Transaction Document.


 


Section 11.8  Governing Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the other Transaction
Documents shall be governed by and construed and enforced in accordance with
the internal laws of the State of Delaware, without regard to the principles of
conflicts of law thereof.  Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the State of
Delaware. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the State of Delaware for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for
such proceeding. If either party shall commence an action or proceeding to
enforce any provisions of the Transaction Documents, then the prevailing party
in such action 


 


35

















 


or proceeding
shall be reimbursed by the other party for its reasonable attorneys’ fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.


 


Section 11.9  Titles and Headings; Construction.  The titles and headings to the Articles and
Sections herein are inserted for the convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.  This Agreement shall be
construed without regard to any presumption or other rule requiring
construction hereof against the party causing this Agreement to be drafted.


 


Section 11.10  Benefit.  Nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.


 


Section 11.11  Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed as original and all of which
together shall constitute one instrument.


 


Section 11.12  Parties in Interest.  All representations, covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, whether so expressed or not, and,
in particular, shall inure to the benefit of and be enforceable by the holder
or holders at the time of any of the Purchased Securities.


 


Section 11.13  Severability.  If any provision of this Agreement is held
invalid by a court of competent jurisdiction, the remaining provisions shall
nonetheless be enforceable according to their terms.  Further, if any provision is held to be
overbroad as written, such provision shall be deemed amended to narrow its
application to the extent necessary to make the provision enforceable according
to applicable law and shall be enforced as amended.


 


[SIGNATURE PAGES FOLLOW]


 


36

















 


IN WITNESS WHEREOF,
the undersigned has executed this Agreement to be effective as of the date
first written above.


 


 


EBIX, INC.


a Delaware corporation


 


 


	
  By:

  	
  

  	
   

  
	
   

  	
  Name:  Robin Raina

  	
   

  
	
   

  	
  Title:

  	
   

  



 


37

















 


IN WITNESS WHEREOF,
the undersigned has executed this Agreement to be effective as of the date
first written above.


 


 


INVESTOR:


 


WHITEBOX
VSC LTD.


 


 


 


	
  By:

  	
  

  	
   

  
	
   

  	
  Name: Jonathan Wood

  	
   

  
	
   

  	
  Title: COO

  	
   

  



 


	
  Address:

  	
  Suite 300

  	
   

  
	
   

  	
  3033 Excelsior Boulevard

  	
   

  
	
   

  	
  Minneapolis, MN 55415

  	
   

  



 


38

















 


EXHIBIT
A


 


FORM OF CONVERTIBLE PROMISSORY NOTE


 


(attached hereto)


 


C-1