Exhibit 10.1


 


EBIX, INC.


 


 


SECURED CONVERTIBLE NOTE

PURCHASE AGREEMENT


 


 


December 18, 2007


 





















 


SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT


 


THIS SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT (the “Agreement”)
is made effective as of December 18, 2007, 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.


 


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“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 $63.84, 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.


 


“Control” shall mean ownership of more than 50% of the shares of
stock entitled to vote for the election of directors in the case of a
corporation, and more than 50% of the voting power in the case of a business
entity other than a corporation.


 


“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 


 


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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 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, 2006 and any
unaudited quarterly financial statements of the Company for the quarters ended March 31,
2007, June 30, 2007 and September 30, 2007.


 


“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).


 


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“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).


 


“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. 



 


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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.


 


“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 


 


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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 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.


 


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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 $20,000,000 (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 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 $63.84 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 $128.00 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 $63.84 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).


 


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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 December 18,
2007, 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
$20,000,000.00 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 $20,000,000.


 


(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.


 


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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 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 


 


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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 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 recent
sale of stock worth a total of $4,500,000 to two existing investors, 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 


 


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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 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 


 


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Company’s
financial statements pursuant to GAAP or disclosed in filings made with the
SEC, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its shareholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has
not issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans.  The Company does not have pending before the
SEC any request for confidential treatment of information.  Except for the issuance of the 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 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.


 


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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 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.


 


13





















 


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 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.


 


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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.


 


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, 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.


 


15





















 


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 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 


 


16





















 


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.


 


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.


 


17





















 


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 eligible to register the resale of the Securities for resale by the
Investor on Form S-3 promulgated under the Securities Act and will
register the resale of the Securities for resale on either Form S-1 or Form S-3
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 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 


 


18





















 


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.


 


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.


 


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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.


 


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.


 


20

















 


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 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.


 


21

















 


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, 2007, 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 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.


 


22

















 


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 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 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.


 


23

















 


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 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 


 


24

















 


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 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 


 


25

















 


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”);


 


26

















 


(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 


 


27

















 


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.


 


28

















 


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 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;


 


29

















 


(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 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.


 


30

















 


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
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 


 


31

















 


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, 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 


 


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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 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.


 


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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 December 21, 2007, 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


 


(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.


 


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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 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:


 


35

















 


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


 


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.


 


36

















 


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 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.


 


37

















 


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]


 


38

















 


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:

  
	
   

  	
  Title:

  



 


39

















 


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:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  Suite 300

  	
   

  
	
   

  	
  3033
  Excelsior Boulevard

  
	
   

  	
  Minneapolis,
  MN 55415

  
				



 


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