Exhibit 10.1





Exhibit 10.1




EXECUTION COPY




EBIX, INC.




CONVERTIBLE NOTE

PURCHASE AGREEMENT




August 26, 2009





 


 









 







CONVERTIBLE NOTE PURCHASE AGREEMENT




THIS CONVERTIBLE NOTE PURCHASE AGREEMENT (the “Agreement”) is made effective as of
August 26, 2009, by and among Ebix, Inc., a Delaware corporation (the “Company”), Whitebox
VSC Ltd., a limited partnership organized under the laws of the British Virgin Islands (“Whitebox
VSC”), IAM Mini-Fund 14 Limited, a limited partnership organized under the laws of the Cayman
Islands (“IAM Mini-Fund” and, together with Whitebox VSC, the “Investors” and each an “Investor”),
with respect to the following recitals.



RECITALS




A. The Company desires to issue and sell and each Investor desires to purchase 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.



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 Investors, any investment fund or managed account that is
managed on a discretionary basis by the same investment manager as either Investor will be deemed
to be an Affiliate of such Investor.




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




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




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




“Code” shall have the meaning ascribed to such term in Section 4.31(a).



“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 $48.00, but which shall be subject to adjustment as described herein
and in the Note.



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



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



“Convertible Notes” or “Notes” means the promissory notes, in the form
attached hereto as Exhibit A, to be issued by the Company to the Investors.



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



“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 4.31(a).




“Evaluation Date” shall have the meaning ascribed to such term in Section 4.17.




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



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


 


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“Financial Statements” means the Company’s audited financial statements as of and for
the year ended December 31, 2008 and unaudited quarterly financial statements of the Company for
the quarters ended March 31, 2009 and June 30, 2009 .




“GAAP” shall have the meaning ascribed to such term in Section 4.7.




“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
4.14.



“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 6.8(c).



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



“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 4.12.




“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.


 


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“Plan” or “Plans” shall have the meaning ascribed to such term in Section
4.31(a).



“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 6.8 below and covering the resale by the Investors of the Conversion Shares. The
term “Registration Statement” shall include any preliminary or final prospectus, exhibit,
supplement or amendment included in or relating to such Registration Statement.



“Required Approvals” shall mean any consents, waivers, authorization, order, 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 its obligations
under the Transaction Documents.



“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 4.7.



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


 


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“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.



“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 this Agreement, the Notes and any 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.


 


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(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 Atlanta, Georgia time.



ARTICLE II

PURCHASE AND SALE OF CONVERTIBLE NOTES




Section 2.1 Purchase and Sale of Notes. Subject to the terms and conditions of this
Agreement, the Investors agrees to purchase at the Closing, and the Company agrees to sell and
issue to the Investors at the Closing, the Notes, in substantially the form attached hereto as
Exhibit A, in the aggregate original principal amount of $20,000,000 (the “Notes”),
at a purchase price equal to 100% of the principal amount thereof (the “Purchase Price”).




Section 2.2 Note Conversion.




(a) Optional Conversion. Each Investor may, at its option, purchase shares of
the Company’s Common Stock by converting amounts outstanding under the Notes 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 Investors and the Investors’ counsel, and
each Investor shall pay the Conversion Price of $48.00 per share (subject to adjustment as
provided therein) for such shares by surrendering the applicable Note(s) to the Company.




(b) Company Option. The Company at its option may decide to pay the Investors
cash in lieu of a share conversion. The Company at its sole discretion, would have the
option to pay the Investors the closing price of the shares on the day when each Investor
notified the Company in writing via email or fax, about its intent to convert the note. In
the event that the Company elects to pay an Investor cash in lieu of share conversion, the
Company shall be required to notify such Investor on the same day as such Investor notifies
the Company of its intent to convert the Note. Failure by the Company to timely notify such
Investor of its intent to pay cash in lieu of a share conversion shall cause the Company to
lose its option to pay such Investor cash in lieu of shares and the Company shall be
required to settle the Note Conversion Closing in shares of the Company. The Company would
have two (2) business days to settle the cash payment to such Investor, unless it decides
not pay cash and instead settle in shares priced at $48.00 per share.


 


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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
bank debts that the Company might have at this time.



ARTICLE III

THE CLOSING




Section 3.1 Closing. The closing of the purchase and sale of the Notes (the
“Closing”) shall take place at the offices of the Company, at 10:00 a.m., on August 26,
2009 (the “Closing Date”). At the Closing, the Company shall deliver to each Investor the
Note that such Investor is purchasing against delivery to the Company by such Investor of a check
or wire transfer in the amount of $19,500,000.00 payable to the Company’s order (or by wire of
funds in such amount to the Company’s designated bank account). On or before September 7, 2009, the
Investors shall deliver to the Company of a check or wire transfer in the amount of $500,000
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 Investors the following:




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




(ii) a Note registered in the name of the Investors in the aggregate original
principal amount of $20,000,000.




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




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




(ii) the payment of the 19,500,000, in the manner specified in Section 3.1
above.




Section 3.3 Post-Closing Deliveries.




(a) Investor Deliveries.  On or before September 7, 2009, the Investors shall
deliver or cause to be delivered to the Company the following:




(i) the payment of $500,000, in the manner specified in Section 3.1 above.


 


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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 each
Investor as follows as of the date hereof and as of the Closing Date:



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



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



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


 


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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, conflict with or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority to which the Company
or any Subsidiary is subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or affected; except in the case
of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a
Material Adverse Effect.



Section 4.5 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 4.6 Capitalization. The capitalization of the Company includes the number of
shares of Common Stock owned of record, and, to the knowledge of the Company, beneficially, by
Affiliates of the Company as of the date hereof. The Company has not issued any capital stock since
its most recently filed periodic report under the Exchange Act, other than the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion or
exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic
report under the Exchange Act. No Person has any right of first refusal, preemptive right, right
of participation, or any similar right to participate in the transactions contemplated by the
Transaction Documents. Except as set forth on the Schedule of Exceptions or as a result of the
purchase and sale of the Purchased Securities, there are no outstanding options, warrants, scrip
rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or exchangeable for, or giving
any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any Subsidiary is or may become
bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and
sale of the Purchased Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Investors) 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.


 


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Section 4.7 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 4.8 Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC Reports, except as
specifically disclosed in a subsequent SEC Report filed prior to the date hereof, (i) there has
been no event, occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent
or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or disclosed in filings made with the SEC, (iii)
the Company has not altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its shareholders or purchased, redeemed or
made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has
not issued any equity securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans. The Company does not have pending issues before the SEC, except with
respect to a change of control provision contained in a prior
convertible note with Whitebox VSC, which provision was later modified by the Company and
Whitebox VSC. 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.


 


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Section 4.9 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 4.10 Labor Relations. No material labor dispute exists or, to the knowledge
of the Company, is imminent with respect to any of the employees of the Company which could
reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with
the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement. No executive officer, to the knowledge of the Company, is, or is
now expected to be, in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or any other contract
or agreement or any restrictive covenant in favor of any third party, and the continued employment
of each such executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and wages and hours, except
where the failure to be in compliance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.



Section 4.11 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.


 


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Section 4.12 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 4.13 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 4.14 Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark applications, service marks,
trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights
and similar rights necessary or material for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so have could have a Material Adverse Effect
(collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary
has received a notice (written or otherwise) that any of the Intellectual Property Rights used by
the Company or any Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property Rights. The Company
and its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where failure to do so
could not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect.



Section 4.15 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.


 


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Section 4.16 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 4.17 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.



Section 4.18 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 Investors 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 4.19 Private Placement. Assuming the accuracy of the Investors’
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 Investors as
contemplated hereby. The issuance and sale of the Purchased Securities hereunder does not
contravene the rules and regulations of the Trading Market.


 


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Section 4.20 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 4.21 Registration Rights. Other than pursuant to this Agreement, no Person
has any right to cause the Company to effect the registration under the Securities Act of any
securities of the Company, other than registration statements which have already been filed and
declared effective or that have been filed and await declaration of effectiveness by the SEC.



Section 4.22 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 4.23 No Integrated Offering. Assuming the accuracy of the Investors’
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 4.24 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
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.


 


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Section 4.25 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 4.26 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
Investors and, to the extent applicable, other “accredited investors” within the meaning of Rule
501 under the Securities Act.



Section 4.27 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 4.28 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 4.29 Acknowledgment Regarding Investor’s Purchase of Securities. The Company
acknowledges and agrees that each 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 neither Investor is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by each Investor or any of its
representatives or agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to such Investor’s purchase of the Purchased Securities.
The Company further represents to each of the Investors 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.


 


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Section 4.30 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 4.31 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 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.


 


16









 






(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 4.32 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.



Section 4.34. 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 Investors or its agents or counsel with
any information that it believes constitutes or might constitute material, non-public information.
All disclosure furnished by or on behalf of the Company to the Investors 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 Investors are 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.


 


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ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE INVESTORS





The Investors represent and warrant to the Company for itself as follows:



Section 5.1 Authorization. Each 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 each Investor, has been duly executed and
delivered by each Investor, and is the valid and binding agreement of each Investor and is
enforceable against each Investor in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors’ rights generally and to judicial limitations on the remedy of specific
enforcement and other equitable remedies.



Section 5.2 Purchase Entirely for Own Account. This Agreement is made with the
Investors in reliance upon the Investors’ representations to the Company, which by the Investors’
execution of this Agreement the Investors hereby confirm, that the Purchased Securities will be
acquired for investment for the Investors’ own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that neither Investor has any present
intention of selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, each Investor further represents that such 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 Investors’ Representations; Restrictions on Resale. The
Investors understand 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 Investors. The Investors further understand
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 Investors also
understand 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 Investors. As such, the Conversion Shares will be subject
to transfer restrictions similar to restrictions applicable to the Convertible Notes. The
Investors understand (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 any
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 such
Investor has acquired such securities. The Investors understand that any sales pursuant to Rule
144 can be made only in full compliance with the provisions of Rule 144.


 


18









 





Section 5.4 Receipt of Information. The Investors represent that the Company has
provided the Investors 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 Investors. Each 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 Investors to rely thereon.



Section 5.5 Investment Experience. Each 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, such
Investor also represents it has not been organized for the purpose of acquiring the Notes and
Conversion Shares.



Section 5.6 Accredited Investor. Each 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
each of the Investors covenants that, except to the extent such restrictions are waived by the
Company, each 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.


 


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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
Investors:




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




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




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




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



Section 6.2 Inspection, Consultation and Advice. The Company shall permit the
Investors and such persons as the Investors may designate, at the Investors’ expense, upon
reasonable notice and at such times as the Investors 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 Investors 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.


 


20









 





Section 6.3 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 6.4 Reserve of 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 6.5 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 6.6 Use of Proceeds. The Company shall use the cash proceeds of the Purchased
Securities to fund acquisitions or for the Company’s working capital needs or for the satisfaction
of any portion of the Company’s debt or to redeem any Common Stock or Common Stock Equivalents.



Section 6.7 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.


 


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Section 6.8 Transfer Restrictions.




(a) In case, the Company decides to settle the conversion of the note in the form of
 shares, then only the following clause applies. 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 either Investor or in connection
with a pledge as contemplated in Section 6.8(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 Investors agree to the imprinting, so long as is required by this Section 6.8,
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.




(c) Certificates evidencing the Conversion Shares shall not contain any legend
(including the legend set forth in Section 6.8(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


 


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Date or at such time as such legend is no longer
required under this Section 6.8(c), it will, no later than seven Trading Days following the
delivery by the Investors 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 Investors 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 6.8. Certificates
for Conversion Shares subject to legend removal hereunder shall be transmitted by the
transfer agent to the Investors by crediting the account of the Investors’ prime broker with
the Depository Trust Company System.




(d) The Investors agree that the removal of the restrictive legend from certificates
representing Conversion Shares as set forth in this Section 6.8 is predicated upon the
Company’s reliance that the Investors 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 6.9 Securities Law Disclosure; Publicity. The Company may, by 12:00 p.m.
(Atlanta 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 Investors shall
consult with each other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor the Investors 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 Investors, or without the prior consent of the Investors, 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 Investors in any
filing with the SEC or any regulatory agency or Trading Market, without the prior written consent
of the Investors, except (i) as required by federal securities law in connection with (A) any
registration statement contemplated by Section 6.8 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
Investors with prior notice of such disclosure permitted under this clause (ii).




Section 6.10 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 Investors;


 


23









 






(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 Investors 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”);




(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 either Investor as an
“underwriter” in the Registration Statement, cooperate with such Investor in allowing such
Investor to conduct customary “underwriter’s due diligence” with respect to the Company and
satisfy its obligations in respect thereof. In addition, at the Investors’ request, the
Company will furnish to the Investors, 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 the Investors, 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 the Investors 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 Investors 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 Investors 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 Investors;


 


24









 






(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; and




(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 Investors; provided, however, that the Company shall not be required 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.




Section 6.11 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 Investors 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 Investors.



ARTICLE VII

CONDITIONS TO OBLIGATION OF THE COMPANY




The obligation of the Company to sell Purchased Securities to the Investors 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 Investors 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.


 


25









 





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



Section 7.4 Litigation. No suit, action or other proceeding shall be pending or, to
the knowledge of Company, threatened by any third party or by or before any court or governmental
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 Investors 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 Investors 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 Investors 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 Investors
and their counsel, and the Investors and their counsel shall have received all such counterpart
originals or certified or other copies of such documents as they reasonably may request.


 


26









 






Section 8.4 Supporting Documents.




(a) The Investors 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 as to the corporate existence of the Company and listing all documents
of the Company on file with such Secretary of State;




(ii) a certificate of the Secretary of the Company dated the Closing Date and
certifying: (A) the Company’s and each Affiliate’s then-current Certificate of
Incorporation and Bylaws; (B) that attached thereto is a true and 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 Investors, 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 Investors to enable the Investors to determine that
this condition has been satisfied.


 


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



Section 8.10 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 Investors and the Investors’ counsel with respect to (a) the issuance of the
Purchased Securities and (b) the issuance of the Conversion Shares.



Section 8.11 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.



ARTICLE IX

INDEMNIFICATION




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



 


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Company will not be liable in any such case to the Investors 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 Investors 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 Investors 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 Investors a reasonable amount of time before the
pertinent sale or sales by the Investors 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 Investors shall indemnify, defend and
hold harmless the Company and each of its subsidiaries, officers, directors and stockholders from
and against and in respect of any and all Indemnifiable Losses resulting from, arising out of, or
imposed upon or incurred by any person to be indemnified hereunder by reason of (i) any breach of
any representation, warranty, covenant or agreement by the Investors contained in this Agreement or
any agreement, certificate or document executed and delivered by the Investors 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 Investors shall not be liable for any such untrue or alleged
untrue statement or omission or alleged omission of which the Investors 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.


 


29









 





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



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



ARTICLE X

TERMINATION AND DEFAULT




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




(a) by and at the written option of the Investors or the Company if the Closing shall
not have occurred on or before August 31, 2009, 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 Investors 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. Upon termination of this Agreement, the Investors’ rights and
obligations to purchase any Convertible Notes or Conversion Shares pursuant to Article 2 hereof
shall terminate.



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 Investors, 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 Investors, or to the Investors’ 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.


 


30









 





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 Investors, 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
Investors is required by the terms of this Agreement, such requirement shall be satisfied by a vote
or the written consent of the Investors. With the written consent of the Investors, 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.



 


31









 





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



if to the Investors to:




Whitebox VSC Ltd.

Suite 300

3033 Excelsior Boulevard

Minneapolis, MN 55416

Attn: Dale Willenbring




IAM Mini-Fund 14 Limited

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



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



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



Section 11.7 Expenses. Subject to the following sentence, the Company and the
Investors shall each pay their own expenses incident to this Agreement and the preparation for, and
consummation of, the transactions provided for herein.


 


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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.



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]




 


33









 







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:

	 	/s/ Robin Raina
 

Name: Robin Raina
	 	 
	 

	 	Title:   President & Chief Executive Officer	 	 






 


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



	 	 	 	 	 
	INVESTORS:	 	 
	 
	 	 	 	 
	WHITEBOX VSC LTD.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Jonathan Ward
 

Name: Jonathan Ward

Title:   Director-COO
	 	 






	 	 	 	 	 
	Address:

	 	Suite 300

3033 Excelsior Boulevard

Minneapolis, MN 55415
	 	 






IAM MINI-FUND 14 LIMITED, by Whitebox Advisors, LLC its investment manager




	 	 	 	 	 
	By:

	 	/s/ Jonathan Ward
 

Name: Jonathan Ward

Title:   Director-COO
	 	 






	 	 	 	 	 
	Address:

	 	Suite 300

3033 Excelsior Boulevard

Minneapolis, MN 55415
	 	 






 


35









 





EXHIBIT A




FORM OF CONVERTIBLE PROMISSORY NOTE

(attached hereto)





 


C-1