Document:

EXHIBIT 10.4

 

 

 

 

 

SENDTEC ACQUISITION CORP.

INVESTOR RIGHTS AGREEMENT

Dated as of October 31, 2005

 

 

TABLE OF CONTENTS

 

 

	

	

	
    Page

	
1.

	
Definitions

	
1

	
2.

	
Covenants of STAC

	
2

	
 

	
2.1

	
Delivery of Financial Statements

	
2

	
 

	
2.2

	
Inspection

	
3

	
 

	
2.3

	
Liquidity Event

	
3

	
3.

	
Prohibited Transfers and Certain Rights of First Offer

	
4

	
4.

	
Drag Along Rights

	
5

	
 

	
4.1

	
Sale Proposal

	
5

	
 

	
4.2

	
Compelled Sale Notice

	
5

	
 

	
4.3

	
Conditions to Compelled Sale

	
6

	
5.

	
Voting

	
7

	
 

	
5.1

	
Agreement to Vote

	
7

	
 

	
5.2

	
Board Size

	
7

	
 

	
5.3

	
Election of Directors

	
7

	
 

	
5.4

	
Removal; Vacancies

	
7

	
 

	
5.5

	
No Liability for Election of Recommended Directors

	
8

	
 

	
5.6

	
Grant of Proxy; Restrictions in Other Agreements

	
8

	
 

	
5.7

	
Restrictions on Certain Corporate Actions

	
8

	
 

	
5.8

	
Manner of Voting

	
10

	
6.

	
Additional Company Covenants

	
10

	
 

	
6.1

	
Key Person Life Insurance

	
10

	
 

	
6.2

	
Directors’ and Officers’ Liability Insurance

	
10

	
 

	
6.3

	
Observer Rights

	
10

	
 

	
6.4

	
Proprietary Information and Inventions Agreements

	
11

	
 

	
6.5

	
Board of Directors

	
11

	
 

	
6.6

	
Notice of Litigation

	
11

	
 

	
6.7

	
No Investment Company

	
11

	
 

	
6.8

	
Termination of Certain Covenants

	
11

	
7.

	
Miscellaneous

	
11

	
 

	
7.1

	
Termination

	
11

	
 

	
7.2

	
Specific Enforcement

	
11

	
 

	
7.3

	
Successors and Assigns

	
12

					

 

 

	
-i-

 

TABLE OF CONTENTS

                                                                                                                                                             

              Page

 

 

	

	

	
    

	
 

	
7.4

	
Governing Law; Venue

	
12

	
 

	
7.5

	
Counterparts

	
12

	
 

	
7.6

	
Titles and Subtitles

	
12

	
 

	
7.7

	
Notices

	
12

	
 

	
7.8

	
Expenses

	
13

	
 

	
7.9

	
Amendments and Waivers

	
13

	
 

	
7.10

	
Severability

	
13

	
 

	
7.11

	
Entire Agreement

	
13

	
SCHEDULE A

	
Schedule of Stockholders

	
 

						

 

 

 

	
-ii-

 

 

 

SENDTEC ACQUISITION CORP.

 

INVESTOR RIGHTS AGREEMENT

THIS INVESTOR RIGHTS AGREEMENT (this “Agreement”) is made as of October 31, 2005 by and among SendTec Acquisition Corp., a Delaware corporation (“STAC”), RelationServe Media, Inc., a Delaware corporation (“RSVM”), and the individuals listed on Schedule A hereto (collectively, “STAC Management” and together with RSVM, the “Common Holders”) and the preferred holders listed on Schedule A hereto (each a “Preferred Holder” and collectively the “Preferred Holders”). The Preferred Holders, RSVM and STAC Management
are herein referred to as the Stockholders.

STAC, RSVM and the Preferred Holders, together with other purchasers identified therein, are parties to the Securities Purchase Agreement dated October 31, 2005 (the “Securities Purchase Agreement”) pursuant to which STAC has issued and sold, and the Preferred Holders have purchased Senior Secured Convertible Debentures of STAC and shares of Series A Redeemable Preferred Stock of STAC and the other purchasers have purchased Senior Secured Convertible Debentures of STAC. The obligations of the parties under the Securities Purchase Agreement are conditioned, among other things, upon the execution and delivery of this Agreement by the Preferred Holders, STAC, STAC Management and RSVM.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

	
1.

	
Definitions.

In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Securities Purchase Agreement, and (b) the following terms have the meanings indicated in this Section 1.1.

“Act” means the Securities Act of 1933, as amended.

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Preferred Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Preferred Holder will be deemed to be an Affiliate of such Preferred Holder.

“Charter” means the Amended and Restated Certificate of Incorporation of STAC filed with the Secretary of State of the State of Delaware on October 28, 2005, as thereafter amended.

“Commission” means the Securities and Exchange Commission.

 

 

	
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“Common Stock” means the Common Stock, par value $0.001 per share, of STAC.

“Debentures” means the Senior Secured Convertible Debentures due, subject to the terms therein, on October 30, 2009, issued by STAC.

“Initial Public Offering” means the first firm commitment underwritten public offering of securities of STAC pursuant to an effective registration statement under the Act lead by a nationally recognized investment bank (other than a registration statement relating either to the sale of securities to employees of STAC pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction).

“Lehman Purchaser” means LB I Group Inc.

“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.

“Redeemable Preferred Stock” means the Series A Redeemable Preferred Stock of STAC issued to the Preferred Holders pursuant to the Securities Purchase Agreement.

“Required Preferred Holders” means Preferred Holders holding a majority of the shares of Redeemable Preferred Stock outstanding; provided, however, that so long as the Lehman Purchaser shall own Redeemable Preferred Stock, it shall be a “Required Preferred Holder” for all purposes of this Agreement.

	
2.

	
Covenants of STAC.

	
 

	
 

	
2.1

	
Delivery of Financial Statements. STAC shall deliver to the Stockholders:

				

(a)            as soon as practicable, but in any event within 90 days after the end of each fiscal year of STAC, an income statement for such fiscal year, a balance sheet of STAC and statement of stockholder’s equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles (“GAAP”), and audited and certified by independent public accountants of nationally recognized standing selected by STAC, and an unqualified (except for contingent liabilities) certified audit report from STAC’s auditors;

(b)            as soon as practicable, but in any event within 45 days after the end of each of the first three quarters of each fiscal year of STAC, an unaudited income statement, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter;

(c)            within 30 days of the end of each month, an unaudited income statement and statement of cash flows and balance sheet for and as of the end of such month, in reasonable detail;

(d)            as soon as practicable, but in any event at least 30 days prior to the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly 

 

 

	
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basis, including balance sheets, income statements and statements of cash flows for such months and, as soon as prepared, any other budgets or revised budgets prepared by STAC;

(e)            with respect to the financial statements called for in Sections 2.1(b) and 2.1(c), an instrument executed by the Chief Financial Officer or President of STAC certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes and year-end adjustments that may be required by GAAP) and fairly present the financial condition of STAC and its results of operation for the period specified, subject to year-end audit adjustment; and

(f)             such other information relating to the financial condition, business, prospects or corporate affairs of STAC as such Stockholder may from time to time reasonably request, or promptly after transmission or occurrence (but in any event within 10 days), other reports, including any non-routine communications with stockholders or the financial community, STAC’s accountants and business consultants, governmental agencies and authorities, any reports filed by STAC or its officers, directors and representatives with any securities exchange or the Commission and notice of any event that would have a significant effect on STAC’s business prospects or financial condition or on the Preferred Holders’ investments, provided,
however, that STAC shall not be obligated under this Section 2.1 to provide information that it deems in good faith to be a trade secret or similar confidential information, and provided further that STAC may require the Preferred Holder to execute a confidentiality and nondisclosure agreement prior to disclosure of any such information.

	
2.2

	
Inspection.

STAC shall permit each Preferred Holder, at such Preferred Holder’s expense, to visit and inspect STAC’s properties, to examine its books of account and records and to discuss STAC’s affairs, finances and accounts with its officers, all at such reasonable times as may be reasonably requested by the Preferred Holder; provided, however, that STAC shall not be obligated pursuant to this Section 2.2 to provide access to any information that it reasonably considers to be a trade secret or similar confidential information, and provided further that STAC may require the Preferred Holder to execute a confidentiality and nondisclosure agreement prior to any such visit and inspection.

	
2.3

	
Liquidity Event.

(a)            If by November 30, 2006, the Consolidation (as defined in the Securities Purchase Agreement) has not been effected, STAC shall use its best efforts to effect either an Initial Public Offering, a private sale of STAC or a recapitalization of the Debentures and Redeemable Preferred Stock (the “Liquidity Event”) within the six-month period thereafter. 

(b)            STAC shall promptly retain a nationally recognized investment bank (the “Bank”) acceptable to the Required Preferred Holders that will coordinate and help supervise STAC’s preparation for the Liquidity Event. Once selected, STAC will instruct the Bank promptly to take all necessary actions to solicit offers for a Liquidity Event from persons who are not Affiliates of STAC and to present to STAC and Preferred Holders all bona fide offers (in the reasonable judgment of the Bank) received as part of the solicitation for the Liquidity Event. The reasonable fees and expenses of the Bank will be borne by STAC.

 

 

	
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(c)            In furtherance of the Liquidity Event, STAC and the Stockholders will cooperate with the Bank and all potential purchasers in all commercially reasonable respects (subject to the last sentence of this Section 2.3(c)), including, without limitation, (i) cooperating in the preparation of materials to be distributed to potential purchasers, which materials will include appropriate and customary descriptions and financial information concerning STAC and its business, (ii) permitting customary “due diligence” reviews of STAC and its books, business and assets and (iii) upon reasonable notice, making appropriate employees and independent accountants available at reasonable times and intervals, without disruption to the normal day-to-day operations of STAC, to answer
questions of potential purchasers and their advisors. In connection with the Liquidity Event, customary confidentiality agreements will be obtained from all potential purchasers.

	
3.

	
Prohibited Transfers and Certain Rights of First Offer.

(a)            Neither RSVM nor any member of STAC Management may sell, assign, transfer, give, pledge, hypothecate, mortgage, encumber or dispose of any shares of Common Stock then owned by them without the prior written consent of the Required Preferred Holders. Notwithstanding the foregoing, 

(i)             members of STAC Management may sell or transfer shares of Common Stock (1) to a family member or trust for the benefit of such member or family member or in connection with estate planning, provided such permitted transferee agrees in writing to be bound by the terms of this Agreement applicable to such member of STAC Management, or (2) to STAC pursuant to a repurchase right or right of first refusal held by STAC; and

(ii)           a Common Holder may sell or transfer shares of Common Stock in connection with the consolidation or merger of STAC with or into any other business entity pursuant to which stockholders of STAC prior to such consolidation or merger hold more than 50% of the voting equity of the surviving or resulting entity.

(b)            No Preferred Holder may sell, assign, transfer, give, pledge, hypothecate, mortgage, encumber or dispose of all or any of its shares of Redeemable Preferred Stock at a price in excess of the Series A Preferential Amount (as defined in STAC’s Charter).

(c)            Subject to the terms and conditions specified in this Section 3(c), if any Preferred Holder (the “Offering Holder”) proposes to sell all or a portion of its shares of Redeemable Preferred Stock (the “Offered Shares”), the Offering Holder shall first offer the Offered Shares to each other Purchaser in accordance with the following provisions:

(i)             The Offering Holder shall deliver a notice in accordance with Section 7.7 (the “Offer Notice”) to the other Preferred Holders stating its bona fide intention to offer the Offered Shares and the terms thereof.

(ii)           By written notification received by the Offering Holder within ten business days after receipt of the Offer Notice, a Preferred Holder may elect to purchase or obtain, on the terms specified in the Offer Notice, up to that portion of Offered Shares that equals the proportion that the number of shares of Redeemable Preferred Stock 

 

 

	
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owned by such Preferred Holder bears to the total number of shares of Redeemable Preferred Stock of STAC then outstanding. 

(iii)          If the Preferred Holders do not offer to purchase all of the Offered Shares offered by the Offering Holder, the Offering Holder may, during the 90-day period following the expiration of the period provided in Section 3(c)(ii) hereof, sell all but not less than all of the Offered Shares to any person or persons upon terms no more favorable to the offeree than those specified in the Offer Notice. If the Offering Holder does not enter into an agreement for the sale of the Offered Shares within such period, or if such agreement is not consummated within 60 days of the execution thereof, the right provided hereunder shall be deemed to be revived and the Offered Shares shall not be offered unless first reoffered to the other Preferred Holders in accordance herewith.

(d)            STAC will not (i) permit any transfer on its books of any securities that have been sold in violation of any of the provisions set forth in this Agreement or (ii) treat as the owner of such securities, or accord the right to vote as an owner or pay dividends to any transferee to whom such securities have been sold in violation of any of the provisions set forth in this Agreement.

	
4.

	
Drag Along Rights.

	
 

	
 

	
4.1

	
Sale Proposal.

				

If, at any time prior to STAC’s Initial Public Offering, except as may be limited by law, a proposal for a sale of all or substantially all of STAC’s securities to, or a merger with or into a person that is not directly or indirectly an affiliate of STAC or of any stockholder, for a specified price payable in cash, securities or any other consideration and on specified terms and conditions (a “Sale Proposal”), has been approved by (x) the Board of Directors of STAC, (y) the holders of a sufficient percentage of the outstanding voting stock of STAC required to approve a Sale Proposal under STAC’s Charter and the General Corporation Law of the State of Delaware and (z) the holders of a sufficient percentage of the Redeemable Preferred Stock required to approve the Sale Proposal under the Charter, then the parties hereto who so approved
the Sale Proposal (the “Approving Stockholders”) may require all of the parties hereto who are not Approving Stockholders (“Remaining Stockholders”) to sell all of the capital stock of STAC held by them to the party or parties whose Sale Proposal was accepted as hereinabove provided, for the same per share consideration (equitably adjusted to take into account the exercise price of any options or warrants) and otherwise on the terms and conditions provided in this Section 4.

	
4.2

	
Compelled Sale Notice.

STAC, if instructed in writing by the Approving Stockholders, will send written notice (the “Compelled Sale Notice”) of the exercise of the rights of the Approving Stockholders pursuant to this Section 6 to each of the Remaining Stockholders setting forth the consideration per share to be paid pursuant to the Sale Proposal and the other terms and conditions of the transaction. Each Remaining Stockholder, upon receipt of the Compelled Sale Notice, will be obligated to (i) vote its shares in favor of such Sale Proposal at any meeting of stockholders in STAC called to vote on or approve such Sale Proposal, (ii) sell all of its capital stock of STAC and participate in the transaction (the “Compelled Sale”) contemplated by the Sale Proposal and 

 

 

	
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(iii) otherwise take all necessary action, including, without limitation, expressly waiving any dissenter’s rights or rights of appraisal or similar rights, providing access to documents and records of STAC, entering into an agreement reflecting the terms of the Sale Proposal, surrendering stock certificates, giving any customary and reasonable representations and warranties given by other stockholders and executing and delivering any certificates or other documents, reasonably requested by the Approving Stockholders and their counsel, to cause STAC and the Approving Stockholders to consummate such Compelled Sale. Any such Compelled Sale Notice may be rescinded by the Approving Stockholders by delivering written notice thereof to all of the Remaining Stockholders.

	
4.3

	
Conditions to Compelled Sale.

The obligations of stockholders pursuant to Section 4.1 and Section 4.2 are subject to the satisfaction of the following conditions:

(a)            In the event that stockholders are required to provide any representations, warranties or indemnities in connection with the Compelled Sale (other than representations, warranties and indemnities concerning each stockholder’s valid ownership of its shares of capital stock of STAC, free of all liens and encumbrances (other than those arising under applicable securities laws), and each stockholder’s authority, power and right to enter into and consummate the Compelled Sale without violating any other agreement), then, each stockholder (i) will not be liable for more than its pro rata share (based upon the consideration received) of any liability for misrepresentation, breach of warranty or indemnity, (ii) such liability will not exceed the total purchase price received by such
stockholder for its shares of capital stock of STAC and (iii) such liability will be satisfied solely out of any funds escrowed for such purpose.

(b)            Upon the consummation of the Compelled Sale, each of the stockholders will receive the same proportion of the aggregate consideration from such Compelled Sale as such stockholder would have received if such aggregate consideration had been distributed by STAC in connection with a liquidation or sale of all or substantially all the assets of STAC pursuant to its Charter as in effect immediately prior to such Compelled Sale (giving effect to applicable orders of priority and/or the right and option of holders of any shares of convertible, exchangeable or exercisable securities to convert, exchange or exercise any such securities in connection with such Compelled Sale to the extent such shares are so converted, exchanged or exercised).

(c)            No Preferred Holder will be required to agree to any covenant not to compete or covenant not to solicit customers, employees or suppliers of any party to a Compelled Sale of STAC.

	
5.

	
Voting.

	
 

	
 

	
5.1

	
Agreement to Vote.

				

Each Stockholder, as a holder of Redeemable Preferred Stock and/or Common Stock, hereby agrees on behalf of itself and any transferee or assignee of any such shares to hold all of such shares and any other voting securities of STAC acquired by such Stockholder in the future 

 

 

	
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(and any other securities of STAC issued with respect to, upon conversion of, or in exchange or substitution for any of the foregoing), (hereinafter collectively referred to as the “Voting Shares”) subject to, and to vote the Voting Shares at regular or special meetings of stockholders and/or give written consent with respect to such Voting Shares in accordance with, the provisions of this Agreement.

	
5.2

	
Board Size.

The holders of the Voting Shares will vote at regular or special meetings of stockholders, and give written consent with respect to, such Voting Shares that they own (or as to which they have voting power) to ensure that the size of the Board of Directors shall be set and remain at five directors.

	
5.3

	
Election of Directors.

On all matters relating to the election of one or more directors of STAC, each of the holders of the Voting Shares will vote at regular or special meetings of stockholders and give written consent with respect to, such number of shares of Voting Shares then owned by them (or as to which they have voting power) as may be necessary to elect the following individuals to the Board of Directors:

(i)             two representatives designated by the Required Preferred Holders;

	
(ii)

	
one  representative designated by the Lehman Purchaser;

(iii)          one representative designated by STAC Management, who shall initially be Paul Soltoff; and

(iv)          one representative who is not then an officer or employee of STAC and is designated with the approval, which shall not be unreasonably withheld, of the Lehman Purchaser and RSVM.

If the Board of Directors maintains a management committee, a compensation committee or an audit committee, a director nominated pursuant to Section 5.3(ii) and Section 5.3(iii) will be entitled to be a member of each such committee.

	
5.4

	
Removal; Vacancies.  

On all matters relating to the removal of one or more directors of STAC, each Stockholder will vote at regular or special meetings of stockholders and/or give written consent with respect to, such number of shares of Voting Shares then owned by them (or as to which they then have voting power), on an as-converted basis, if applicable, voting as a single class, as may be necessary to remove from the Board of Directors any director selected for removal by a majority of the voting power of the stockholders entitled to elect such director pursuant to Section 5.3. Any vacancy created by such removal or by death, disability, or resignation, will be filled pursuant to Section 5.3. No director elected pursuant to Section 5.3 may be removed without the vote of a majority of the voting power of the stockholders entitled to elect such director pursuant to Section 5.3. In the event that the party
or parties entitled to nominate a 

 

 

	
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director to fill such vacancy fails to so nominate, the vacancy will be filled by the vote of a majority of the Voting Shares, voting as a single class. 

Any director may be removed “for cause” with the affirmative vote of a majority of the voting power of the Voting Shares, voting as a single class. 

	
5.5

	
No Liability for Election of Recommended Directors.

Neither STAC, the Stockholders, nor any officer, director, stockholder or stockholder, partner, employee or agent of such party, makes any representation or warranty as to the fitness or competence of the nominee of any party hereunder to serve on the Board of Directors by virtue of such party’s execution of this Agreement or by the act of such party in voting for such nominee pursuant to this Agreement.

	
5.6

	
Grant of Proxy; Restrictions in Other Agreements.

(a)            Should the provisions of this Agreement be construed to constitute the granting of proxies, such proxies will be deemed coupled with an interest and are irrevocable for the term of this Agreement.

(b)            No Stockholder may enter into any agreement or arrangement with any person with respect to the Redeemable Preferred Stock or the Common Stock on terms inconsistent with the provisions of this Agreement.

	
5.7

	
Restrictions on Certain Corporate Actions.

(a)            So long as any shares of Redeemable Preferred Stock are outstanding, STAC will not without first obtaining the approval of the Required Preferred Holders:

(i)             amend, supplement, modify, terminate or waive any provision of STAC’s Charter or Bylaws, or any other agreement entered into with respect to the capital stock or equity securities of STAC;

(ii)           authorize, create or modify any of the terms of any of the classes of STAC’s securities including the Redeemable Preferred Stock; 

(iii)          authorize, create or issue, or obligate itself to issue, any other equity security, including any other security (equity or non-equity) convertible into or exercisable or exchangeable for any equity security having a preference over, or being on a parity with, Series A Redeemable Preferred Stock with respect to dividends, liquidation, redemption or voting;

(iv)          declare or pay any dividends or make any distributions upon any of its capital stock or other equity securities;

(v)            redeem, purchase or otherwise acquire or repurchase any of STAC’s capital stock or other equity securities, except in connection with the Consolidation, as described in the Securities Purchase Agreement; provided, however, that this restriction does not 

 

 

	
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apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for STAC or any subsidiary pursuant to agreements under which STAC has the option to repurchase such shares at cost upon the occurrence of certain events, such as the termination of employment or other provision of services to STAC;

(vi)          incur any liabilities, obligations, including guarantees, or indebtedness in excess of $150,000 individually, or if individually less than $150,000, in excess of $300,000 in the aggregate;

(vii)         issue any notes or debt securities containing equity features, or any capital stock or other equity securities; 

(viii)       permit to exist any Lien on any property of STAC with a value in excess of $100,000;

(ix)          effect any merger, consolidation or reorganization of STAC with or into any other entity, or sell all or substantially all of STAC’s assets, in each case other than in connection with a Liquidity Event;

(x)            acquire or dispose of, in a single transaction or a series of transactions, any business or assets with an aggregate value in excess of $500,000;

(xi)          effect any liquidation, dissolutions, bankruptcy or winding up of STAC or effect any reorganization of STAC into a partnership, limited liability company or other non-corporate entity which is treated as a partnership for federal income tax purposes; 

(xii)         set the annual compensation of the chief executive officer, president and chief financial officer of STAC;

(xiii)       appoint or dismiss the chief executive officer, president or chief financial officer of STAC;

(xiv)       make investments in, acquire any stock, assets or the business of or enter into any joint venture;

(xv)         effect a material change to the accounting or other reporting policies of STAC, or appoint or dismiss STAC’s independent auditing firm;

	
(xvi)

	
materially alter or change the lines of business of STAC;

(xvii)      enter into any material agreement, transaction, commitment or arrangement with any of its officers, directors, senior executives, principal stockholders or affiliates, unless such arrangement is in the ordinary course of STAC’s business and is at arm’s length; 

(xviii)     adopt the annual operating budget of STAC or make any material alteration thereto;

 

 

	
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(xix)       adopt the annual capital spending plan of STAC or make any material alteration thereto; 

	
 

	
(xx)

	
increase or decrease the size of the Board of Directors; and

	
 

	
(xxi)

	
any other acts requiring a protective stockholder vote. 

	
 

	
5.8

	
Manner of Voting.

	
 

						

The voting of shares pursuant to this Agreement may be effected in person, by proxy, by written consent, or in any other manner permitted by applicable law. 

	
6.

	
Additional Company Covenants.

	
 

	
 

	
6.1

	
Key Person Life Insurance.

				

Within 60 days after the date hereof, STAC will use its best efforts to obtain key person life insurance with an insurer rated at least AA or better in the most recent addition of A.M. Best’s “Best’s Insurance Reports” in the amount of $5 million on the life of Paul Soltoff and to keep such insurance in full force and effect for so long as any Debentures remain outstanding. STAC shall be the sole beneficiary of such policy.

	
6.2

	
Directors’ and Officers’ Liability Insurance. 

Within 60 days after the Closing Date, STAC will obtain directors’ and officers’ liability insurance with an insurer rated at least AA or better in the most recent addition of A.M. Best’s “Best Insurance Reports” in the amount of $4 million.

	
6.3

	
Observer Rights.

For so long as the Lehman Purchaser owns any shares of Redeemable Preferred Stock, it will have the right to designate one person to be an observer at any Board of Directors meeting, which observer is in addition to its right to designate a member of the Board of Directors as provided in Section 5.3(ii). The observer will be entitled to participate fully in all discussions among directors (but not entitled to vote) at such meetings, and to receive all notices of meetings and other materials (including minutes) provided to the directors of STAC, subject to any restrictions under applicable law and to confidentiality considerations.

	
6.4

	
Proprietary Information and Inventions Agreements.

STAC shall require all employees and consultants to enter into STAC’s standard form of proprietary information and inventions agreement.

	
6.5

	
Board of Directors.

The Board of Directors shall meet at least four times per year, unless otherwise approved by a majority of the non-employee members of the Board of Directors.

 

 

	
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6.6

	
Notice of Litigation.

For so long as any Debentures or shares of Redeemable Preferred Stock remain outstanding, STAC shall provide notice to the Preferred Holders promptly upon the filing of any material action, suit or proceeding by or against STAC.

	
6.7

	
No Investment Company.

STAC shall not become an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended. In the event STAC breaches the foregoing, STAC shall forthwith notify the Preferred Holders and shall take immediate corrective action to remedy such breach.

	
6.8

	
Termination of Certain Covenants.

The covenants set forth in this Section 6 shall terminate and be of no further force or effect upon the consummation of a Qualified Public Offering or at such time as STAC is required to file reports pursuant to Section 13 or 15(d) of the 1934 Act. 

	
7.

	
Miscellaneous.

	
 

	
 

	
7.1

	
Termination.

				

This Agreement will terminate on the “Consolidation Date” as defined in Section 1.1 of the Securities Purchase Agreement. This Agreement shall also terminate and be of no further force or effect upon the consummation of a transaction or series of related transactions that are deemed to be a liquidation, dissolution or winding up of STAC pursuant to STAC’s Charter.

	
7.2

	
Specific Enforcement.

Each party hereto agrees that its obligations hereunder are necessary and reasonable in order to protect the other parties to this Agreement, and each party expressly agrees and understands that monetary damages would inadequately compensate an injured party for the breach of this Agreement by any party, that this Agreement will be specifically enforceable, and that, in addition to any other remedies that may be available at law, in equity or otherwise, any breach or threatened breach of this Agreement will be the proper subject of a temporary or permanent injunction or restraining order, without the necessity of proving actual damages. Further, each party hereto waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach.

	
7.3

	
Successors and Assigns.

Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

 

	
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7.4

	
Governing Law; Venue.

All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined with the provisions of the Securities Purchase Agreement.

	
7.5

	
Counterparts.

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

	
7.6

	
Titles and Subtitles.

The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

	
7.7

	
Notices.

Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via confirmed facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as set forth on the signature pages attached to the Securities Purchase Agreement. A party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section 7.7 by giving the other party written notice of the new address in the manner set forth above.

	
7.8

	
Expenses.

If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

	
7.9

	
Amendments and Waivers.

Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of STAC and the Required Preferred Holders. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each of the Stockholders of STAC.

 

 

	
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7.10

	
Severability.

If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

	
7.11

	
Entire Agreement.

This Agreement and the documents referred to herein constitute the entire agreement among the parties with respect to the subject matter hereof and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein.

 

[Signature Page Follows]

 

	
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

	
SENDTEC ACQUISITION CORP.

 

	
Address for Notice:

	
By:__________________________________________

Name:

Title:

 

 

 

 

	
877 Executive Center Drive West 

Suite 300

St. Petersburg, FL 33702

Fax: 727-576-7790

	
RELATIONSERVE MEDIA, INC.

 

	
Address for Notice:

	
By:__________________________________________

Name:

Title:

 

	
8700 North Andrews Avenue, 2nd Floor

Fort Lauderdale, FL 33309

Fax: 954-202-6002

 

	
 

	
SIGNATURE PAGE TO THE

	
 

	
INVESTOR RIGHTS AGREEMENT

			

 

 

 

 

	
PREFERRED HOLDER:

 

[NAME OF PREFERRED HOLDER]

 

 

By:__________________________________________ 

 

Name:________________________________________ 

 

Title:________________________________________ 

 

Address:   [NAME OF PREFERRED HOLDER]

_________________________________________ 

_________________________________________ 

_________________________________________ 

 

Facsimile:_________________________________________ 

 

Taxpayer ID:_______________________________________ 

 

 

	
 

	
SIGNATURE PAGE TO THE

	
 

	
INVESTOR RIGHTS AGREEMENT

			

 

 

 

 

	
 

	

 

	

 

	

 

	

Tom Alison

	
 

	

 

	

 

	

 

	

Irv Brechner

	
 

	

 

	

 

	

 

	

Donald Gould

	
 

	

 

	

 

	

 

	

Harry Greene

	
 

	

 

	

 

	

 

	

Steve Morvay

	
 

	

 

	

 

	

 

	

Eric Obeck

	
 

	

 

	

 

	

 

	

Paul Soltoff

 

 

	
 

	
SIGNATURE PAGE TO THE

	
 

	
INVESTOR RIGHTS AGREEMENTEXHIBIT 10.5

SUBSCRIPTION AGREEMENT

SUBSCRIPTION AGREEMENT made as of this 31st day of October 2005, between RelationServe Media, Inc., a Delaware corporation with offices at 6700 N. Andrews Avenue, Ft. Lauderdale, FL 33309 (the “Company”) and the undersigned (the “Subscriber”).

WHEREAS, the Company is offering in a private placement (the “Offering”) to accredited investors up to $10,000,000 of Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) convertible on the occurrence of the Consolidation Transaction (as hereinafter defined) into shares of common stock, par value $0.001 per share, of the company (the “Common Stock”) at a purchase price of $13.50 per share of the Company (the “Purchase Price”) which funds shall be utilized by the Company for the capitalization of SendTec Acquisition Corp. (“STAC”), to fund the cash portion of the purchase price the business and certain assets of SendTec, Inc. (“SendTec”) pursuant to that certain Asset Purchase Agreement dated August 9, 2005, as amended (the “Purchase
Agreement”), as well as for fees and expenses in connection with the transactions and the balance for working capital; and

WHEREAS, the Subscriber desires to subscribe for the number of shares of Series A Preferred Stock set forth on the signature page hereof, on the terms and conditions hereinafter set forth.

NOW, THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto do hereby agree as follows:

	
             
  	
            I.
 	
            SUBSCRIPTION FOR SERIES A PREFERRED STOCK AND REPRESENTATIONS AND COVENANTS OF SUBSCRIBER
 

1.1          Subject to the terms and conditions hereinafter set forth and as set forth in the Certificate of Designations, Preferences and Other Rights and Qualifications of the Series A Preferred Stock attached as Exhibit A annexed hereto, the Subscriber hereby subscribes for and agrees to purchase from the Company such number of shares of Series A Preferred Stock as is set forth upon the signature page hereof, at a price equal to the Purchase Price, and the Company agrees to sell such Series A Preferred Stock to the Subscriber for said Purchase Price, subject to the Company’s right to sell to the Subscriber such lesser number of shares of Series A Preferred Stock (or no shares of Series A Preferred Stock) as the Company may, in its sole
discretion, deem necessary or desirable. The purchase price is payable by cash or wire transfer of immediately available funds to the account of the Company, pursuant to the wire instructions attached hereto as Exhibit B. The Subscriber has previously deposited with the Law Office of James Dodrill, Esq., (the “Law Firm”) as escrow agent under this Agreement the amount of the Subscribers total Purchase Price set forth on Exhibit A and agrees that Law Firm shall hold in escrow such amount and shall transmit such funds as directed by Company on the date set for closing of the SendTec acquisition without further instruction from the Subscriber, provided, however, that if the closing has not occurred by December 31, 2005 such funds shall be returned by Law Firm to Subscriber, without interest or deduction.

 

 

 

 

1.2          The Subscriber recognizes that the purchase of Series A Preferred Stock involves a high degree of risk in that (i) an investment in the Company is highly speculative and only investors who can afford the loss of their entire investment should consider investing in the Company and the Series A Preferred Stock; (ii) the Series A Preferred Stock and Common Stock underlying the Series A Preferred Stock are not registered under the Securities Act of 1933, as amended (the “Act”), or any state securities law; (iii) there is no trading market for the Series A Preferred Stock, none is likely ever to develop, and the Subscriber may not be able to liquidate his investment; (iv) transferability of the Series A Preferred Stock and Common Stock underlying the Series A Preferred Stock are
extremely limited; and (v) an investor could suffer the loss of his, her or its entire investment.

1.3          The Subscriber represents and warrants that the Subscriber is an “accredited investor” as such term in defined in Rule 501 of Regulation D promulgated under the Act and that the Subscriber is able to bear the economic risk of an investment in the Series A Preferred Stock.

1.4          The Subscriber acknowledges that the Subscriber has prior investment experience (including investment in non listed and non registered securities), and has read and evaluated, or has employed the services of an investment advisor, attorney or accountant to read and evaluate, all of the documents furnished or made available by the Company to the Subscriber consisting solely of the Company’s filings and reports filed with the Securities and Exchange Commission (“SEC”), including all exhibits attached thereto) prior to the date hereof, including, without limitation, each of the Risk Factors included therein, as well as the merits and risks of such an investment by the Subscriber. The Subscriber represents that his, her or its overall commitment to investments which are not readily marketable is
not disproportionate to the Subscriber’s net worth, and that the Subscriber’s investment in the Series A Preferred Stock will not cause such overall commitment to become excessive. The Subscriber represents that, if an individual, he or she has adequate means of providing for his or her current needs and personal and family contingencies and has no need for liquidity in his or her investment in the Series A Preferred Stock. The Subscriber is financially able to bear the economic risk of this investment, including the ability to afford holding the Series A Preferred Stock for an indefinite period or to afford a complete loss of this investment.

1.5          The Subscriber acknowledges receipt and careful review of the SEC documents (including all exhibits attached thereto) including all Risk Factors therein, and all other documents furnished in connection with this transaction (collectively, the “Offering Documents”) and hereby represents that the Subscriber has accessed the Company’s SEC filings and reports and has been furnished by the Company during the course of this transaction with all information regarding the Company which the Subscriber has requested or desires to know; and that the Subscriber has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning the terms and conditions of the Offering, and any additional information which the Subscriber
has requested.

1.6          The Subscriber acknowledges that the purchase of Series A Preferred Stock and the conversion of the Series A Preferred Stock into Common Stock may involve tax consequences to the Subscriber and that the contents of the Offering Documents do not contain tax advice. The Subscriber acknowledges that the Subscriber must retain his own professional advisors to evaluate the tax and other consequences to the Subscriber of an investment in the 

 

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Series A Preferred Stock. The Subscriber acknowledges that it is the responsibility of the Subscriber to determine the appropriateness and the merits of a corporate entity to own the Subscriber’s Series A Preferred Stock and the corporate structure of such entity.

1.7          The Subscriber acknowledges that this Offering has not been reviewed by the SEC or any state securities commission, and that no federal or state agency has made any finding or determination regarding the fairness or merits of the Offering. The Subscriber represents that the Series A Preferred Stock is being purchased for his, her or its own account, for investment only, and not with a view toward distribution or resale to others. The Subscriber agrees that he will not sell or otherwise transfer the Series A Preferred Stock or the underlying Common Stock unless they are registered under the Act or unless an exemption from such registration is available, as the same may be amended from time to time.

1.8          The Subscriber understands that the provisions of Rule 144 under the Act are not available for at least one (1) year to permit resales of the Series A Preferred Stock or the underlying Common Shares, and there can be no assurance that the conditions necessary to permit such sales under Rule 144 will ever be satisfied. The Subscriber understands that the Company is under no obligation to the Subscriber to comply with the conditions of Rule 144 or take any other action necessary in order to make any exemption for the sale of the Series A Preferred Stock or the underlying Common Stock without registration available.

1.9          The Subscriber agrees to hold the Company and its directors, officers and controlling persons and their respective heirs, representatives, successors and assigns harmless and to indemnify them against all liabilities, costs and expenses incurred by them as a result of any misrepresentation made by the Subscriber contained herein or any sale or distribution by the Subscriber in violation of the Act (including without limitation the rules promulgated thereunder), any state securities laws, or the Company’s certificate of incorporation or by-laws, as amended from time to time.

1.10       The Subscriber consents to the placement of a legend on any certificate or other document evidencing the Series A Preferred Stock or the underlying Common Stock stating that they have not been registered under the Act and setting forth or referring to the restrictions on transferability and sale thereof.

1.11       The Subscriber understands that the Company will review and rely on this Subscription Agreement without making any independent investigation; and it is agreed that the Company reserves the unrestricted right to reject or limit any subscription and to withdraw the Offering at any time.

1.12       The Subscriber hereby represents that the address of the Subscriber furnished at the end of this Subscription Agreement is the undersigned’s principal residence if the Subscriber is an individual or its principal business address if it is a corporation or other entity.

1.13       The Subscriber acknowledges that if the Subscriber is a Registered Representative of an NASD member firm, the Subscriber must give such firm the notice required by the NASD’s Conduct Rules, receipt of which must be acknowledged by such firm on the signature page hereof.

 

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1.14       The Subscriber hereby represents that, except as expressly set forth in the Offering Documents, no representations or warranties have been made to the Subscriber by the Company or any agent, employee or affiliate of the Company and in entering into this transaction, the Subscriber is not relying on any information, other than that contained in the Offering Documents and the results of independent investigation by the Subscriber.

1.15       The Subscriber recognizes that this is an offering in which the Company will accept subscriptions regardless of the attainment of any minimum amount of subscriptions, and may accept subscriptions even if the proceeds received in the Offering are less than $10,000,000. The Company will require additional financing in order to accomplish its short-term goals and its business objectives. There can be no assurance that any such additional funds will be available on reasonable terms, or at all, and any such additional funds raised in any equity offering will dilute the interests of the Subscriber. Subscriber further recognizes that Company reserves the right to pay a commission or finders fee in certain circumstances based upon the gross proceeds of the Offering.

1.16       All information provided by the Subscriber in the Investor Questionnaire attached hereto as Exhibit B is true and accurate in all respects, and the Subscriber acknowledges that the Company will be relying on such information to its possible detriment in deciding whether the Company can sell these securities to the Subscriber without giving rise to the loss of an exemption from registration under the applicable securities laws.

1.17       The Subscriber acknowledges that he/she is aware that the Company has not entered into any agreement or understanding providing for the purchase of any business or assets other than those referred to in the Offering Documents relating to the acquisition of SendTec, and no such agreements have been made, or are being negotiated, and that by execution of this Subscription Agreement, the Subscriber consents to any and all resulting terms of such purchases which will be in the sole discretion of the Company over which the Subscriber will have no effective influence.

1.18       The Subscriber acknowledges that he/she is aware that the subscription funds received by the Company will be utilized to acquire for the Company a minority equity ownership position in STAC of approximately 25% (22% of a fully-diluted basis), which will be funded with significant amounts of senior secured convertible indebtedness (the “Debentures”) of at least $30 million dollars and pursuant to which holders of indebtedness will also acquire a preferred stock interest in STAC such that the Debenture holders will acquire the right to vote 61% of all issued and outstanding share of the Capital Stock of STAC. The Company has agreed that the Company will retain a minority ownership interest in STAC for an indefinite period of time, with the right to increase its ownership only upon the achievement of certain benchmark
results for the period ending September 30, 2005 and satisfaction of various additional conditions, which might not occur, and provided, further, that there has not been a default under the representations and warranties made to the purchasers of the Debentures in connection with the sale of the Debentures by STAC. As a result of this structure, Subscribers will not directly own any interest in STAC and the results of operations of STAC may not be consolidated with those of the Company for SEC reporting purposes unless the benchmark results are achieved and other requirements for consummation of the Consolidation Transaction are satisfied, which may not occur. Further, in the event of a default under the Debentures, the assets of STAC have been pledged as collateral to secure the obligations of STAC to the Debenture holders, and the 

 

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Company and the subsidiaries of the Company have agreed to guarantee the obligations of STAC to the Debenture holders for so long as the Debentures are outstanding. Following the Consolidation Transaction, the Debentures will be exchanged for new debentures that will be convertible initially into 20 Million share of Common Stock of the Company at the election of the Debenture holders which could result in additional substantial dilution to Subscribers in this Offering.

	
             
  	
            II.
 	
            REPRESENTATIONS BY THE COMPANY
 

The Company represents and warrants to the Subscriber that as of the date of the closing of this Offering (the “Closing Date”):

(a)          The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the corporate power to conduct the business which it conducts and proposes to conduct.

(b)          The execution, delivery and performance of this Subscription Agreement by the Company will have been duly authorized by the Company and all other corporate action required to authorize and consummate the offer and sale of the Common Stock will have been duly taken and approved.

(c)          The Series A Preferred Stock have been duly and validly authorized and issued and the Common Stock issuable upon the conversion of the Series A Preferred Stock have been reserved for issuance.

(d)          The Company has obtained, or is in the process of obtaining, all licenses, permits and other governmental authorizations necessary to the conduct of its business, except where the failure to so obtain such licenses, permits and authorizations would not have a material adverse effect on the Company. Such licenses, permits and other governmental authorizations obtained are in full force and effect, except where the failure to be so would not have a material adverse effect on the Company, and the Company is in all material respects complying therewith. 

For the purposes of this Agreement, the Consolidation Transaction shall mean the closing of transactions by which there shall be cancelled all of the issued and outstanding shares of Preferred Stock of SendTec Acquisition Corp. (“STAC”), a Delaware Corporation, and the exchange of STAC Senior Secured Convertible Debentures convertible into STAC Common Stock for STAC Senior Secured Convertible Debentures convertible into Common Stock of the Company.

(e)          The Company knows of no pending or threatened legal or governmental proceedings to which the Company is a party which would materially adversely affect the business, financial condition or operations of the Company, except that the Company has advised the subscribers of certain facts described under Certain Legal Proceedings in the SEC filings and reports.

(f)           The Company is not in violation of or default under, nor will the execution and delivery of this Subscription Agreement or the issuance of the Series A Preferred 

 

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Stock, or the consummation of the transactions herein contemplated, result in a violation of, or constitute a default under, the Company’s certificate of incorporation or by-laws, any material obligations, agreements, covenants or conditions contained in any bond, debenture, note or other evidence of indebtedness or in any material contract, indenture, mortgage, loan agreement, lease, joint venture or other agreement or instrument to which the Company is a party or by which it or any of its properties may be bound or any material order, rule, regulation, writ, injunction, or decree of any government, governmental instrumentality or court, domestic or foreign.

	
             
  	
            III.
 	
            COVENANTS BY THE COMPANY
 

The Company agrees Subscribers shall have the certain registration rights with respect to the shares of Common Stock underlying the Series A Preferred Stock issued to Subscribers pursuant to the terms of the Registration Rights Agreement annexed hereto as Exhibit D. Certain additional holders of Common Stock will have a right to have their shares of Common Stock registered pursuant to any registration statement that is filed for Subscribers.

	
             
  	
            IV.
 	
            TERMS OF SUBSCRIPTION
 

4.1          Subject to Section 4.2 hereof, the subscription period will begin as of the date hereof and will terminate at 11:59 PM Eastern time, on December 31, 2005, unless sooner terminated by the Company, or extended by the Company. 

4.2          The Subscriber has effected a wire transfer in the full amount of the purchase price for the Common Stock to the Company’s account in accordance with the wire instructions set forth on Exhibit B hereto.

4.3          The Subscriber hereby authorizes and directs the Company to deliver any certificates or other written instruments representing the Series A Preferred Stock to be issued to such Subscriber pursuant to this Subscription Agreement to the address indicated on the signature page hereof.

4.4          The Subscriber hereby authorizes and directs the Company to return any funds, without interest, for unaccepted subscriptions to the same account from which the funds were drawn.

4.5          If the Subscriber is not a United States person, such Subscriber shall immediately notify the Company and the Subscriber hereby represents that the Subscriber is satisfied as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Common Stock or any use of this Subscription Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Series A Preferred Stock, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Series A Preferred Stock or the Common Stock underlying the Series A
Preferred Stock. Such Subscriber’s subscription and payment for, and continued beneficial ownership of, the Series A Preferred Stock and the Common Stock underlying the Series A Preferred Stock will not violate any applicable securities or other laws of the Subscriber’s jurisdiction.

 

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            V.
 	
            MISCELLANEOUS
 

5.1          Any notice or other communication given hereunder shall be deemed sufficient if in writing and sent by reputable overnight courier, facsimile (with receipt of confirmation) or registered or certified mail, return receipt requested, addressed to the Company, at the address set forth in the first paragraph hereof, Attention: Secretary, CEO, facsimile ((954)202-6002) and to the Subscriber at the address indicated on the signature page hereof. Notices shall be deemed to have been given on the date of mailing or fax, except notices of change of address, which shall be deemed to have been given when received.

5.2          This Subscription Agreement shall not be changed, modified or amended except by a writing signed by the parties to be charged, and this Subscription Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by the party to be charged.

5.3          This Subscription Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, legal representatives, successors and assigns. This Subscription Agreement sets forth the entire agreement and understanding between the parties as to the subject matter thereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.

5.4          Notwithstanding the place where this Subscription Agreement may be executed by any of the parties hereto, the parties expressly agree that all the terms and provisions hereof shall be construed in accordance with and governed by the internal laws of the State of Delaware without reference to principles of conflicts of laws. The parties hereby agree that any dispute which may arise between them arising out of or in connection with this Subscription Agreement shall be adjudicated before a court located in Broward County, Florida and they hereby submit to the exclusive jurisdiction of the federal and state courts of the State of Florida located in Broward County with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting
the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Subscription Agreement or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, in care of the address set forth below or such other address as the undersigned shall furnish in writing to the other.

5.5          This Subscription Agreement may be executed in counterparts. Upon the execution and delivery of this Subscription Agreement by the Subscriber, this Subscription Agreement shall become a binding obligation of the Subscriber with respect to the purchase of Series A Preferred Stock as herein provided; subject, however, to the right hereby reserved to the Company to (i) enter into the same agreements with other subscribers, (ii) to add and/or to delete other persons as subscribers and (iii) to cut back or reject any subscription.

5.6          The holding of any provision of this Subscription Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision of this Subscription Agreement, which shall remain in full force and effect.

 

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5.7          It is agreed that a waiver by either party of a breach of any provision of this Subscription Agreement shall not operate, or be construed, as a waiver of any subsequent breach by that same party.

5.8          The parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further action as may be necessary or appropriate to carry out the purposes and intent of this Subscription Agreement.

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RELATIONSERVE MEDIA, INC.

 

	
            Addendum To Series A Convertible Preferred Stock
 Subscription Agreement
 Dated October 31, 2005
 

 

This Addendum supplements that certain Series A Convertible Preferred Stock (“Series A Preferred Stock”) Subscription Agreement of RelationServe Media, Inc. (“we,” “us” or the “Company”) dated October 31, 2005 (the “Subscription Agreement”).  To the extent of any inconsistency between this Addendum and the Subscription Agreement, this Addendum shall control and supercede any contrary provisions in the Subscription Agreement.  Unless otherwise defined, capitalized terms used herein shall have the meaning assigned to them in the Certificate of Designations, Preferences and Other Rights and Qualifications of Series A Preferred Stock.

Supplement

If the Company, at any time while any shares of Series A Preferred Stock are outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or common stock equivalents entitling any person to acquire shares of Common Stock, at an effective price per share less than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances collectively, a “Dilutive Issuance”), as adjusted hereunder (if the holder of the Common Stock or common stock equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per
share which is issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price.  Such adjustment shall be made whenever such Common Stock or common stock equivalents are issued.  Notwithstanding the foregoing, no adjustment will be made in respect of an Exempt Issuance (as defined below).  The Company shall notify the Purchasers in writing, no later than the business day following the issuance of any Common Stock or common stock equivalents subject to this section, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”).  For purposes of clarification, whether or
not the Company provides a Dilutive Issuance Notice, upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Purchasers are entitled to receive the number of shares of Common Stock based upon the Base Conversion Price, regardless of whether the Company accurately refers to the Base Conversion Price in the Notice of Conversion. 

For purposes of this Addendum an Exempt Issuance shall mean the issuance of (a) shares of Common Stock or options to employees, consultants, officers or directors of the Company, pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Company’s Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose; provided that the number of shares directly or 

 

 

 

upon exercise of options to be issued to consultants shall not exceed 100,000 in the aggregate; (b) securities exercisable or exchangeable for or convertible into shares of Common Stock, as applicable, issued and outstanding on the date of this Addendum, provided that such securities have not been amended since the date of this Addendum to increase the number of such securities or to decrease the exercise, exchange or conversion price of any such securities; and (c) securities issued pursuant to acquisitions or strategic transactions, provided any such issuance (x) shall only be to a person that is, itself or through its subsidiaries, an operating company in a business synergistic with 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, (y) shall only be to a person that is not an affiliate of the Company or the Company’s subsidiaries, and (z) has been approved by a majority of the independent directors of the Company (as independence is determined by the rules of the Securities Exchange Commission).

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