Exhibit 10.1





Exhibit 10.1




SECURITIES PURCHASE AGREEMENT




This Securities Purchase Agreement (this “Agreement”) is dated as of October 1, 2010,
between UFood Restaurant Group, Inc., a Nevada corporation (the “Company”), and each
purchaser identified on the signature pages hereto (each, including its successors and assigns, a
“Purchaser” and collectively, the “Purchasers”).



WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder, the
Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully described in this
Agreement.



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 Company and each Purchaser agree as follows:



ARTICLE I.

DEFINITIONS




1.1 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 Certificate of Designation (as defined herein), and (b) the following terms have the meanings
set forth in this Section 1.1:




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




“Action” shall have the meaning ascribed to such term in Section 3.1(j).




“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 405 under the Securities Act.




“Board of Directors” means the board of directors of the Company.




“Business Day” means any day except any Saturday, any Sunday, any day which is
a federal legal holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action to close.




“Certificate of Designation” means the Certificate of Designation to be filed
prior to the Closing by the Company with the Secretary of State of Nevada, in the form of
Exhibit A attached hereto.




“Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.


 


 









 






“Closing Date” means the Trading Day on which all of the Transaction Documents
have been executed and delivered by the applicable parties thereto, and all conditions
precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities, in each case, have been satisfied or
waived.




“Commission” means the United States Securities and Exchange Commission.




“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may hereafter be
reclassified or changed.




“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.




“Company Counsel” means Robinson & Cole LLP, with offices located at 1055
Washington Boulevard, 9th Floor, Stamford, CT 06901.




“Conversion Price” shall have the meaning ascribed to such term in the
Certificate of Designation.




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




“Effective Date” means the earliest of the date that (a) the initial
Registration Statement has been declared effective by the Commission, (b) all of the
Registrable Securities have been sold pursuant to Rule 144 or may be sold pursuant to Rule
144 without the requirement for the Company to be in compliance with the current public
information required under Rule 144 and without volume or manner-of-sale restrictions or (c)
following the second anniversary of the Closing Date provided that a holder of Registrable
Securities is not an Affiliate of the Company, all of the Registrable Securities may be sold
pursuant to an exemption from registration under Section 4(1) of the Securities Act without
volume or manner-of-sale restrictions and Company counsel has delivered to such holders a
standing written unqualified opinion that resales may then be made by such holders of the
Registrable Securities pursuant to such exemption which opinion shall be in form and
substance reasonably acceptable to such holders.




“Escrow Agent” means Signature Bank, a New York State chartered bank and having
an office at 261 Madison Avenue, New York, New York 10016.




“Escrow Agreement” means the escrow agreement entered into prior to the date
hereof, by and among the Company and the Escrow Agent pursuant to which the Purchasers,
shall deposit Subscription Amounts with the Escrow Agent to be applied to the transactions
contemplated hereunder.


 


2









 






“Evaluation Date” shall have the meaning ascribed to such term in Section
3.1(r).




“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.




“Exempt Issuance” means the issuance of (a) shares of Common Stock or options
to employees, officers or directors of the Company pursuant to any stock or option plan duly
adopted for such purpose, by a majority of the non-employee members of the Board of
Directors or a majority of the members of a committee of non-employee directors established
for such purpose, (b) securities upon the exercise or exchange of or conversion of any
Securities issued hereunder 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 price,
exchange price or conversion price of such securities, (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the disinterested directors
of the Company, provided that any such issuance shall only be to a Person (or to the
equityholders of a Person) which is, itself or through its subsidiaries, an operating
company or an owner of an asset in a business synergistic with the business of the Company
and shall provide to the Company additional 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, (d) with the prior written consent of the Placement Agent, up to an amount of
Preferred Stock and warrants equal to the difference between $6,000,000 and the aggregate
Subscription Amounts hereunder, on the same terms and conditions and prices as hereunder,
(e) up to $100,000 in any 12 month period, of securities issued or issuable in connection
with a bank loan, lease or other non-equity interim financing, and (f) up to 10,000 shares
of Preferred Stock to Summit Trading Limited.




“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).




“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).




“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).




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




“Liens” means a lien, charge, pledge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.




“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).


 


3









 






“Material Permits” shall have the meaning ascribed to such term in Section
3.1(m).




“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.




“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.




“Placement Agent” means the placement agent of the offering of Securities.




“Preferred Stock” means the up to 60,000 shares of the Company’s Series B 8%
Redeemable Convertible Preferred Stock issued by the Company to the Purchasers hereunder
having the rights, preferences and privileges set forth in the Certificate of Designation,
in the form of Exhibit A hereto.




“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.




“Public Information Failure” shall have the meaning ascribed to such term in
Section 4.3(b).




“Public Information Failure Payments” shall have the meaning ascribed to such
term in Section 4.3(b).




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




“Purchaser Questionnaire” means the Confidential Purchaser Questionnaire, dated
the date hereof, by each Purchaser, in the form of Exhibit E attached hereto.




“Registration Rights Agreement” means the Registration Rights Agreement, dated
the date hereof, among the Company and the Purchasers, in the form of Exhibit B
attached hereto.




“Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Purchaser as provided for in the Registration Rights Agreement.




“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).




“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 Underlying Shares issuable upon exercise in full
of all Warrants or conversion in full of all shares of Preferred Stock, ignoring any
conversion or exercise limits set forth therein, and assuming that the Conversion Price is
at all times on and after the date of determination 75% of the then Conversion Price on the
Trading Day immediately prior to the date of determination.


 


4









 






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




“Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended or interpreted from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.




“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).




“Securities” means the Preferred Stock, the Warrants, the Warrant Shares and
the Underlying Shares.




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




“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).




“Stated Value” means $100 per share of Preferred Stock.




“Subscription Amount” shall mean, as to each Purchaser, the aggregate amount to
be paid for the Preferred Stock and Warrants purchased hereunder as specified below such
Purchaser’s name on the signature page of this Agreement and next to the heading
“Subscription Amount,” in United States dollars and in immediately available funds.




“Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of
the Company formed or acquired after the date hereof.




“Trading Day” means a day on which the principal Trading Market is open for
trading.




“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE AMEX, the
Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New
York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).


 


5









 






“Transaction Documents” means this Agreement, the Certificate of Designation,
the Warrants, the Registration Rights Agreement, the Escrow Agreement, the Purchaser
Questionnares, all exhibits and schedules thereto and hereto and any other documents or
agreements executed in connection with the transactions contemplated hereunder.




“Transfer Agent” means Continental Stock Transfer & Trust Company, the current
transfer agent of the Company, with a mailing address of 17 Battery Place, 8th
Floor, New York, New York, 10004, and a facsimile number of (212) 509-5150, and any
successor transfer agent of the Company.




“Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion or redemption of the Preferred Stock, upon exercise of the Warrants and issued
and issuable in lieu of the cash payment of dividends on the Preferred Stock in accordance
with the terms of the Certificate of Designation.




“Variable Rate Transaction” shall have the meaning ascribed to such term in
Section 4.13(b).




“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 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 listed or 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 OTC Markets, Inc. (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
Purchasers of a majority in interest of the Securities then outstanding and reasonably
acceptable to the Company, the fees and expenses of which shall be paid by the Company.




“Warrants” means, collectively, the Common Stock purchase warrants delivered to
the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be exercisable immediately and have a term of exercise equal to 5 years, in the form of
Exhibit C attached hereto.




“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.




“WS” means Weinstein Smith LLP with offices located at 420 Lexington Avenue,
Suite 2620, New York, New York 10170-0002.


 


6









 





ARTICLE II.

PURCHASE AND SALE




2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set
forth herein, substantially concurrent with the execution and delivery of this Agreement by the
parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to
purchase, no less than $2,500,000 in Stated Value of Preferred Stock, up to an aggregate of
$6,000,000 of shares of Preferred Stock with an aggregate Stated Value for each Purchaser equal to
such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such
Purchaser, and Warrants as determined by pursuant to Section 2.2(a). The aggregate number of
shares of Preferred Stock sold hereunder shall be up to 60,000. Each Purchaser shall deliver to
the Company via wire transfer or a certified check of immediately available funds equal to its
Subscription Amount and the Company shall deliver to each Purchaser its respective shares of
Preferred Stock and Warrants as determined pursuant to Section 2.2(a), and the Company and each
Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall
occur at the offices of Company Counsel or such other location as the parties shall mutually agree
and the Placement Agent shall deliver to the Escrow Agent the Form of Escrow Release Notice (as
defined in the Escrow Agreement), duly executed.




2.2 Deliveries.




(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered
to each Purchaser the following:




(i) this Agreement duly executed by the Company;




(ii) a legal opinion of Company Counsel, substantially in the form of
Exhibit D attached hereto;




(iii) a certificate evidencing a number of shares of Preferred Stock equal to
such Purchaser’s Subscription Amount divided by the Stated Value, registered in the
name of such Purchaser and evidence of the filing and acceptance of the Certificate
of Designation from the Secretary of State of Nevada;




(iv) a Warrant registered in the name of such Purchaser to purchase up to one
hundred (100) shares of Common Stock for each Preferred Stock purchased, with an
exercise price equal to $0.29, subject to adjustment therein; and




(v) the Registration Rights Agreement duly executed by the Company.




(b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:




(i) this Agreement duly executed by such Purchaser;


 


7









 






(ii) such Purchaser’s Subscription Amount by wire transfer to the Escrow Agent;




(iii) the Registration Rights Agreement duly executed by such Purchaser; and




(iv) a Purchaser Questionnaire duly executed by such Purchaser.




2.3 Closing Conditions.




(a) The obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:




(i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Purchasers contained herein (unless such
representations or warranties are made as of a specific date, in which case as of
the specific date therein);




(ii) all obligations, covenants and agreements of each Purchaser required to be
performed at or prior to the Closing Date shall have been performed;




(iii) the minimum aggregate Subscription Amount hereunder shall be $2,500,000;
and




(iv) the delivery by each Purchaser of the items set forth in Section 2.2(b) of
this Agreement.




(b) The respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:




(i) the accuracy in all material respects when made and on the Closing Date of
the representations and warranties of the Company contained herein (unless such
representations or warranties are made as of a specific date, in which case as of
the specific date therein);




(ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;




(iii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;




(iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof;




(v) the minimum aggregate Subscription Amount hereunder shall be $2,500,000;
and


 


8









 






(vi) from the date hereof to the Closing Date, trading in the Common Stock
shall not have been suspended by the Commission or the Company’s principal Trading
Market (except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing) and, at any time
prior to the Closing Date, trading in securities generally as reported by Bloomberg
L.P. shall not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of each Purchaser,
makes it impracticable or inadvisable to purchase the Securities at the Closing.



ARTICLE III.

REPRESENTATIONS AND WARRANTIES




3.1 Representations and Warranties of the Company. Except as set forth in the
Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify
any representation or otherwise made herein to the extent of the disclosure contained in the
corresponding section of the Disclosure Schedules, the Company hereby makes the following
representations and warranties to each Purchaser:




(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company
are set forth on Schedule 3.1(a). 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. If the Company has no subsidiaries, all other
references to the Subsidiaries or any of them in the Transaction Documents shall be
disregarded.




(b) 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, 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:
(i) a material adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material adverse
effect on the results of operations, assets, business, prospects or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a
material adverse effect on the Company’s ability to perform in any material respect on a
timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), 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.


 


9









 






(c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by this
Agreement and each of the other Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of this Agreement and each
of the other 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, the
Board of Directors or the Company’s stockholders in connection herewith or therewith other
than in connection with the Required Approvals. This Agreement and each other Transaction
Document to which it is a party 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.




(d) No Conflicts. Except as set forth on Schedule 3.1(d), the
execution, delivery and performance by the Company of the Transaction Documents, the
issuance and sale of the Securities and the consummation by it of the transactions
contemplated hereby and thereby to which it is a party 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, (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 a 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.


 


10









 






(e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other governmental authority
or other Person in connection with the execution, delivery and performance by the Company of
the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6 of
this Agreement, (ii) the filing with the Commission pursuant to the Registration Rights
Agreement, (iii) the consents, waivers and authorizations set forth on Schedule
3.1(e), (iv) the notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities and the listing of the Underlying Shares for trading
thereon in the time and manner required thereby and (v) the filing of Form D with the
Commission and such filings as are required to be made under applicable state securities
laws (collectively, the “Required Approvals”).




(f) Issuance of the Securities. The 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
Underlying 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 a number of shares of Common
Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the
date hereof.




(g) Capitalization. The capitalization of the Company is as set forth on
Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of
 shares of Common Stock owned beneficially, and of record, 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 pursuant to 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 and/or exercise of Common Stock Equivalents outstanding as of the date of the
most recently filed periodic report under the Exchange Act. Except as set forth on
Schedule 3.1(g), 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 a result of the purchase and sale of the Securities or
as set forth on Schedule 3.1(g), 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. Except as set forth on Schedule 3.1(g), the issuance


 


11









 






and
sale of the Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) 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 duly authorized, 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. Except as set forth on Schedule 3.1(g), no further approval or
authorization of any stockholder, the Board of Directors or others is required for the
issuance and sale of the Securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any of the
Company’s stockholders.




(h) 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 Company has never been an issuer subject to Rule 144(i)
under the Securities Act. 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 Commission 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.




(i) 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, or as
set forth on Schedule 3.1(i): (i) there has been no event, occurrence or development
that has had or that would 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 Commission,
(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 stockholders
or purchased, redeemed or made any


 


12









 






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 or pursuant to
a vote of the independent members of the Board of Directors. The Company does not have
pending before the Commission any request for confidential treatment of information. Except
for the issuance of the Securities contemplated by this Agreement or as set forth on
Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development
has occurred or exists or is reasonably expected to occur or exist with respect to the
Company or its Subsidiaries or their respective business, properties, operations, assets 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.




(j) Litigation. Except as set forth on Schedule 3.1(j), 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 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 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 Commission involving the Company or any current or
former director or officer of the Company. The Commission 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.




(k) 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, and, except as set forth on Schedule
3.1(k), the Company and its Subsidiaries believe that their relationships with their
employees are good. 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.


 


13









 







(l) 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 judgment, decree or order of any court, arbitrator or governmental body or (iii) is or
has been in violation of any statute, rule, ordinance 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 would not have or reasonably be expected to result in a Material Adverse Effect.




(m) 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.




(n) 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 as set forth on Schedule
3.1(n) and except for Liens as 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
material compliance.


 


14









 






(o) 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 as described in the SEC Reports as necessary or
material for use in connection with their respective businesses 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.




(p) 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.




(q) 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 $120,000 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.




 


15









 




(r) 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 Commission’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.




(s) Certain Fees. Other than the fees of the Placement Agent as set forth in
Schedule 3.1(s) attached hereto, 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 Purchasers 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.




(t) Private Placement. Assuming the accuracy of the Purchasers’ representations
and warranties set forth in Section 3.2, no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder does not contravene
the rules and regulations of the Trading Market.




(u) 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 an
“investment company” subject to registration under the Investment Company Act of 1940, as
amended.




(v) Registration Rights. Except as set forth on Schedule 3.1(v), other
than each of the Purchasers, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company or any Subsidiary.


 


16









 






(w) Listing and Maintenance Requirements. The 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 Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date hereof, received
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. Except as set forth on Schedule 3.1(w), 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.




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




(y) 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 any of the Purchasers or
their agents or counsel with any information that it believes constitutes or might
constitute material, non-public information. The Company understands and confirms that the
Purchasers will rely on the foregoing representation in effecting transactions in securities
of the Company. All of the disclosure furnished by or on behalf of the Company to the
Purchasers regarding the Company, its business and the transactions contemplated hereby,
including 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 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 no Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in Section 3.2
hereof.




(z) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, 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 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. 


 


17









 






(aa) Solvency. 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. Schedule 3.1(aa) sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness” means (x) any liabilities for borrowed money or amounts owed in
excess of $50,000 (other than trade accounts payable incurred in the ordinary course of
business), (y) all guaranties, endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same are or should be reflected in the Company’s
consolidated balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the ordinary
course of business; and (z) the present value of any lease payments in excess of $50,000 due
under leases required to be capitalized in accordance with GAAP. Except as set forth on
Schedule 3.1(aa), neither the Company nor any Subsidiary is in default with respect
to any Indebtedness.




(bb) 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.




(cc) No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the Securities for sale only
to the Purchasers and certain other “accredited investors” within the meaning of Rule 501
under the Securities Act.




(dd) 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.


 


18









 






(ee) Accountants. The Company’s accounting firm is set forth on Schedule
3.1(ee) of the Disclosure Schedules. Such accounting firm: (i) is a registered public
accounting firm as required by the Exchange Act and (ii) and has expressed its opinion with
respect to the financial statements included in the Company’s Annual Report for the year
ending December 27, 2009.




(ff) Seniority. As of the Closing Date, the Preferred Shares, on an equal
basis with the shares of the Company’s Series A 8% Redeemable Convertible Preferred Stock
(the “Series A Preferred Shares”), will be constitute the senior equity securities
of the Company. The Company will not issue any equity securities senior to the Preferred
Shares and the Series A Preferred Shares with the consent of a majority of the holders
thereof, voting together as a single class.




(gg) 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
and the Company is current with respect to any fees owed to its accountants and lawyers
which could affect the Company’s ability to perform any of its obligations under any of the
Transaction Documents.




(hh) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers 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 no Purchaser 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
any Purchaser or any of their respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities. The Company further represents to each Purchaser
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.




(ii) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f)
and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the
Purchasers have been asked by the Company to agree, nor has any Purchaser agreed, to desist
from purchasing or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities for any
specified term, (ii) past or future open market or other transactions by any Purchaser,
specifically including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and
counter-parties in “derivative” transactions to which any such Purchaser is a party,
directly or indirectly, may presently have
 a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with
or control over any arm’s length counter-party in any “derivative” transaction. The Company
further understands and acknowledges that (y) one or more Purchasers may engage in hedging
activities at various times during the period that the Securities are outstanding,
including, without limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined, and (z) such hedging activities
(if any) could reduce the value of the existing stockholders’ equity interests in the
Company at and after the time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute a breach of any
of the Transaction Documents.





 


19









 








(jj) Regulation M Compliance. Except as set forth on Schedule 3.1(jj),
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 Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the 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 Securities.




(kk) Stock Option Plans. Except as set forth on Schedule 3.1(kk), each
stock option granted by the Company under the Company’s stock option plans was granted (i)
in accordance with the terms of the applicable plan and (ii) with an exercise price at least
equal to the fair market value of the Common Stock on the date such stock option would be
considered granted under GAAP and applicable law. No stock option granted under the
Company’s stock option plan has been backdated. The Company has not knowingly granted, and
there is no and has been no Company policy or practice to knowingly grant, stock options
prior to, or otherwise knowingly coordinate the grant of stock options with, the release or
other public announcement of material information regarding the Company or its Subsidiaries
or their financial results or prospects. 



3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and
for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing
Date to the Company as follows (unless as of a specific date therein):




(a) Organization; Authority. Such Purchaser is either an individual or an
entity duly incorporated or formed, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or formation with full right, corporate, partnership,
limited liability company or similar power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of the Transaction
Documents and performance by such Purchaser of the transactions contemplated by the
Transaction Documents have been duly authorized by all necessary corporate, partnership,
limited liability company or similar action, as applicable, on the part of such Purchaser.
Each Transaction Document to which it is a party has been duly executed by
such Purchaser, and when
 delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such Purchaser,
enforceable against it 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.





 


20









 








(b) Own Account. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for its own
account and not with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of the Securities Act
or any applicable state securities law and has no direct or indirect arrangement or
understandings with any other persons to distribute or regarding the distribution of such
Securities in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting such Purchaser’s right to sell the Securities
pursuant to the Registration Statement or otherwise in compliance with applicable federal
and state securities laws). Such Purchaser is acquiring the Securities hereunder in the
ordinary course of its business.




(c) Purchaser Status. At the time such Purchaser was offered the Securities,
it was, and as of the date hereof it is, and on each date on which it exercises any Warrants
or converts any shares of Preferred Stock, it will be either: (i) an “accredited investor”
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or
(ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.
Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the
Exchange Act.




(d) Experience of Such Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the Securities and, at
the present time, is able to afford a complete loss of such investment.




(e) General Solicitation. Such Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast over television or radio
or presented at any seminar or any other general solicitation or general advertisement.


 


21









 






(f) Certain Transactions and Confidentiality. Other than consummating the
transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor
has any Person acting on behalf of or pursuant to any understanding with such
Purchaser, executed any purchases or sales, including Short Sales, of the securities of the
Company during the period commencing as of the time that such Purchaser first received a
term sheet (written or oral) from the Company or any other Person representing the Company
setting forth the material terms of the transactions contemplated hereunder and ending
immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers managing other
portions of such Purchaser’s assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement. Other than to
other Persons party to this Agreement, such Purchaser has maintained the confidentiality of
all disclosures made to it in connection with this transaction (including the existence and
terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing
contained herein shall constitute a representation or warranty, or preclude any actions,
with respect to the identification of the availability of, or securing of, available shares
to borrow in order to effect Short Sales or similar transactions in the future.




(g) Disclosure of Information; Due Diligence. Such Purchaser has had an
opportunity to ask questions of and receive answers from the Company’s management regarding
the Company and the terms and conditions of the offering of the Securities hereunder and to
obtain additional information necessary to verify the accuracy of the information supplied
or to which the Purchaser had access.




(h) Restricted Securities. Such Purchaser understands that the Securities to
be acquired hereunder are characterized as “restricted securities” under the federal
securities laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act only in certain
limited circumstances and in accordance with the terms and conditions set forth in the
legend described below. In this connection, such Purchaser represents that the Purchaser is
familiar with Rule 144, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.




(i) Brokers. Other than the Placement Agent, the Purchaser has no contract,
arrangement or understanding with any broker, finder or similar agent with respect to the
transactions contemplated by the Transaction Documents.




(j) State of Residence. Such Purchaser was offered the Securities in the
jurisdiction listed in the Purchaser’s permanent address set forth under “Address of Notice
for Purchaser” on the signature page hereto and intends that the securities law of that
jurisdiction govern the Purchaser’s subscription.


 


22









 





The Company acknowledges and agrees that the representations contained in Section 3.2 shall
not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and
warranties contained in this Agreement or any representations and warranties contained in any other
Transaction Document or any other document or instrument executed and/or delivered in connection
with this Agreement or the consummation of the transaction contemplated hereby.



ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES





4.1 Transfer Restrictions.




(a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than pursuant to an
effective registration statement or Rule 144, to the Company or to an Affiliate of a
Purchaser or in connection with a pledge as contemplated in Section 4.1(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 Securities under the Securities Act. As a
condition of transfer, any such transferee shall agree in writing to be bound by the terms
of this Agreement and the Registration Rights Agreement and shall have the rights and
obligations of a Purchaser under this Agreement and the Registration Rights Agreement.




(b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in substantially 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 WITH A REGISTERED BROKER-DEALER OR OTHER LOAN
WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.


 


23









 






The Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by
the provisions of this Agreement and the Registration Rights Agreement and, if required
under the terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the appropriate Purchaser’s sole expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders (as defined in the Registration Rights
Agreement) thereunder.




(c) Certificates evidencing the Underlying Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof): (i) while a registration
statement (including the Registration Statement) covering the resale of such security is
effective under the Securities Act, (ii) following any sale of such Underlying Shares
pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144,
without the requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such Underlying Shares and without volume or
manner-of-sale restrictions 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 Commission). The Company shall cause its counsel to issue a legal
opinion to the 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 Preferred
Stock is converted or Warrant is exercised at a time when there is an effective registration
statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be
sold under Rule 144 and the Company is then in compliance with the current public
information required under Rule 144, or if such Underlying Shares may be sold under Rule 144
without the requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such Underlying Shares and without volume or
manner-of-sale restrictions 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 Commission) then such Underlying Shares shall be issued free of
all legends. The Company agrees that following the Effective Date or at such time as such
legend is no longer required under this Section 4.1(c), it will, no later than three Trading
Days following the delivery by a Purchaser to the Company or the Transfer Agent of a
certificate representing Underlying Shares, as applicable, issued with a restrictive legend
(such third Trading Day, the “Legend Removal Date”), deliver or cause to be
delivered to such Purchaser 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 4. Certificates for Underlying Shares subject to legend
removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting
the account of the Purchaser’s prime broker with the Depository Trust Company System as
directed by such Purchaser.


 


24









 






(d) In addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of
Underlying Shares (based on the closing bid price of the Common Stock on the date such
Securities are submitted to the Transfer Agent) delivered for removal of the restrictive
legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day
five (5) Trading Days after such damages have begun to accrue) for each Trading Day after
the second (2nd) Trading Day after the Legend Removal Date until such certificate
is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue
actual damages for the Company’s failure to deliver certificates representing any Securities
as required by the Transaction Documents, and such Purchaser shall have the right to pursue
all remedies available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.




(e) Each Purchaser, severally and not jointly with the other Purchasers, agrees with
the Company that such Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold pursuant to a
Registration Statement, they will be sold in compliance with the plan of distribution set
forth therein, and acknowledges that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the Company’s
reliance upon this understanding.



4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges that its obligations
under the Transaction Documents, including, without limitation, its obligation to issue the
Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any
such dilution or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other stockholders of the
Company.


 


25









 






4.3 Furnishing of Information; Public Information.




(a) Until the earliest of the time that (i) no Purchaser owns Securities or (ii) the
Warrants have expired, the Company covenants to maintain the registration of the Common
Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the Exchange Act
even if the Company is not then subject to the reporting requirements of the Exchange Act.
As long as any Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities, including without limitation, under Rule 144. The Company
further covenants that it will take such further action as any holder of Securities may
reasonably request, to the extent required from time to time to enable such Person to sell
such Securities without registration under the Securities Act, including without limitation,
within the requirements of the exemption provided by Rule 144.




(b) At any time during the period commencing from the six (6) month anniversary of the
date hereof and ending at such time that all of the Securities may be sold without the
requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without
restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to
satisfy the current public information requirement under Rule 144(c) (a “Public
Information Failure”) then, in addition to such Purchaser’s other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a
penalty, by reason of any such delay in or reduction of its ability to sell the Securities,
an amount in cash equal to one percent (1.0%) of the aggregate Subscription Amount of such
Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth
(30th) day (pro rated for periods totaling less than thirty days) thereafter
until the earlier of (a) the date such Public Information Failure is cured and (b) such time
that such public information is no longer required for the Purchasers to transfer the
Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled
pursuant to this Section 4.3(b) are referred to herein as “Public Information Failure
Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the
last day of the calendar month during which such Public Information Failure Payments are
incurred and (ii) the third (3rd) Business Day after the event or failure giving
rise to the Public Information Failure Payments is cured. In the event the Company fails to
make Public Information Failure Payments in a timely manner, such Public Information Failure
Payments shall bear interest at the rate of 1.0% per month (prorated for partial months)
until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual
damages for the Public Information Failure, and such Purchaser shall have the right to
pursue all remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.



4.4 Integration. The Company shall not sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Securities in a manner that would require
the registration under the Securities Act of the sale of the Securities or that would be integrated
with the offer or sale of the Securities for purposes of the rules and regulations of any Trading
Market such that it would require shareholder approval prior to the closing of such other
transaction unless shareholder approval is obtained before the closing of such subsequent
transaction.


 


26









 





4.5 Conversion and Exercise Procedures. Each of the form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the Certificate of
Designation set forth the totality of the procedures required of the Purchasers in order to
exercise the Warrants or convert the Preferred Stock. No additional legal opinion, other
information or instructions shall be required of the Purchasers to exercise their Warrants or
convert their Preferred Stock. The Company shall honor exercises of the Warrants and conversions
of the Preferred Stock and shall deliver Underlying Shares in accordance with the terms, conditions
and time periods set forth in the Transaction Documents.



4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New York
City time) on the third Trading Day immediately following the date hereof, issue a Current Report
on Form 8-K and press release disclosing the material terms of the transactions contemplated
hereby, and including the Transaction Documents (except the Purchaser Questionnaire) as exhibits
thereto. From and after the issuance of such press release, the Company represents to the
Purchaser that it shall have publicly disclosed all material, non-public information delivered to
any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective
officers, directors, employees or agents in connection with the transactions contemplated by the
Transaction Documents. The Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any regulatory agency or
Trading Market, without the prior written consent of such Purchaser, except: (a) as required by
federal securities law in connection with (i) any registration statement contemplated by the
Registration Rights Agreement and (ii) the filing of final Transaction Documents (including
signature pages thereto) with the Commission and (b) to the extent such disclosure is required by
law or Trading Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure permitted under this clause (b).



4.7 Shareholder Rights Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person”
under any control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such
plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers.



4.8 Non-Public Information. Except with respect to the material terms and conditions
of the transactions contemplated by the Transaction Documents, the Company covenants and agrees
that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written agreement with the
Company regarding the confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions
in securities of the Company.



4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the
Company shall use the net proceeds from the sale of the Securities hereunder for working capital
purposes and shall not use such proceeds for: (a) the satisfaction of any portion of the Company’s
debt (other than payment of trade payables in the ordinary course of the Company’s
business and prior practices), (b) the redemption of any Common Stock or Common Stock
Equivalents, or (c) for the settlement of any outstanding litigation.


 


27









 





4.10 Indemnification of Purchasers. Subject to the provisions of this Section 4.10,
the Company will indemnify and hold each Purchaser and its directors, officers, shareholders,
members, partners, employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any other title), each
Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members,
partners or employees (and any other Persons with a functionally equivalent role of a Person
holding such titles notwithstanding a lack of such title or any other title) of such controlling
persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any
capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by
the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s
representations, warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser Party may have with any such stockholder or any violations by such
Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which
constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be
brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall
have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable
to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of such counsel shall
be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of counsel, a material conflict on any material issue between
the position of the Company and the position of such Purchaser Party, in which case the Company
shall be responsible for the reasonable fees and expenses of no more than one such separate
counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any
settlement by a Purchaser Party effected without the Company’s prior written consent, which shall
not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement
or in the other Transaction Documents.


 


28









 






4.11 Reservation and Listing of Securities.




(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 then be
required to fulfill its obligations in full under the Transaction Documents.




(b) If, on any date, the number of authorized but unissued (and otherwise unreserved)
 shares of Common Stock is less than the Required Minimum on such date, then the Board of
Directors shall use commercially reasonable efforts to amend the Company’s certificate or
articles of incorporation to increase the number of authorized but unissued shares of Common
Stock to at least the Required Minimum at such time, as soon as possible and in any event
not later than the 75th day after such date.




(c) 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 or quotation on such Trading Market
as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing and
(iv) maintain the listing or quotation 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.




4.12 [RESERVED].




4.13 Subsequent Equity Sales.




(a) From the date hereof until sixty (60) days after the Effective Date, neither the
Company nor any Subsidiary shall issue, enter into any agreement to issue or announce the
issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents.




(b) From the date hereof and for so long as at least twenty-five percent (25%) of the
 shares of Preferred Stock originally issued pursuant to this Agreement are outstanding, the
Company shall be prohibited from effecting or entering into an agreement to effect any
issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock
Equivalents for cash consideration (or a combination of units thereof) involving a Variable
Rate Transaction. “Variable Rate Transaction” means a transaction in which the
Company (i) issues or sells any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive, additional shares of
Common Stock either (A) at a conversion price, exercise price or exchange rate or other
price that is based upon, and/or varies with, the trading prices of or quotations for the
 shares of Common Stock at any time after the initial issuance of such debt or equity
securities or (B) with a conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of credit, whereby
the Company may sell securities at a future determined price. Any Purchaser shall be
entitled to obtain injunctive relief against the Company to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.


 


29









 






(c) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an
Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.



4.14 Equal Treatment of Purchasers. No consideration (including any modification of
any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class
and shall not in any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.



4.15 Certain Transactions and Confidentiality. Each Purchaser, severally and not
jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its
behalf or pursuant to any understanding with it will execute any purchases or sales, including
Short Sales, of any of the Company’s securities during the period commencing with the execution of
this Agreement and ending at such time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as
the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to
the initial press release as described in Section 4.6, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the information included in the
Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, and
notwithstanding anything contained in this Agreement to the contrary, the Company expressly
acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby
that it will not engage in effecting transactions in any securities of the Company after the time
that the transactions contemplated by this Agreement are first publicly announced pursuant to the
initial press release as described in Section 4.6, (ii) no Purchaser shall be restricted or
prohibited from effecting any transactions in any securities of the Company in accordance with
applicable securities laws from and after the time that the transactions contemplated by this
Agreement are first publicly announced pursuant to the initial press release as described in
Section 4.6 and (iii) no Purchaser shall have any duty of confidentiality to the Company or its
Subsidiaries after the issuance of the initial press release as described in Section 4.6.
Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and
the portfolio managers have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s assets, the covenant set forth above shall
only apply with respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.


 


30









 





4.16 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy thereof, promptly
upon request of any Purchaser. The Company shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale
to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of
the United States, and shall provide evidence of such actions promptly upon request of any
Purchaser.



ARTICLE V.

MISCELLANEOUS




5.1 Termination. This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between
the Company and the other Purchasers, by written notice to the other parties, if the Closing has
not been consummated on or before August 1, 2010; provided, however, that such
termination will not affect the right of any party to sue for any breach by any other party (or
parties).



5.2 Fees and Expenses. The Company previously paid to the Placement Agent (i) $10,000
for legal fees and expenses incurred by the Placement Agent, and (ii) $7,500 for due diligence
fees. At the Closing, the Company has agreed to reimburse the Placement Agent an additional
non-accountable sum of $20,000 for legal fees and expenses. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in
connection with the delivery of any Securities to the Purchasers.



5.3 Entire Agreement. The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged into such documents,
exhibits and schedules.



5.4 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
facsimile at the facsimile number set forth on the signature pages attached hereto at or 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 (2nd) 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 hereto.


 


31









 





5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an amendment, by the
Company and the Purchasers holding at least 67% in interest of the Securities then outstanding or,
in the case of a waiver, by the party against whom enforcement of any such waived provision is
sought. No waiver of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the exercise of any such
right.



5.6 Headings. The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.



5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of each
Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this
Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that
such transferee agrees in writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to the “Purchasers.”



5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.10.



5.9 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, 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, partners, members, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan 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. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or proceeding by mailing a
copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any
right to serve process in any other manner permitted by law. If either party shall commence
an action, suit or proceeding to enforce any provisions of the Transaction Documents, then, in
addition to the obligations of the Company under Section 4.10, the prevailing party in such action,
suit 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.


 


32









 





5.10 Survival. The representations, warranties, covenants and agreements made herein
shall survive the Closing and the delivery of the Securities for the applicable statute of
limitations or, until, by their respective terms, they are no longer operative.



5.11 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other party, it being
understood both parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature
page were an original thereof.



5.12 Severability. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the intention of the parties
that they would have executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or unenforceable.



5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights; provided, however, that in the
case of a rescission of a conversion of the Preferred Stock or exercise of a Warrant, the
applicable Purchaser shall be required to return any shares of Common Stock subject to any such
rescinded conversion or exercise notice concurrently with the return to such Purchaser of the
aggregate exercise price paid to the Company for such shares and the restoration of such
Purchaser’s right to acquire such shares pursuant to such Purchaser’s Warrant (including, issuance
of a replacement warrant certificate evidencing such restored right).


 


33









 





5.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued
in
exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in
lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance of such replacement
Securities.



5.15 Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Purchasers and the Company will be
entitled to specific performance under the Transaction Documents. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and not to assert in
any action for specific performance of any such obligation the defense that a remedy at law would
be adequate.



5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to
any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any
part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent
of any such restoration the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.



5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not to
insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be
compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time
hereafter in force, in connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding
any provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the maximum lawful rate authorized under applicable law
(the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective
date thereof forward, unless such application is precluded by applicable law. If under any
circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid
principal balance of any such indebtedness or be refunded to the Company, the manner of
handling such excess to be at such Purchaser’s election.


 


34









 





5.18 Independent Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the performance or
non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing
contained herein or in any other Transaction Document, and no action taken by any Purchaser
pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitation, the rights arising out
of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such purpose. Each
Purchaser has been represented by its own separate legal counsel in its review and negotiation of
the Transaction Documents. For reasons of administrative convenience only, each Purchaser and its
respective counsel have chosen to communicate with the Company through WS. WS does not represent
any of the Purchasers and only represents the Placement Agent. The Company has elected to provide
all Purchasers with the same terms and Transaction Documents for the convenience of the Company and
not because it was required or requested to do so by any of the Purchasers.



5.19 Liquidated Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing obligation of the
Company and shall not terminate until all unpaid partial liquidated damages and other amounts have
been paid notwithstanding the fact that the instrument or security pursuant to which such partial
liquidated damages or other amounts are due and payable shall have been canceled.



5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not be a Business Day,
then such action may be taken or such right may be exercised on the next succeeding Business Day.



5.21 Construction. The parties agree that each of them and/or their respective counsel
have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal
rule of construction to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of the Transaction Documents or any amendments
thereto. In addition, each and every reference to share prices and shares of Common Stock in any
Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.



5.22 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION
BROUGHT BY ANY PARTY AGAINST ANY OTHER
PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL
BY JURY.



(Signature Pages Follow)



 


35









 







IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be
duly executed by their respective authorized signatories as of the date first indicated above.



	 	 	 	 	 	 	 	 	 
	UFOOD RESTAURANT GROUP, INC.	 	 	 	Address for Notice:	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ George Naddaff
 

Name: George Naddaff
	 	 	 	Fax:
	 	 
	 

	 	Title: Chief Executive Officer	 	 	 	 	 	 






With a copy to (which shall not constitute notice):




Robinson & Cole, LLP

1055 Washington Blvd.

Stamford, CT 60901

Attn: Richard A. Krantz




[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]



 


36









 







[PURCHASER SIGNATURE PAGES TO UFFC SECURITIES PURCHASE AGREEMENT]




IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first indicated above.



	 	 	 
	Name of Purchaser:

	 	 
	 

	 	 






	 	 	 
	Signature of Authorized Signatory of Purchaser: 
	 	 
	 

	 	 






	 	 	 
	Name of Authorized Signatory:
	 	 
	 

	 	 






	 	 	 
	Title of Authorized Signatory:
	 	 
	 

	 	 






	 	 	 
	Email Address of Authorized Signatory:
	 	 
	 

	 	 






	 	 	 
	Facsimile Number of Authorized Signatory:
	 	 
	 

	 	 






Address for Notice to Purchaser:



Address for Delivery of Securities to Purchaser (if not same as address for notice):



	 	 	 
	Subscription Amount:
	 	 
	 

	 	 






	 	 	 
	Shares of Preferred Stock:
	 	 
	 

	 	 






	 	 	 
	Warrant Shares:
	 	 
	 

	 	 






EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]




[SIGNATURE PAGES CONTINUE]





 


37











 




DISCLOSURE SCHEDULES




Reference is hereby made to that certain Securities Purchase Agreement (the “Securities
Purchase Agreement”) dated as of October 1, 2010 by and among UFood Restaurant Group, Inc., a
Nevada corporation (the “Company”), and each of the purchasers identified on the signature
pages thereto (each, a “Purchaser” and collectively, the “Purchasers”). All
capitalized terms used herein without definition shall have the meanings ascribed to such terms in
the Securities Purchase Agreement.



These Disclosure Schedules are not intended to constitute, and shall not be construed as
constituting, representations or warranties of the parties, except as and to the extent provided in
the Securities Purchase Agreement. These Disclosure Schedules may include items or information
which the parties are not required to disclose under the Securities Purchase Agreement, and
disclosure of such items or information shall not affect (directly or indirectly) the
interpretation of the Securities Purchase Agreement or the scope of the disclosure obligations
thereunder. Such additional items are set forth for informational purposes only, and these
Disclosure Schedules do not necessarily include other items of a similar nature. The disclosures in
any schedule herein shall qualify and apply to other schedules herein so long as it is readily
apparent on its face (without the need for further inquiry) notwithstanding the omission of a
cross-reference thereto. No presumption shall be made as to materiality or whether a particular
category of matters are required to be disclosed herein by virtue of the fact that any similar
matters are disclosed.


 


38









 





SCHEDULE 3.1(a)




UFood Restaurant Group, Inc.



KnowFat Franchise Company, Inc.



KFLG Watertown. Inc.



KnowFat of Downtown Crossing, Inc.



KnowFat of Landmark Center, Inc.


 


39









 





SCHEDULE 3.1(d)




None.


 


40









 





SCHEDULE 3.1(e)




None.


 


41









 





SCHEDULE 3.1(g)




Total shares issued and outstanding 40,347,293 shares of common stock.




Security Ownership of Certain Beneficial Owners and Management.




The following tables set forth certain information regarding the beneficial ownership of our
common stock as of September 26, 2010, by (i) each person who, to our knowledge, owns more than 5%
of the Common Stock; (ii) each of our directors and executive officers; and (iii) all of our
executive officers and directors as a group. Unless otherwise indicated in the footnotes to the
following tables, each person named in the table has sole voting and investment power and that
person’s address is c/o UFood Restaurant Group, Inc., 255 Washington Street, Suite 150, Newton,
Massachusetts 02458. Shares of Common Stock subject to options or warrants currently exercisable or
exercisable within 60 days of April 7, 2010 are deemed outstanding for computing the share ownership
and percentage of the person holding such options and warrants, but are not deemed outstanding for
computing the percentage of any other person.








	 	 	 	 	 	 	 	 	 
	 	 	Amount and	 	 	 	 
	 	 	Nature of	 	 	Percent	 
	 	 	Beneficial	 	 	of	 
	Name and Address of Beneficial Owner	 	Ownership	 	 	Class+	 
	 
	 	 	 	 	 	 	 	 
	George Naddaff
	 	 	6,895,219	 	 	 	14.6	%
	Charles A. Cocotas
	 	 	1,875,493	 	 	 	4.44	%
	Robert C. Grayson
	 	 	365,526	 	 	 	*	 
	Mark Giresi
	 	 	264,043	 	 	 	*	 
	Keith Mueller
	 	 	3,261,438	 	 	 	7.5	%
	Richard Golden
	 	 	2,642,484	 	 	 	6.2	%
	 
	 	 	 	 	 	 	 
	Directors and Executive Officers as a group
	 	 	15,305,203	 	 	 	27.5	%
	 
	 	 	 	 	 	 	 	 
	Alan Antokal
	 	 	2,273,029	 	 	 	5.3	%
	 
	 	 	 	 	 	 	 	 
	Spencer Trask Ventures, Inc.

535 Madison Avenue

New York, NY 10022
	 	 	2,102,650	 	 	 	4.3	%








	 	 	 
	*	 	Less than one percent.

	 
	+	 	Based on 40,347,293 shares of common stock issued and outstanding as of September 26, 2010.





The holders of the Company’s 8% Senior Secured Debentures (the “Debentures”) have the right
to participate in the Offering.


 


42









 





The Company has outstanding the following warrants and options to purchase shares of its common
stock:



	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Conversion	 	 	 	 
	 	 	 	 	 	 	Exercise Price	 	 	Expiration	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Warrants
	 	 	5,120,088	 	 	$	0.59	 	 	Dec-12
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Warrants
	 	 	431,500	 	 	$	0.59	 	 	Jan-13
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Warrants
	 	 	963,500	 	 	$	0.59	 	 	Feb-13
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Warrants
	 	 	995,500	 	 	$	0.59	 	 	Mar-13
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Warrants
	 	 	2,916,666	 	 	$	1.25	 	 	Apr-13
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Warrants
	 	 	2,988,200	 	 	$	0.49	 	 	Dec-14
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Consultant Stock Option
	 	 	600,000	 	 	$	0.19	 	 	Apr-15
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Warrants
	 	 	281,483	 	 	$	1.00	 	 	Nov-15
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Senior Debenture Warrants
	 	 	17,850,000	 	 	$	0.14	 	 	Mar-16
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Senior Debenture Warrants
	 	 	13,394,615	 	 	$	0.14	 	 	Apr-16
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Warrants
	 	 	184,533	 	 	$	1.00	 	 	May-16
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Warrants
	 	 	141,210	 	 	$	1.00	 	 	Dec-16
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Employee Stock Options (ISO)
	 	 	3,919,990	 	 	$	0.20	 	 	Various
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Employee Stock Options (ISO)
	 	 	2,070,000	 	 	$	0.16	 	 	Various
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Employee Stock Options (NQ)
	 	 	32,757	 	 	$	0.01	 	 	Various
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Employee Stock Options (NQ)
	 	 	175,000	 	 	$	0.01	 	 	Various
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Employee Stock Options (NQ)
	 	 	7,683,673	 	 	$	0.01	 	 	Various
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	59,748,715	 	 	 	 	 	 	 	 	 






The holders of the Debentures have the right to convert the Debentures into 44,615,384 shares of
the Company’s common stock.



The Company is currently offering (the “Exchange Offering”) the holders of its Debentures
the option to exchange the Debentures for 8% Series A Redeemable Convertible Preferred Stock
(“Series A Preferred Shares”). The Exchange Offering expires on October 29, 2010. The
principal amount of the Debentures is currently $5,800,000, and the maximum number of Series A
Preferred Shares that would be issued if all of the holders of the Debentures converted is 58,000.
Each Series A Preferred Share is convertible into approximately 769 shares of common stock, which
is the same conversion ratio provided by the Debentures. As an inducement for the holders of the
Debentures to exchange the Debentures for Series A Preferred Shares, the Company has offered to
reduce the per share exercise price of the warrants issued with the Debentures to $.09 from $.14.
This may result in the reduction of the conversion price of the Debentures and the exercise price
of the warrants for those Debenture holders who do not elect to exchange their Debentures for
Series A Preferred Shares.


 


43









 





The issuance of the Preferred Shares in the Offering could result in the adjustment to the price at
which the Debentures that are not exchanged for Series A Preferred Shares subsequently may be
converted to common stock. This would occur if the price at which the Preferred Shares may be
converted to shares of common stock is less than $.14. If the conversion price of the Preferred
Shares is less than $.14, the conversion price of the Debentures not being exchanged would be
reduced to that price from $.14. If the conversion price of the Preferred Shares is less than $.13,
the exercise price of all warrants issued with the Debentures and to the Placement Agent would be
reduced to that price. In addition, the issuance of the Warrants in the Offering may also reduce
the conversion price of the Debentures which are not exchanged and the exercise price of the
outstanding warrants issued with the Debentures.



The exercise price of the warrants issued to the placement agent and investors that participated in
a the Company’s 2008 private placement may also be subject to a proportional adjustment as a result
of the issuance of the Preferred Shares in the Offering, the issuance of warrants in the Offering,
the reduction in the exercise price of the warrants issued to the holders of the Debentures who
elect to exchange their Debentures for Series A Preferred Shares and/or the issuance of Series A
Preferred Shares in connection with the Offering.



The Company anticipates retaining a consultant to provide investor relations consulting services to
the Company in exchange for 10,000 Preferred Shares. The shares of Common Stock underlying the
Preferred Shares issued to the consultant will be included in the registration statement filed in
connection with the transactions contemplated by the Transaction Documents.


 


44









 





SCHEDULE 3.1(i)




The Company needs to raise additional capital in order to fund its current operating plan. The
risk factors entitled “If we raise the Minimum Offering, we will be required to raise additional
funds” and “Even if we raise the Maximum Amount in this Offering, we expect that we will need to
raise additional capital to meet our business requirements in the future, and such capital raising
may be costly or difficult to obtain and could dilute current stockholders’ ownership interests”
from the Private Placement Memorandum which was distributed to the Purchasers herewith is hereby
incorporated by reference.


 


45









 





SCHEDULE 3.1(j)




None.


 


46









 





SCHEDULE 3.1(k)




Not applicable.


 


47









 





SCHEDULE 3.1(n)




Not applicable.



 


48









 







SCHEDULE 3.1(s)




The Placement Agent will receive a cash payment equal to 10% of the proceeds of the
Offering as compensation for its services as Placement Agent for this Offering. Payment will be
made to the Placement Agent from the escrow account simultaneously with each closing under the
Securities Purchase Agreement. The Placement Agent is also entitled to reimbursement for its legal
fees incurred in connection with offering up to $30,000, $10,000 of which has been paid by the
Company, and to reimbursement for due diligence fees in the amount of $7,500, all of which has been
paid by the Company.



The Placement Agent will also receive warrants to purchase shares of the Company’s common stock
equal to 15% of the number of shares of common stock into which the Preferred Shares issued to
investors may be converted. The exercise price of the Placement Agent’s warrants will be the same
as the exercise price payable by investors in this Offering. The warrants issued to the Placement
Agent will have a 5-year term and will be exercisable on a cashless basis.


 


49









 





SCHEDULE 3.1(v)




The Company is currently offering the holders of the Debentures the right to exchange the
Debentures for Series A Preferred Shares. The Debentures are convertible into shares of the
Company’s common stock, and those shares have previously been registered by the Company under the
Securities Act. The Series A Preferred Shares will also be convertible into shares of the Company’s
common stock on the same basis as the conversion of the Debentures into shares of common stock. The
Company has agreed to register the shares of common stock underlying the Series A Preferred Shares
for those Debenture holders who exchange their Debentures for Series A Preferred Shares. The
registration of these shares of common stock will not increase the total number of shares of common
stock that have been registered by the Company under the Securities Act.



The Company anticipates retaining a consultant to provide investor relations consulting services to
the Company in exchange for 10,000 Preferred Shares. The shares of Common Stock underlying the
Preferred Shares issued to the consultant will be included in the registration statement filed in
connection with the transactions contemplated by the Transaction Documents.


 


50









 





SCHEDULE 3.1(w)




Not applicable.


 


51









 





SCHEDULE 3.1(aa)





	•	 	In 2009, the Company sold $5,874,000 of Senior Secured Convertible Debentures (the
Debentures) in a private offering to accredited investors. The debentures bear interest at
a rate of 8% and are due three years from the date they are issued. The Debentures are
convertible into shares of common stock at $0.13 per share. In addition, each investor will
receive 5-year detachable Warrants to purchase a number of shares of Common Stock equal to
50% of the shares underlying the Investor’s Debenture. Interest on the Debentures a rate of
8% per annum is payable on a quarterly basis. Subject to certain conditions, the company
has the right to pay interest on the Debentures in either cash or shares of Common Stock,
or in a combination of cash and Common Stock. After the one year anniversary of the
Closing, the Company has the right to redeem the Debentures at a 20% premium, subject to
certain conditions. Subject to certain conditions, the company has the right to force
conversion of the Debenture into shares of Common Stock. The Company is currently offering
the holders of its Debentures the right to convert into 8% Series A Redeemable Convertible
Preferred Stock (“Series A Preferred Shares”). The offer expires on August 1, 2010.







	•	 	Indebtedness owing by KFLG and/or one or more of the Guarantors to Low Fat No Fat
Gourmet Café, Inc., KF Partners Boston Limited Partnership, Corbett Management Group, LLC
in connection with the acquisition by KFLG and/or one or more of the Guarantors of the
assets of the Sellers.







	•	 	Equipment Leases






	 	 	 	 	 	 	 	 	 
	Leasing Company	 	Description of Item Leased	 	 	Monthly Payment	 
	 
	 	 	 	 	 	 	 	 
	Leaf Funding
	 	Kitchen Equipment LM	 	$	2,370.87	 
	 
	 	 	 	 	 	 	 	 
	Manifest Funding
	 	various equip for various locations	 	$	980.23	 
	 
	 	 	 	 	 	 	 	 
	Taycor-manifest
	 	various equip for various locations	 	$	939.75	 
	 
	 	 	 	 	 	 	 	 
	Access Capital-marlin lease
	 	WT yo-cream machine	 	$	485.53	 
	 
	 	 	 	 	 	 	 	 
	Puget Sound Leasing
	 	BF conversion equipment	 	$	342.00	 
	 
	 	 	 	 	 	 	 	 
	Great American Leasing I
	 	DTC yo-cream machine	 	$	629.47	 
	 
	 	 	 	 	 	 	 	 
	Great American Leasing II
	 	DTC - ovens/blender/microwave	 	$	476.29	 
	 
	 	 	 	 	 	 	 	 
	Great American Leasing III
	 	LM steamer	 	$	310.59	 
	 
	 	 	 	 	 	 	 	 
	Konica minolta
	 	Biz Hub office copier	 	$	840.45	 





 


52









 





SCHEDULE 3.1(ee)




The Company’s firm of independent auditors is CCR LLP, of Westborough and Boston, Massachusetts,
with additional offices in Providence, Rhode Island and Glastonbury, Connecticut.


 


53









 





SCHEDULE 3.1(jj)




Not applicable.


 


54









 





SCHEDULE 3.1(kk)




None.


 


55