Exhibit 10.1






Exhibit 10.1



EXECUTION COPY



SECURITIES PURCHASE AGREEMENT




This Securities Purchase Agreement (this “Agreement”) is dated as of May 27, 2009,
between A.C. Moore Arts & Crafts, Inc., a Pennsylvania corporation (the “Company”), and
Glenhill Special Opportunities Master Fund LLC, a Delaware limited liability company (the
“Purchaser”).



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 (the “Securities Act”), and Rule 506
promulgated thereunder, the Company desires to issue and sell to the Purchaser, and the Purchaser
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 the Purchaser agree as follows:



ARTICLE I.

DEFINITIONS




1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all
purposes of this Agreement, 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 4.5.




“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.




“Best Efforts” means the efforts that a prudent person desirous of achieving a
result would use in similar circumstances to ensure that such result is achieved as
expeditiously as practical; provided, however, that an obligation to use Best Efforts under
this Agreement does not require the Company to dispose of or make any change to its
business, expend any material funds or incur any other material burden.




“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.




“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 Purchaser’s obligation to pay the Purchase Price and (ii) the Company’s
obligation 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, no par value, 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 Blank Rome LLP, with offices located at One Logan
Square, 130 North 18th Street, Philadelphia, PA 19103.




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




“Effective Date” means the date that the initial Registration Statement filed
by the Company pursuant to the Registration Rights Agreement is first declared effective by
the Commission.




“EGS” means Ellenoff Grossman & Schole LLP with offices located at 150 East
42nd Street, 11th Floor, New York, New York 10017.




“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, rights or
options to employees, officers or directors of the Company pursuant to any stock option or
equity incentive plan duly adopted for such purpose, by the Board of Directors, including 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 or (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.


 


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“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, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.




“Material Adverse Effect” means (i) a material adverse effect on the results of
operations, assets, liabilities, business, or financial condition of the Company and the
Subsidiaries taken as a whole on a consolidated basis or (ii) a material and adverse
impairment of the Company’s ability to perform its obligations under any of the Transaction
Documents, provided, that none of the following alone shall be deemed, in and of itself, to
constitute a Material Adverse Effect: (i) a change in the market price or trading volume of
the Common Stock or (ii) changes in general economic conditions or changes affecting the
industry in which the Company operates generally (as opposed to Company-specific changes) so
long as such changes do not have a disproportionate effect on the Company and its
Subsidiaries taken as a whole.




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




“Participation Maximum” shall have the meaning ascribed to such term in Section
4.11(a).




“Permitted Encumbrances” means any of the following:




(a) Liens imposed by law for taxes that are not yet due or are being contested;




(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like
Liens imposed by applicable law, arising in the ordinary course of business of the
Company and its Subsidiaries and securing obligations that are not overdue by more
than thirty (30) days or are being contested;




(c) pledges and deposits made in the ordinary course of business of the Company and
its Subsidiaries in compliance with workers’ compensation, unemployment insurance
and other social security laws or regulations;




(d) deposits to secure the performance of bids, trade contracts and leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business of the
Company and its Subsidiaries;




(e) Liens in respect of judgments;


 


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(f) easements, covenants, conditions, restrictions, building code laws, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by law
or arising in the ordinary course of business of the Company and its Subsidiaries
that do not materially interfere with the ordinary conduct of business of the
Company and its Subsidiaries and such other minor title defects or survey matters
that are disclosed by current surveys that, in each case, do not materially
interfere with the current use of the real property or the ordinary conduct of
business of the Company and its Subsidiaries;




(g) Liens existing on the date hereof and listed on the Disclosure Schedules and any
renewals or extensions thereof upon substantially the same terms and conditions;




(h) Liens on fixed or capital assets acquired by the Company and any of its
Subsidiaries;




(i) landlords’ and lessors’ Liens in respect of rent not overdue for more than
thirty (30) days (other than overdue rent that is subject to a good faith dispute
and for which appropriate reserves in conformity with GAAP have been established on
the books of the Company or any of its Subsidiaries);




(j) possessory Liens in favor of brokers and dealers arising in connection with the
acquisition or disposition of investments owned as of the date hereof;




(k) Liens arising solely by virtue of any statutory or common law provisions
relating to banker’s liens, liens in favor of securities intermediaries, rights of
setoff or similar rights and remedies as to deposit accounts or securities accounts
or other funds maintained with depository institutions or securities intermediaries;




(l) Liens arising from precautionary UCC filings regarding “true” operating leases
or the consignment of goods to the Company or any of its Subsidiaries;




(m) Liens in favor of customs and revenues authorities imposed by applicable law
arising in the ordinary course of business of the Company and its Subsidiaries in
connection with the importation of goods;




(n) any interest or title of a licensor, sublicensor, lessor or sublessor under
licenses, sublicenses, leases or subleases entered into by the Company or any of its
Subsidiaries in their ordinary course of business that do not materially interfere
with the ordinary conduct of business of the Company and its Subsidiaries; or




(o) any subordination of the interest of the Company or any Subsidiary, as lessee
under any lease, to the Lien of any mortgage or deed of trust encumbering the
interest or title of the lessor under such lease.




“Per Share Purchase Price” equals $2.50, 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 and on or prior to the Closing
Date.


 


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“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.




“Pre-Notice” shall have the meaning ascribed to such term in Section 4.11(b).




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




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




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




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




“Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the resale by the
Purchaser of the Securities.




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




“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same 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” shall have the meaning ascribed to such term in Section 2.1.




“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).




“Subsequent Financing” shall have the meaning ascribed to such term in Section
4.11(a).


 


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“Subsequent Financing Notice” shall have the meaning ascribed to such term in
Section 4.11(b).




“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).




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




“Transfer Agent” means Stocktrans, the current transfer agent of the Company,
with a mailing address of 44 West Lancaster Avenue, Ardmore, Pennsylvania 19003 and any
successor transfer agent of the Company.



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 Purchaser agrees to purchase, Four Million
(4,000,000) shares of Common Stock (the “Securities”) for a purchase price of $10,000,000
(the “Purchase Price”). The Purchaser shall deliver to the Company via wire transfer
immediately available funds equal to the Purchase Price, and the Company shall deliver to the
Purchaser the Securities, and the Company and the 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 EGS or such other location
as the parties shall mutually agree.




2.2 Deliveries.




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




(i) this Agreement duly executed by the Company;


 


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




(iii) a certificate dated as of the Closing Date and signed by an officer of
the Company certifying as to the truth and accuracy of the representations and
warranties of the Company contained in this Agreement and the satisfaction of all
its covenants and agreements hereunder;




(iv) a certificate, executed by the Secretary of the Company and dated as of
the Closing Date, certifying as to the: (w) resolutions adopted by the Company’s
Board of Directors in a form reasonably acceptable to the Purchaser, (x) the
Company’s Articles of Incorporation, as amended, as effective on the date hereof and
as of the Closing Date, (y) the Company’s Amended and Restated Bylaws as effective
on the date hereof and as of the Closing Date, and (z) signatures of the officer(s)
authorized to execute this Agreement and any certificate or document to be delivered
pursuant hereto, together with evidence of the incumbency of such Secretary;




(v) a recent good standing certificate regarding the Company from the office of
the Secretary of State of the State of Pennsylvania;




(vi) a copy of the irrevocable instructions to the Transfer Agent instructing
the Transfer Agent to deliver, on an expedited basis, a certificate evidencing the
number of shares of Common Stock equal to the Purchase Price divided by the Per
Share Purchase Price, registered in the name of the Purchaser; and




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




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




(i) this Agreement duly executed by the Purchaser;




(ii) the Purchase Price by wire transfer to the account as specified in writing
by the Company; and




(iii) the Registration Rights Agreement duly executed by the 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 Purchaser contained herein (unless as of a
specific date therein);


 


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




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




(b) The obligations of the Purchaser 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 as of a
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; and




(v) 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).



ARTICLE III.

REPRESENTATIONS AND WARRANTIES




3.1 Representations and Warranties of the Company. Except as set forth in the SEC
Reports or in the disclosure schedules (collectively, the “Disclosure Schedules”), which
Disclosure Schedules shall be deemed a part hereof and shall qualify every representation or
warranty made herein by the Company, the Company hereby makes the following representations and
warranties to the 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.


 


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(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 nor 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, would not have or
reasonably be expected to result in a Material Adverse Effect.




(c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by each of the
Transaction Documents to which it is a party and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the Transaction Documents
to which it is a party 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 therewith other than in connection with the
Required Approvals. Each 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. 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 would
not have or reasonably be expected to result in a Material Adverse Effect.


 


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(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 4.4 of
this Agreement, (ii) the filing with the Commission pursuant to the Registration Rights
Agreement, (iii) the notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities and the listing of the Securities for trading thereon in
the time and manner required thereby, and (iv) the filing of Form D with the Commission and
such filings and approvals as are required to be made under applicable state securities
laws, including any approval under the provisions of Subchapter 25F of the Pennsylvania
Business Corporation Law of 1988, as amended (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
Company has reserved from its duly authorized capital stock the number of shares of Common
Stock issuable pursuant to this Agreement.




(g) Capitalization. The capitalization of the Company is as set forth in the
Company’s Form 10-Q for the quarter ended April 4, 2009 and Form 10-K for the fiscal year
ended January 3, 2009, as amended on May 4, 2009 which includes, the number of shares of
Common Stock owned beneficially by each person who is known by the Company to be the
beneficial owner of more than 5% of Common Stock as of April 28, 2009. 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
stock option and equity incentive 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. 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 for options and rights granted pursuant to the
Company’s stock option and equity incentive plans, there are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire any shares of
Common Stock, or contracts, commitments, understandings or arrangements by which the Company
or any Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other than the
Purchaser) and will not result in a right of any holder of Company securities to adjust
the exercise, conversion, exchange or reset price under any of such securities. All of
the outstanding shares of capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in material compliance with all federal and state securities
laws, and none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. No further approval or
authorization of any 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.


 


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(h) SEC Reports; Financial Statements. The Company (i) 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”) and (ii) has filed SEC Reports due in the
one year preceeding the date hereof 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 (as amended or superceded)
complied in all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports (as amended or superceded), 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 (as amended or superceded) 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: (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 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 and equity incentive plans. The Company does not have pending
before the Commission any request for confidential treatment of information. Except for the
issuance of the Securities and the transactions contemplated by this Agreement, no event,
liability, fact, circumstance, occurrence or development has occurred or exists, 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.



 


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(j) Litigation. There is no action, suit, inquiry, notice of violation or
proceeding or, to the knowledge of the Company, investigation 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) would, 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 to the Company’s knowledge, 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 would
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 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 material 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 would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.


 


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(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 would 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 for Permitted Encumbrances
and except for Liens that do not individually or in the aggregate have or would result in a
Material Adverse Effect. Any real property and facilities held under lease by the Company
and the Subsidiaries are held by them under leases with which the Company and the
Subsidiaries are in material compliance.




(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.


 


13









 






(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 Purchase Price. 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.




(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.


 


14









 






(s) Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions contemplated
by the Transaction Documents. The Purchaser 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 Purchaser’s 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 Purchaser 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. Other than the Purchaser, no Person has any right to
cause the Company to effect the registration under the Securities Act of any securities of
the Company.




(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. The Company is in material compliance with all such listing and maintenance
requirements.


 


15









 






(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
articles of incorporation (or similar charter documents) or the laws of its state of
incorporation for the transactions set forth in the Transaction Documents, that is the
Company’s issuance of the Securities and all shares of Common Stock issuable to the
Purchaser under the Registration Rights Agreement, including without limitation the
provisions of Subchapter 25F of the Pennsylvania Business Corporation Law of 1988, as
amended.




(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 the Purchaser or its
agents or counsel with any information that it believes constitutes constitute material,
non-public information. The Company understands and confirms that the Purchaser 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 Purchaser regarding the
Company, its business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, is materially 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 and the SEC Reports 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, not misleading. The Company acknowledges and agrees that the
Purchaser does not make or has not 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 Purchaser’s
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. 


 


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(aa) Solvency. Based on the consolidated financial
condition of the Company as of the Closing Date, after giving effect to the
receipt by the Company of the proceeds from the sale of the Securities
hereunder, for the next twelve months: (i) the fair saleable value of the
Company’s assets exceeds the amount that will be required to be paid on or in
respect of the Company’s existing debts and other liabilities (including known
contingent liabilities) as they mature, (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof, and (iii) the Company is able to
pay its debts and other liabilities as they mature in the normal course of
business. 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. The SEC Reports, as
amended, set forth the indebtedness of the Company in accordance with GAAP as of
the dates set forth therein. 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 (other than the
Company and its Subsidiaries) of the type described in clause (x), whether or
not the same are or should be reflected in the Company’s 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. Neither
the Company nor any Subsidiary is in default with respect to any Indebtedness.
As of the date hereof, the Company has not incurred any additional Indebtedness
from the amount set forth in the Company’s Form 10-Q for the fiscal quarter
ended April 4, 2009.




(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 material 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 Purchaser 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 done any of the
following which has had or would have a Material Adverse Effect: (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.


 


17









 






(ee) Accountants. The Company’s accounting firm is PricewaterhouseCoopers LLP.
To the knowledge and belief of the Company, such accounting firm: (i) is a registered
public accounting firm as required by the Exchange Act and (ii) shall express its opinion
with respect to the financial statements to be included in the Company’s Annual Report for
the year ending January 2, 2010.




(ff) 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.




(gg) Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company
acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s
length purchaser with respect to the Transaction Documents and the transactions contemplated
thereby. The Company further acknowledges that the Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice given by the
Purchaser or any of its representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the Purchaser’s
purchase of the Securities. The Company further represents to the 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.




(hh) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f)
and 4.14 hereof), it is understood and acknowledged by the Company that: (i) the Purchaser
has not been asked by the Company to agree, nor has the 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 the 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) the Purchaser, and any
counter-parties in “derivative” transactions to which the Purchaser is a party, directly or
indirectly, may presently have a “short” position in the Common Stock and (iv) the 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) the Purchaser may engage in hedging activities at various times during
the period that the Securities are outstanding, 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.


 


18









 






(ii) Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or
to result in the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the 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.




(jj) Form S-3 Eligibility. The Company is eligible to register the resale of
the Securities for resale by the Purchaser on Form S-3 promulgated under the Securities Act.




(kk) Stock Option Plans. Each outstanding stock option granted by the Company
under the Company’s stock option and equity incentive plans was granted (i) materially in
accordance with the terms of the Company’s stock option and equity incentive plans 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 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 Purchaser. The 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. The Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its organization
with full right, corporate or partnership 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 the 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 the Purchaser.
Each Transaction Document to which it is a party has been duly executed by the Purchaser,
and when delivered by the Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of the 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.


 


19









 






(b) Own Account. The 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 the Purchaser’s right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state securities laws).
The Purchaser is acquiring the Securities hereunder in the ordinary course of its business.




(c) Purchaser Status. At the time the Purchaser was offered the Securities, it
was, and as of the date hereof it is 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. The Purchaser is
not required to be registered as a broker-dealer under Section 15 of the Exchange Act.




(d) Experience of the Purchaser. The 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.
The 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. The 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.




(f) Certain Transactions and Confidentiality. Other than consummating the
transactions contemplated hereunder, the Purchaser has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with the Purchaser, executed
any purchases or sales, including Short Sales, of the securities of the Company during the
period commencing as of the time that the Purchaser first received notification of a
possible financing by the Company. Other than to other Persons party to this Agreement, the
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 the 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.


 


20









 





The Company acknowledges and agrees that the representations contained in Section 3.2 shall not
modify, amend or affect the 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 Purchaser covenants that the Securities will 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 the 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 the Purchaser under this Agreement and the Registration Rights
Agreement.




(b) The Purchaser agrees to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in the following form:




THIS SECURITY 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 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.


 


21









 






The Company acknowledges and agrees that the 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, the 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 Purchaser’s 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 Securities shall not be required to 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 the Securities pursuant to
Rule 144 if the Purchaser provides the Company, at the Company’s expense, with a legal
opinion (and the documents upon which the legal opinion is based) reasonably acceptable to
the Company to the effect that the Securities can be sold under Rule 144, (iii) if the
Securities 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 the
Securities and without volume or manner-of-sale restrictions, or (iv) if the Purchaser
provides the Company, at the Company’s expense, with a legal opinion (and the documents upon
which the legal opinion is based) reasonably acceptable to the Company to the effect that
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. The Company agrees that following the Effective Date provided the
Registration Statement is in effect 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 the Purchaser to the Company or the Transfer Agent of a certificate representing the
Securities issued with a restrictive legend (such third Trading Day, the “Legend Removal
Date”), deliver or cause to be delivered to the 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 Securities 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 the Purchaser.


 


22









 






(d) If within three Trading Days after receipt by the Company or its Transfer Agent of
a legended certificate and the legal opinion as specified in Section 4.1 (c), the Company
shall fail to cause to be issued and delivered to the Purchaser a certificate
representing such Securities that is free from all restrictive and other legends, and
if on or after such Trading Day the Purchaser purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Purchaser of
 shares of Common Stock that the Purchaser anticipated receiving from the Company without any
restrictive legend (the “Covering Shares”), then the Company shall, within three Trading
Days after the Purchaser’s request, pay cash to the Investor in an amount equal to the
excess (if any) of the Purchaser’s total purchase price (including brokerage commissions, if
any) for the Covering Shares, over the product of (A) the number of Covering Shares, times
(B) the closing bid price on the Legend Removal Date.




(e) The Purchaser agrees with the Company that the 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 Public Information. Until the date that the Purchaser may sell the Securities
without the current public information requirement under Rule 144, the Company covenants to use its
Best Efforts 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 the Purchaser owns any Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchaser and make publicly
available in accordance with Rule 144(c) such information as is required for the Purchaser to sell
the Securities, including without limitation, under Rule 144. The Company further covenants that
it will take such further action as the Purchaser may reasonably request, to satisfy the provisions
of this Section 4.2.



4.3 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. 



4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New York
City time) on the 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 as exhibits thereto. From and after the issuance of such press
release, the Company shall have publicly disclosed all material, non-public information delivered
to the Purchaser 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 and the Purchaser shall consult with each other in issuing any press
releases with respect to the transactions contemplated hereby, and neither the Company nor the
Purchaser shall issue any such press release nor otherwise make any such public statement without
the prior consent of the Company, with respect to any press release of the Purchaser, or without
the prior consent of the Purchaser,
with respect to any press release of the Company, which consent shall not unreasonably be
withheld or delayed, except if such disclosure is required by law, in which case the disclosing
party shall promptly provide the other party with prior notice of such public statement or
communication.


 


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4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that the 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 in effect or adopted on or prior to the
Closing Date by the Company, or that the Purchaser could be deemed to trigger the provisions of any
such plan, by virtue of receiving Securities under the Transaction Documents or under any other
agreement between the Company and the Purchaser.



4.6 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 the Purchaser or its
agents or counsel with any information that the Company believes constitutes material non-public
information, unless prior thereto the Purchaser shall have executed a written agreement with the
Company regarding the confidentiality and use of such information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing covenant in effecting transactions in
securities of the Company.



4.7 Use of Proceeds. The Company shall use the net proceeds from the sale of the
Securities hereunder for general working capital purposes, including, but not limited to, the
opening of new retail locations consistent with the Company’s historic business model, 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) the settlement of any
outstanding litigation.



4.8 Indemnification of the Purchaser. Subject to the provisions of this Section 4.8,
the Company will indemnify and hold the 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 the 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 or its
Affiliates in any capacity, by any stockholder of the Company who is not an Affiliate of the
Purchaser, with respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of the Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings the Purchaser
may have with any such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by the Purchaser 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 to the Company, 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.


 


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4.9 Reservation of Common Stock. As of the date hereof, the Company has reserved a
sufficient number of shares of Common Stock for the purpose of enabling the Company to issue the
Securities pursuant to this Agreement.



4.10 Listing of Common Stock. The Company hereby agrees to use its Best Efforts to
maintain the listing or quotation of the Common Stock on the Trading Market on which it is
currently listed, and concurrently with the Closing, the Company shall apply to list or quote all
of the Securities on such Trading Market and promptly secure the listing of all of the Securities
on such Trading Market. The Company further agrees, if the Company applies to have the Common Stock
traded on any other Trading Market, it will then include in such application all of the Securities,
and will use its take such other action as is reasonably necessary to cause all of the Securities
to be listed or quoted on such other Trading Market as promptly as possible. The Company will then
take all action reasonably necessary to continue the listing or quotation and trading of its Common
Stock on a Trading Market and will comply in all material respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Trading Market.




4.11 Participation in Future Financing.




(a) From the date hereof until the second anniversary of the Closing, upon any issuance
by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents for cash
consideration, Indebtedness (or a combination of units hereof) (a “Subsequent
Financing”), the Purchaser shall have the right to participate in up to an amount of the
Subsequent Financing equal to the Purchaser’s pro-rata percentage of the Company’s total
issued and outstanding Common Stock on an as-converted and as-exercised basis (the “Participation Maximum”) on the same terms, conditions and
price provided for in the Subsequent Financing.


 


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(b) At least five (5) Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to the Purchaser a written notice of its intention to effect a
Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask the Purchaser if it
wants to review the details of such financing (such additional notice, a “Subsequent
Financing Notice”). Upon the request of the Purchaser, and only upon a request by the
Purchaser and the execution of a mutually acceptable confidentiality agreement between the
Company and Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no
later than one (1) Trading Day after such request and executed confidentiality agreement,
deliver a Subsequent Financing Notice to the Purchaser. The Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent Financing, the
amount of proceeds intended to be raised thereunder and the Person or Persons through or
with whom such Subsequent Financing is proposed to be effected and shall include a term
sheet or similar document relating thereto as an attachment.




(c) If the Purchaser desires to participate in such Subsequent Financing, it must
provide written notice to the Company by not later than 5:30 p.m. (New York City time) on
the fifth (5th) Trading Day after the Purchaser has received the Pre-Notice, that
the Purchaser is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and representing and warranting that the Purchaser has such funds
ready, willing, and available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no such notice from the Purchaser as of such
fifth (5th) Trading Day, the Purchaser shall be deemed to have notified the
Company that it does not elect to participate.




(d) The Company may effect the remaining portion of such Subsequent Financing on the
terms and with the Persons set forth in the Subsequent Financing Notice.




(e) The Company must provide the Purchaser with a second Subsequent Financing Notice,
and the Purchaser will again have the right of participation set forth above in this Section
4.11, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent Financing Notice within
thirty (30) Trading Days after the date of the initial Subsequent Financing Notice.




(f) Notwithstanding the foregoing, this Section 4.11 shall not apply in respect of (i)
an Exempt Issuance, or (ii) an underwritten public offering of Common Stock.



4.12 Subsequent Equity Sales. From the date hereof until 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.
Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of an Exempt Issuance.


 


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4.13 [Intentionally Omitted.]



4.14 Certain Transactions and Confidentiality. The Purchaser 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 4.4. The Purchaser 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 4.4, the 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)
the Purchaser does not make 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 4.4, (ii) the Purchaser shall not 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 4.4 and
(iii) the Purchaser shall not have any duty of confidentiality to the Company or its Subsidiaries
after the issuance of the initial press release as described in Section 4.4.



4.15 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D promulgated under the Securities Act and
to provide a copy thereof, promptly upon request of the 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 Purchaser 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 the Purchaser.




4.16 [Intentionally Omitted.]



4.17 Delivery of Securities After Closing. The Company shall deliver, or cause to be
delivered, the Securities to the Purchaser within 3 Trading Days of the Closing Date.



4.18 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 are not subject to any right of set off, counterclaim, delay or
reduction as a result of the effect of any such dilution.


 


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ARTICLE V.

MISCELLANEOUS




5.1 Termination. This Agreement may be terminated by either party if the Closing has
not been consummated on or before June 5, 2009; provided, however, that such
termination will not affect the right of any party to sue for any breach by the other party.



5.2 Fees and Expenses. At the Closing, the Company shall reimburse the Purchaser for
the fees and expenses incurred by the Purchaser in connection with the Transaction Documents and
the transactions contemplated hereunder, including without limitation reasonable fees of counsel;
provided, however, that the Company shall not be required to reimburse the Purchaser for fees of
counsel in an amount in excess of $20,000 unless the Purchaser received the Company’s written prior
consent for such excess amount. The Company shall pay all Transfer Agent fees, stamp taxes and
other taxes and duties levied in connection with the delivery of the Securities to the Purchaser.



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 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 page attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature page 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 page attached hereto.



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 Purchaser 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.


 


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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 the Purchaser
(other than by merger). The Purchaser may assign any or all of its rights under this Agreement to
any Person to whom the 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 Purchaser and the Company has been furnished with written
notice of the name and address of such assignee or transferee.



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 4.8.



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, 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 or proceeding to enforce any provisions of the
Transaction Documents, then in addition to the obligations of the Company under Section 4.8, the
prevailing party in such action or proceeding shall be reimbursed by the other party for its
reasonable attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.



5.10 Survival. The representations and warranties contained herein shall survive the
Closing and the delivery of the Securities.



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 that 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.


 


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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 the 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 prior to the performance by the Company of the Company’s related obligation, the
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.



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 and the
execution by the holder thereof of a customary lost certificate affidavit of that fact and an
agreement to indemnify and hold harmless the Company for any losses in connection therewith. 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, the Purchaser 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.


 


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5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to
the Purchaser pursuant to any Transaction Document or the 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 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.



5.18 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.



5.19 Construction. The parties agree that each of them and/or their respective counsel
has 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
hereto. 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 and on or prior to the Closing Date.



5.20 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 Page Follows)




 


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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.



	 	 	 	 	 
	 	A.C. MOORE ARTS & CRAFTS, INC.

 	 
	 	By:  	/s/ Rick A. Lepley
 	 
	 	 	Name:  	Rick A. Lepley 	 
	 	 	Title:  	President and Chief Executive Officer 	 



A.C. Moore Arts & Crafts, Inc.

130 A.C. Moore Drive

Berlin, New Jersey 08009

Fax: (856) 753 7057




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




Alan H. Lieblich, Esq.

Blank Rome LLP

One Logan Square

130 North 18th Street

Philadelphia, PA 19103-6998

Fax: (215) 832-5693




	 	 	 	 	 
	 	GLENHILL SPECIAL OPPORTUNITIES MASTER FUND LLC

 	 
	 	By:  	Glenhill Capital Management LLC, its manager
 	 
	 	 	 
	 	By:  	Glenhill Advisors, LLC, its managing member
 	 
	 	 	 
	 	By:  	/s/ Glenn Krevlin
 	 
	 	 	Name:  	Glenn Krevlin 	 
	 	 	Title:  	Managing Member 	 



Glenhill Special Opportunities Master Fund LLC

c/o Glenhill Capital

598 Madison Avenue, 12th Floor

New York, New York 10022

Fax: (646) 432-0666




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




Douglas S. Ellenoff, Esq.

Ellenoff Grossman & Schole LLP

150 East 42nd Street, 11th Floor

New York, NY 10017

Fax: (646) 895-7889





 


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