Document:

Unassociated Document

     

    EXHIBIT
10.1

    

    CardioGenics
Holdings Inc.

    6295
Northam Drive, Unit 8

    Mississauga,
Ontario L4V 1W8

    T:
905.673.8501 • F: 905.673.9865

    

    

    March 19,
2009

    

    YA Global
Master SPV Ltd.

    101
Hudson Street, Suite 3700

    Jersey
City, NJ 07302

    

    Attention:
Mark Angelo, Portfolio
Manager

    

    
      	
              Re:

            	
              Standby
      Equity Distribution Agreement dated March 12, 2009 between CardioGenics
      Holdings Inc. (formerly JAG Media Holdings, Inc.) and YA Global Master SPV
      Ltd. (the “SEDA”) and Registration Rights Agreement dated March 12, 2009
      between CardioGenics Holdings Inc. (formerly JAG Media Holdings, Inc.) and
      YA Global Master SPV Ltd.(the “Registration Rights
    Agreement”)

            

    

    

    
      	
               
      

            	
              Gentlemen:

            

    

    

    This will
confirm our understanding that the SEDA (which has not yet become effective) and
the Registration Rights Agreement are hereby terminated effective as of the date
of this letter agreement.

    

    Please
indicate your agreement with the foregoing by signing in the place indicated
below and returning to us a fully executed copy of this letter.

    

    Very
truly yours,

     

    CARDIOGENICS
HOLDINGS INC.

    

    

    BY: 
/s/ Yahia Gawad

      
        
Yahia
Gawad, CEO

    

    

    AGREED
AND ACCEPTED:

    YA
GLOBAL MASTER SPV LTD.

    

    By:
Yorkville Advisors, LLC

    Its:
Investment Manager

    

    

    By: 
/s/ Mark Angelo

      
        

      

      Mark
Angelo, Portfolio ManagerEXHIBIT
10.1

     

    SECURITIES
PURCHASE AGREEMENT

     

    This
Securities Purchase Agreement (this “Agreement”) is dated
as of March 16, 2010, between Frederick’s of Hollywood Group Inc., a New York
corporation (the “Company”), and each
purchaser identified on the signature pages hereto.

     

    WHEREAS,
the Company is entering into a separate purchase agreement (“Separate
Agreement”) as of even date with another purchaser (such purchaser, together
with each purchaser identified on the signature pages hereto, including their
respective successors and assigns, is hereby referred to herein as a “Purchaser” and
collectively, the “Purchasers”) pursuant
to which the Company will be issuing the same securities as the Company is
issuing hereunder.

     

    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 each
Purchaser hereto, and each Purchaser hereto, severally and not jointly, desires
to purchase from the Company, securities of the Company as more fully described
in this Agreement.

     

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

     

    ARTICLE
I

     

    DEFINITIONS

     

    1.1        Definitions. In
addition to the terms defined elsewhere in this Agreement, the following terms
have the meanings set forth in this Section 1.1:

     

    “8-K Filing” shall
have the meaning ascribed to such term in Section 4.4

     

    “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.

     

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

     

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

     

    “Closing Price” means
on any particular date (a) the last reported closing sale price per share
of Common Stock on such date on the Trading Market (as reported by Bloomberg
L.P. at 4:15 p.m. (New York City time)), (b) if there is no such price on such
date, then the closing sale price on the Trading Market on the date nearest
preceding such date (as reported by Bloomberg L.P. at 4:15 p.m. (New York City
time)), (c) if the Common Stock is not then listed or quoted on a Trading Market
and if prices for the Common Stock are then reported in the “pink sheets”
published by Pink OTC Markets, Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), then the most recent sale
price per share of the Common Stock so reported, or (d) if the shares of
Common Stock are not then publicly traded then the fair market value as of such
date of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchasers of a majority in interest of the Shares
then outstanding and reasonably acceptable to the Company, the reasonable fees
and expenses of which shall be paid by the Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Closing Statement”
means the Closing Statement in the form on Annex A attached
hereto.

     

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

     

    “Common Stock” means
the common stock of the Company, par value $0.01 per share, and any other class
of securities into which such securities may hereafter be reclassified or
changed.

     

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

     

    “Company Counsel”
means Graubard Miller, with offices located at 405 Lexington Avenue, 19th Floor,
New York, New York 10174.

     

    “DTC” means The
Depository Trust Company.

     

    “Effective Date” means
the earlier of the date that (a) all of the Registrable Securities (as defined
in the Registration Rights Agreement) have been registered for resale by the
holders thereof pursuant to a registration statement(s) declared effective by
the Commission and (b) all of the Registrable Securities have been sold pursuant
to Rule 144 or (except to the extent any such Registrable Securities are then
held by an Affiliate of the Company) may be sold pursuant to Rule 144 without
the requirement for the Company to be in compliance with the current public
information requirement under Rule 144 and without volume or manner-of-sale
restrictions.

     

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

     

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

     

    “Exempt Issuance”
means the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or option plan duly
adopted for such purpose, (b) securities upon the exercise or exchange of or
conversion of any Securities issued hereunder or under the Separate Agreement
and/or other securities exercisable or exchangeable for or convertible into
shares of Common Stock issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the exercise
price, exchange price or conversion price of such securities and (c) securities
issued pursuant to acquisitions or strategic transactions approved by a majority
of the disinterested directors of the Company, provided that any such issuance
shall not include a transaction in which the Company is issuing securities
primarily for the purpose of raising equity capital.

     

    “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).

     

    “Knowledge” means (i)
the actual knowledge of those officers of the Company required to file
statements relating to their ownership of the Company’s securities pursuant to
Section 16 of the Exchange Act and (ii) with respect to each Subsidiary, the
executive officers of such Subsidiary.

     

    “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.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    “ML” means Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., with offices located at 666 Third
Avenue, New York, New York 10017.

     

    “Per Share Purchase
Price” equals $1.05.

     

    “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.

     

    “Proceeding” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an informal investigation or partial proceeding, such as a
deposition).

     

    “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 Purchasers, 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
Purchasers of the Shares and the Warrant Shares.

     

    “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” means,
collectively, the Shares, the Warrants and the Warrant Shares.

     

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

     

    “Series A Warrants”
means, collectively, the Series A Common Stock purchase warrants deliverable to
the Purchasers at the Closing in accordance with Section 2.2(a)(iv) hereof and
2.2(a)(iv) of the Separate Agreement, which Series A Warrants shall be
exercisable commencing six months from the Closing Date and have a term of
exercise equal to two (2) years and six (6) months from the Initial Exercise
Date (as defined therein) and an exercise price equal to $1.25 per share,
subject to adjustment as provided therein, a form of which is attached hereto as
Exhibit
B-1.

     

    “Series B Warrants”
means, collectively, the Series B Common Stock purchase warrants deliverable to
the Purchasers at the Closing in accordance with Section 2.2(a)(v) hereof and
2.2(a)(iv) of the Separate Agreement, which Series B Warrants shall be
exercisable commencing six months from the Closing Date and have a term of
exercise equal to five (5) years from the Initial Exercise Date (as defined
therein) and an exercise price equal to $1.55 per share, subject to adjustment
as provided therein, a form of which is attached hereto as Exhibit
B-2.

     

    “Shares” means the
shares of Common Stock issued or issuable to each Purchaser pursuant to this
Agreement and the Separate Agreement.

     

    “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 nor shall it be deemed to include any hedging
transaction with respect to any Shares purchased or Warrant Shares purchasable
upon exercise of the Warrants).

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

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

     

    “Subsidiary” means any
entity in which the Company, directly or indirectly, owns any of the capital
stock or holds an equity or similar interest, 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 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 Separate Agreement, the Warrants,
the Registration Rights Agreement and the Escrow Agreement by and among the
Company, the Purchasers and the escrow agent, a form of which is attached hereto
as Exhibit
C  (the “Escrow Agreement”)
and all exhibits and schedules thereto and hereto.

     

    “Transfer Agent” means
American Stock Transfer & Trust Company, the current transfer agent of the
Company, and any successor transfer agent of the Company.

     

    “Warrants” means,
collectively, the Series A Warrants and the Series B Warrants.

     

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

     

    ARTICLE
II

     

    PURCHASE
AND SALE

     

    2.1       Closing. On the
Closing Date, upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Purchasers, severally and not jointly, agree to
purchase, up to $6,000,000 (“Aggregate Purchase
Price”) in aggregate purchase price of Shares. Each Purchaser shall
deliver to the Company, via wire transfer of immediately available funds, an
amount equal to such Purchaser’s Subscription Amount as set forth on the
signature page hereto executed by such Purchaser, and the Company shall deliver
to each Purchaser its respective Shares and a Series A Warrant and a Series B
Warrant, as determined pursuant to Section 2.2(a), and the Company and each
Purchaser shall deliver the other items set forth in Section 2.2 deliverable at
the Closing. Upon satisfaction of the covenants and conditions set forth in
Sections 2.2 and 2.3, the Closing shall occur at the offices of Company Counsel
or such other location as the parties shall mutually agree.

     

    2.2       Deliveries.

     

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

     

     
(i)          this Agreement
duly executed by the Company;

     

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

     

     (iii)        a
certificate evidencing a number of Shares equal to such Purchaser’s Subscription
Amount divided by the Per Share Purchase Price, registered in the name of such
Purchaser;

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

     
(iv)        a Series A Warrant
registered in the name of such Purchaser to purchase up to a number of shares of
Common Stock equal to 40% of such Purchaser’s Shares;

     

     
(v)         a Series B Warrant
registered in the name of such Purchaser to purchase up to a number of shares of
Common Stock equal to 40% of such Purchaser’s Shares;

     

     
(vi)        the Registration Rights
Agreement duly executed by the Company;

     

     
(vii)       the Escrow Agreement, duly
executed by the Company;

     

     
(viii)     a certificate, executed by the Secretary
of the Company and dated as of the Closing Date, as to (i) the resolutions
consistent with Section 3.1(c) as adopted by the Company’s Board of Directors in
a form reasonably acceptable to such Purchaser, (ii) the Articles of
Incorporation, as amended, and (iii) the Bylaws, each as in effect at the
Closing;

     

     
(ix)        a certificate, executed by
the Chief Executive Officer of the Company, dated as of the Closing Date,
certifying that the representations and warranties of the Company shall be true
and correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date which shall be true and correct as
of such specified date) and the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with by the
Company at or prior to the Closing Date; and

     

     
(x)         a recent good
standing certificate regarding the Company from the office of the Secretary of
State of the State of New York.

     

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

     

     
 (i)          this
Agreement duly executed by such Purchaser;

     

      (ii)         such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
the Escrow Agreement; and

     

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

     

    2.3       Closing
Conditions.

     

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

     

     
(i)          the accuracy in
all material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) when made and on the Closing Date (except for
representations and warranties that speak as of a specific date, which shall be
true and correct as of such specified date) of the representations and
warranties of the Purchasers contained herein;

     

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

     

     
(iii)        the delivery by all
of the Purchasers of the items set forth in Section 2.2(b) of this Agreement and
of the Separate Agreement; and

     

     
(iv)        the delivery by the escrow
agent of the Escrow Agreement duly executed by the escrow agent.

     

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

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

     
(i)          the
accuracy in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) when made and on the Closing Date
(except for representations and warranties that speak as of a specific date,
which shall be true and correct as of such specified date) of the
representations and warranties of the Company contained herein;

     

     
(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)        the delivery by the
escrow agent of the Escrow Agreement duly executed by the escrow
agent;

     

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

     

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

     

    ARTICLE
III

     

    REPRESENTATIONS
AND WARRANTIES

     

    3.1       Representations and
Warranties of the Company. Except as set forth in the disclosure
schedules, which disclosure schedules shall be deemed a part hereof and shall
qualify any representation made herein to what is applicable, the Company hereby
makes the following representations and warranties to each
Purchaser:

     

     (a)        Subsidiaries. All of
the direct and indirect Subsidiaries of the Company are set forth on Schedule 3.1(a).
Except as 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, nonassessable (or the foreign
equivalent) and free of preemptive and similar rights to subscribe for or
purchase securities.

     

     (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 corporate power and authority to own and use its properties and assets
and to carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not
reasonably be expected to result in: (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business or
financial condition of the Company and the Subsidiaries, taken as a whole, or
(iii) a material adverse effect on the Company’s ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse
Effect”) and, to the Company’s Knowledge, no Proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing or seeking
to revoke, limit or curtail such power and authority or
qualification.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (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 and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of each of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate 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 or sale of the Securities and the consummation by the Company 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, 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, (iii) result in the creation of any Lien upon any of the
properties or assets of the Company or any Subsidiary or (iv) 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
Trading Market, court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations and the regulations of any Trading Market), 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 reasonably be expected to
result in a Material Adverse Effect.

     

    (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 of one or more registration statements pursuant
to the Registration Rights Agreement, (iii) the notice and/or application(s) to
the 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 as are
required to be made under applicable securities or “Blue Sky” laws of the states
of the United States (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 other
than restrictions on transfer provided for in the Transaction Documents. The
Company has reserved from its duly authorized capital stock the maximum number
of shares of Common Stock issuable pursuant to this Agreement and the
Warrants.

     

    (g)         Capitalization. The
authorized capital of the Company is as set forth on Schedule 3.1(g),
which Schedule
3.1(g) shall also include the number of shares of Common Stock owned
beneficially, and of record, by Affiliates of the Company as of the date hereof.
The Company has not issued any capital stock since its most recently filed
periodic report under the Exchange Act, other than pursuant to the exercise of
employee stock options under the Company’s stock option plans, the issuance of
shares of Common Stock to employees pursuant to the Company’s employee stock
purchase plans and to directors pursuant to the Company’s director compensation
plan 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 as a result of the purchase
and sale of the Securities pursuant to this Agreement and the Separate Agreement
and except as disclosed in the Company’s SEC Reports (as defined in Section
3.1(h)) or on Schedule
3.1(g), there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock
Equivalents.  Except as disclosed in the Company’s SEC Reports, 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
Purchasers) and will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. 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 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 period from January 28, 2008 to the date hereof (or such
shorter period as the Company was required by law or regulation to file such
material) (the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
“SEC Reports”)
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such extension. As
of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act, as applicable,
and none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the 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, but 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) that
would be required to be disclosed on the Company’s balance sheet in conformity
with GAAP and are not disclosed in the SEC Reports, other than those incurred in
the ordinary course of the Company’s or its Subsidiaries’ respective businesses
which (x) represent ordinary course short-term bank borrowings or (y) which
otherwise, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect, (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 plans,
stock purchase plans or director compensation plans. The Company does not have
pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated by this
Agreement and the Separate Agreement or as set forth on Schedule 3.1(i), no
event, liability, fact, circumstance, occurrence or development has occurred or
exists, or is reasonably expected to occur or exist, with respect to the Company
or its Subsidiaries or their respective business, properties, operations, assets
or financial condition, that would be required to be disclosed by the Company on
a Current Report on Form 8-K at the time this representation is made or deemed
made that has not been publicly disclosed at least one (1) Trading Day prior to
the date that this representation is made or deemed made.

     

    (j)      
   Litigation. There is
no action, suit, notice of violation, proceeding or formal investigation pending
or, to the Knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) would, if there were an
unfavorable decision, reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor to the Knowledge of the
Company, 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
formal investigation by the Commission involving the Company or, to the
Knowledge of the Company, 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.

     

    
      
        
        

      

      
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    (k)         Labor Relations. No
material labor dispute exists or, to the Knowledge of the Company, is imminent
with respect to any of the employees of the Company, which could reasonably be
expected to result in a Material Adverse Effect. To the Company’s Knowledge,
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 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.

     

    (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 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 or relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment and
labor matters, except in each case as would not 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 (“Material
Permits”), except where the failure to possess such permits would not
reasonably be expected to result in a Material Adverse Effect, 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 (or
the local equivalent) to all real property owned by them and good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property (other
than to the extent security interests granted to lenders may require repayment
prior to sale) and do not materially interfere with the use made and proposed to
be made of such property by the Company and the Subsidiaries and Liens for the
payment of federal, state, foreign or other taxes, the payment of which is
neither delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them under
valid, subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance.

     

    (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 necessary or material for use
in connection with their respective businesses as described in the SEC Reports
and which failure to so have would have a Material Adverse Effect (collectively,
the “Intellectual
Property Rights”). None of, and neither the Company nor any Subsidiary
has received a notice (written or otherwise) that any of, the Intellectual
Property Rights has expired, terminated or been abandoned, or is expected to
expire or terminate or be abandoned, within two (2) years from the date of this
Agreement. Neither the Company nor any Subsidiary has received, since the date
of the latest audited financial statements included within the SEC Reports, a
written notice of a claim or otherwise has any Knowledge that the Intellectual
Property Rights violate or infringe upon the rights of any Person, except as
would not have a Material Adverse Effect. 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 would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

     

    
      
        
        

      

      
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    (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. 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 or on Schedule 3.1(q), 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, in each case in excess of $120,000, or is an officer,
director, trustee or partner, 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 compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of
the Closing Date. The Company and the Subsidiaries maintain a system of internal
accounting controls designed to provide reasonable assurance that: (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. The Company’s certifying officers
have evaluated the effectiveness of the Company’s disclosure controls and
procedures as of the end of the period covered by the Company’s most recently
filed periodic report under the Exchange Act (such date, the “Evaluation Date”).
The Company presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the effectiveness
of the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in the
Company’s internal control over financial reporting (as such term is defined in
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.

     

    (s)         Certain Fees. Except
as set forth on Schedule 3.1(s), no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by the Transaction
Documents.

     

    (t)       
  Private
Placement. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2 hereof and of the Separate Agreement, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby and
thereby.  Subject to the notice and/or application(s) to the Trading
Market for the issuance and sale of the Securities and approval thereof, the
issuance and sale of the Securities hereunder does not contravene the rules and
regulations of the Trading Market.

     

    
      
        
        

      

      
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    (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 each of the Purchasers or as set forth in the SEC Reports, 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.  Except as
set forth on Schedule 3.1(w), the Company is, and has no reason to believe that
it will not in the foreseeable future continue to be, in compliance with all
such listing and maintenance requirements.

     

    (x)         Application of Takeover
Protections. Except as set forth on Schedule 3.1(x), the
Company and the Board of Directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s certificate of
incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result
of the Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation as a
result of the Company’s issuance of the Securities and the Purchasers’ ownership
of the Securities.

     

    (y)         Disclosure. Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company confirms that neither it
nor any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that it believes constitutes or
might constitute material, non-public information. The Company understands and
confirms that the Purchasers will rely on the foregoing representation in
effecting transactions in securities of the Company. All of the disclosure
furnished by or on behalf of the Company to the Purchasers regarding the
Company, its business and the transactions contemplated hereby, including the
disclosure schedules to this Agreement, is true and correct in all material
respects and does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
press releases disseminated by the Company during the twelve months preceding
the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made and when made, not misleading. The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2
hereof.

     

    (z)         No Integrated
Offering. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf, has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
(i) the Securities Act which would require the registration of any such
securities under the Securities Act, or (ii) any applicable shareholder approval
provisions of any Trading Market on which any of the securities of the Company
are listed or designated.

     

    
      
        
        

      

      
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    (aa)       Outstanding
Indebtedness.   Schedule 3.1(aa)
sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness “means
(i) any liabilities for borrowed money or amounts owed in excess of $100,000
(other than trade accounts payable incurred in the ordinary course of business),
(ii) all guaranties, endorsements and other contingent obligations in respect of
indebtedness of others in excess of $100,000, 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 (iii)
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.

     

    (bb)      Tax Status. Except
for matters that would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect, the Company and each Subsidiary
(i) has made or filed all United States federal and state income and all foreign
income and franchise tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations and (iii) has set
aside on its books provision reasonably adequate for the payment of all material
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company or of any Subsidiary know of no basis for any such claim.

     

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

     

    (dd)      Foreign Corrupt
Practices. Neither the Company, nor to the Knowledge of the Company, any
agent or other person acting on behalf of the Company, has: (i) directly or
indirectly, used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses related to foreign or domestic political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns from
corporate funds, (iii) failed to disclose fully any contribution made by the
Company (or made by any person acting on its behalf of which the Company is
aware) which is in violation of law or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended.

     

    (ee)       Acknowledgment Regarding
Purchasers’ Purchase of Securities. The Company acknowledges and agrees
that each of the Purchasers is acting solely in the capacity of an arm’s length
purchaser with respect to the Transaction Documents and the transactions
contemplated thereby. The Company further acknowledges that no Purchaser is
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the transactions
contemplated thereby and any advice given by any Purchaser or any of their
respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities. The Company further represents to each
Purchaser that the Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its
representatives.

     

    (ff)        Acknowledgment Regarding
Purchasers’ Trading Activity. Anything in this Agreement or the Separate
Agreement or elsewhere herein or therein to the contrary notwithstanding (except
for Sections 3.2(l) and 4.13 hereof and thereof, respectively), it is understood
and acknowledged by the Company that: (i) none of the Purchasers have been asked
by the Company to agree, nor has any Purchaser agreed, to desist from purchasing
or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities
for any specified term, (ii) past or future open market or other transactions by
any Purchaser, specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company’s
publicly-traded securities, (iii) any Purchaser, and counter-parties in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, may presently have a “short” position in the Common Stock and (iv)
each Purchaser shall not be deemed to have any affiliation with or control over
any arm’s length counter-party in any “derivative” transaction.

     

    (gg)      Regulation M
Compliance. The Company has not, and, to the Knowledge of the Company, no
one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company’s placement agent in connection with the
placement of the Securities.

    
      
         

      

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

     

    (ii)         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.

     

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

     

    (a)         Organization;
Authority. Such Purchaser is either an individual or an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full corporate, limited liability company
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 such Purchaser of the transactions
contemplated by the Transaction Documents have been duly authorized by all
necessary corporate, partnership, limited liability company or similar action,
as applicable, on the part of such Purchaser. Each Transaction Document to which
it is a party has been duly executed by such Purchaser, and when delivered by
such Purchaser in accordance with the terms hereof and thereof, will constitute
the valid and legally binding obligation of such Purchaser, enforceable against
it in accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.

     

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

     

    (c)         Rule 144. Such
Purchaser understands that the Securities must be held indefinitely unless such
Securities are registered under the Securities Act or an exemption from
registration is available. Such Purchaser acknowledges that such person is
familiar with Rule 144, and that such Purchaser has been advised that Rule 144
permits resales only under certain circumstances. Such Purchaser understands
that to the extent that Rule 144 is not available, such Purchaser will be unable
to sell any Securities without either registration under the Securities Act or
the existence of another exemption from such registration
requirement.

     

    (d)         Purchaser Status. At
the time such Purchaser was offered the Securities, it was, and as of the date
hereof it is, and on each date on which it exercises any it will be, an
“accredited investor” as defined in Rule 501 under the Securities Act or a
“qualified institutional buyer” as defined in Rule 144A under the Securities
Act. Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.

     

    
      
         

      

      
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    (e)         Experience of Such
Purchaser. Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. Such Purchaser is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a
complete loss of such investment. Such Purchaser has sought such accounting,
legal and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the
Securities.

     

    (f)         Access to
Information.  Such Purchaser has had full access to any and all
information with regard to the Company that it deems relevant to the purchase of
the Securities, and it has had full access to management of the Company to
obtain whatever information it deemed relevant to its purchase of the
Securities.

     

    (g)         SEC
Reports.  Such Purchaser has reviewed the SEC Reports and
Purchaser understands the content of the SEC Reports and the risks described
about an investment in the Company.

     

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

     

    (i)       
  General. Such
Purchaser understands that the Securities are being offered and sold in reliance
on a transactional exemption from the registration requirements of federal and
state securities laws and the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of such Purchaser set forth herein in order to determine the applicability of
such exemptions and the suitability of such Purchaser to acquire the Securities.
Such Purchaser understands that no United States federal or state agency or any
government or governmental agency has passed upon or made any recommendation or
endorsement of the Securities.

     

    (j)         
Certain Fees.
Such Purchaser has not employed any broker or finder or incurred any liability
for any brokerage or investment banking fees, commissions, finders’ fees,
financial advisory fees or other similar fees in connection with the
transactions contemplated by Transaction Documents.

     

    (k)         Not an Affiliate.
Such Purchaser is not an officer, director or Affiliate of the
Company.

     

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

     

    
      
         

      

      
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    ARTICLE
IV

     

    OTHER
AGREEMENTS OF THE PARTIES

     

    4.1     Transfer
Restrictions.

     

    (a)      The
Securities may be disposed of only in compliance with state and federal
securities laws. In connection with any transfer of Securities other than (i)
pursuant to an effective registration statement or (ii) to the Company, 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
(it being hereby agreed that Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
is deemed 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 transferee shall agree in
writing to be bound by the terms of this Agreement and the Registration Rights
Agreement and shall have the rights and obligations of a Purchaser under this
Agreement and the Registration Rights Agreement.

     

    (b)      The
Purchasers agree to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in 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 AND, UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT, AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR AND REASONABLY
ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE FORM AND SUBSTANCE OF WHICH SHALL
BE REASONABLY SATISFACTORY TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR
OTHER BONA FIDE LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED
INVESTOR”AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT AND WHO AGREES IN
WRITING TO BE BOUND BY THE PROVISIONS OF THAT CERTAIN SECURITIES PURCHASE
AGREEMENT AND THAT CERTAIN REGISTRATION RIGHTS AGREEMENT, EACH DATED AS OF THE
DATE HEREOF.

     

    The
Company acknowledges and agrees that a Purchaser may from time to time, with
respect to all or some of the Shares or Warrant Shares, enter into a bona fide
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a bona fide security interest pursuant to a bona fide loan to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees in writing to be bound by the provisions
of this Agreement and the Registration Rights Agreement, and if required under
the terms of such bona fide arrangement, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a bona fide pledge
or transfer would not be subject to approval of the Company. At the appropriate
Purchaser’s expense, the Company will execute and deliver such reasonable
documentation as a bona fide pledgee or secured party of Securities may
reasonably request in connection with a bona fide 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.

    
      
         

      

      
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    (c)         Certificates
evidencing the Shares and Warrant Shares shall not contain any legend (including
the legend set forth in Section 4.1(b) hereof), (i) while a registration
statement (including the Registration Statement) covering the resale of such
security is effective under the Securities Act, (ii) following any sale of such
Shares or Warrant Shares pursuant to Rule 144 to a non-Affiliate of the Company,
(iii) if such Shares or Warrant Shares are eligible for sale under Rule 144,
without the requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such Shares or Warrant Shares
and without volume or manner-of-sale restrictions or (iv) if such legend is not
required, as confirmed under applicable judicial interpretations and
pronouncements issued by the staff of the Commission. The Company shall cause
its counsel to issue a customary legal opinion to the Transfer Agent promptly
after the Effective Date if required by the Transfer Agent in connection
therewith to effect the removal of the legend hereunder, unless the Securities
are sold pursuant to Rule 144. If all or any portion of a Warrant is exercised
at a time when there is an effective registration statement to cover the resale
of the Warrant Shares, or if such Shares or Warrant Shares may be sold under
Rule 144 and the Company is then in compliance with the current public
information required under Rule 144, or if the Shares or Warrant Shares may be
sold under Rule 144 without the requirement for the Company to be in compliance
with the current public information required under Rule 144 as to such Shares or
Warrant Shares or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) then such Warrant Shares
shall be issued free of all legends. The Company agrees that following the
Effective Date or at such time as such legend is no longer required or at such
time as such legend is provided to be removed under this Section 4.1(c), it
will, no later than three Trading Days following the delivery by a Purchaser to
the Company or the Transfer Agent of a certificate representing Shares or
Warrant Shares, as the case may be, issued with a restrictive legend (such third
Trading Day, the “Legend Removal
Date”), deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to the
Transfer Agent that enlarge the restrictions on transfer set forth in this
Section 4. Certificates for Securities subject to legend removal hereunder shall
be transmitted by the Transfer Agent to the Purchaser by crediting the account
of the Purchaser’s broker with the Depository Trust Company System as directed
by such Purchaser.

     

    (d)         Each
Purchaser, severally and not jointly with the other Purchasers, agrees with the
Company that such Purchaser will sell all 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 undertaking.

     

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

     

    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 hereunder
in a manner that would require the registration under the Securities Act of the
sale of the Securities hereunder or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any Trading
Market such that it would require shareholder approval prior to the closing of
such other transaction unless shareholder approval is obtained before the
closing of such subsequent transaction.

     

    4.4      Securities Laws Disclosure;
Publicity. Promptly after the Closing Date but no later than the first
Trading Day immediately following the Closing Date, the Company shall issue a
press release announcing the Closing.  Additionally, the Company shall
within four (4) Business Days from the Closing Date file a Current Report on
Form 8-K disclosing the material terms of the transactions contemplated hereby,
and including the Transaction Documents (other than schedules and exhibits to
the Transaction Documents) as exhibits thereto (including all attachments
thereto, the “8-K
Filing”). From and after the filing of such 8-K Filing, the Company shall
have publicly disclosed all material, non-public information delivered to any of
the Purchasers by the Company or any of its Subsidiaries, or any of their
respective agents in connection with the transactions contemplated by the
Transaction Documents. The Company shall not, and shall cause each of its
Subsidiaries and each of their respective officers, directors, employees and
agents, not to, provide any Purchaser with any material, nonpublic information
regarding the Company or any of its Subsidiaries from and after the 8-K Filing
without the express prior written consent of such Purchaser.  The
Company agrees that it shall not provide a Purchaser with any information that
it would not include in a Current Report on Form 8-K.  The Company and
each Purchaser shall consult with each other in issuing any other press releases
with respect to the transactions contemplated hereby, and neither the Company
nor any 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 any Purchaser, or without the prior consent of each 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. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except: (a) as required by federal securities law in connection with
(i) any registration statement contemplated by the Registration Rights Agreement
and (ii) the filing of final Transaction Documents (including signature pages
thereto) with the Commission and (b) to the extent such disclosure is required
by any other law or Trading Market regulations, in which case the Company shall
provide the Purchasers with prior notice of such disclosure permitted under this
clause (b).

    
      
         

      

      
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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 any Purchaser is an “Acquiring
Person” under any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or similar anti-takeover
plan or arrangement in effect or hereafter adopted by the Company, or that any
Purchaser could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the
Purchasers.

     

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

     

    4.7      Use of Proceeds.
Except as set forth on Schedule 4.7 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and shall not use such proceeds for: (a)
the satisfaction of any portion of the Company’s indebtedness for borrowed
funds, (b) the redemption of any Common Stock or Common Stock Equivalents, or
(c) the settlement of any outstanding litigation.

     

    4.8      Indemnification of
Purchasers. Subject to the provisions of this Section 4.8, the Company
will indemnify and hold each Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles,
notwithstanding the absence of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles, notwithstanding
the absence 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 a Purchaser
in any capacity, or any Purchaser Party or any Affiliate of a Purchaser or
Purchaser Party, by any stockholder of the Company who is not an Affiliate of
such Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such stockholder or any violations by such Purchaser of state or federal
securities laws or any conduct by such 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 applicable Purchaser Party, 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 consent 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 (1) any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by such Purchaser
Party in any of the Transaction Documents, (2) any violations by such Purchaser
Party of applicable state or federal securities laws or (3) any conduct by such
Purchaser Party which constitutes fraud, gross negligence, willful misconduct or
malfeasance. The indemnification required by this Section 4.8 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or are incurred. The indemnity
agreements contained herein shall be in addition to any cause of action or
similar right of any Purchaser Party against the Company or others and any other
liabilities to which the Company may be subject pursuant to law.

     

    
      
         

      

      
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    4.9      Reservation of Common
Stock. As of the date hereof, the Company has reserved and the Company
shall continue to reserve and keep available at all times, free of preemptive
rights, a sufficient number of shares of Common Stock for the purpose of
enabling the Company to issue Shares pursuant to this Agreement and all of the
Warrant Shares pursuant to any exercise of the Warrants.

     

    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 a Trading Market and concurrently
with the Closing, the Company shall apply to list or quote all of the Shares and
Warrant Shares on such Trading Market and promptly secure the listing of all of
the Shares and Warrant Shares 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 Shares and
Warrant Shares, and will take such other action as is necessary to cause all of
the Shares and Warrant Shares to be listed or quoted on such other Trading
Market as promptly as practicable. The Company will then take all action
reasonably necessary to continue the listing or quotation and trading of its
Common Stock on the 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 date that is the 24 month anniversary of the Closing
Date, upon any issuance by the Company or any of its Subsidiaries of Common
Stock or Common Stock Equivalents for cash consideration or Indebtedness (or a
combination of units hereof) (a “Subsequent
Financing”), each Purchaser shall have the right to participate in up to
an amount of the Subsequent Financing equal to his pro rata share of the
Aggregate Purchase Price (the “Participation
Maximum”) on the same terms, conditions and price provided for in the
Subsequent Financing; provided, however, that if such Subsequent Financing is a
registered public offering, the Company shall offer each Purchaser the right to
participate in such public offering if it is lawful for the Company to do so,
but no Purchaser shall be entitled to purchase any particular amount of such
public offering.

     

    (b)         At
least five (5) Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent Financing
Notice”). Upon the request of a Purchaser, and only upon a request by
such Purchaser, for a Subsequent Financing Notice, the Company shall promptly,
but no later than one (1) Trading Day after such request, deliver a Subsequent
Financing Notice to such 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)         Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the third (3rd) Trading Day after all of the Purchasers have 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 a Purchaser as of such third (3rd) Trading
Day, such Purchaser shall be deemed to have notified the Company that it does
not elect to participate.

    
      
         

      

      
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    (d)        If
by 5:30 p.m. (New York City time) on the third (3rd) Trading Day after all of
the Purchasers have received the Pre-Notice, notifications by the Purchasers of
their willingness to participate in the Subsequent Financing (or to cause their
designees to participate) is, in the aggregate, less than the total amount of
the Subsequent Financing, then 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 Purchasers with a second Subsequent Financing Notice,
and the Purchasers 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    Equal Treatment of
Purchasers. No consideration (including any modification of any
Transaction Document) shall be offered or paid to any Person to amend or consent
to a waiver or modification of any provision of any of the Transaction Documents
unless the same consideration (other than the reimbursement of legal fees) is
also offered to all of the parties to the Transaction Documents and the parties
to the Separate Agreement. For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

     

    4.13    Certain Transactions and
Confidentiality. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or
pursuant to any understanding with it will execute any purchases or sales,
including Short Sales, of any of the Company’s securities from the date hereof
until 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.  Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company pursuant to the initial
press release as described in Section 4.4, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Transaction Documents and the disclosure schedules
hereto and thereto. Except as set forth above, the Company expressly
acknowledges and agrees that (i) no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in effecting transactions in any
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced pursuant to the initial press
release as described in Section 4.4, (ii) no Purchaser shall be restricted or
prohibited from effecting any transactions in any securities of the Company in
accordance with applicable securities laws from and after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.4 and (iii) no
Purchaser shall have any duty of confidentiality to the Company or its
Subsidiaries after the issuance of the initial press release as described in
Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.

     

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

     

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

     

    
      
         

      

      
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    4.16    Conduct of Business.
The business of the Company and its Subsidiaries shall not be conducted in
violation of any law, ordinance or regulation of any governmental entity, except
where such violations would not result, either individually or in the aggregate,
in a Material Adverse Effect.

     

    4.17    Proxy.  Each
Purchaser hereby appoints Thomas Rende or Thomas Lynch, with full power of
substitution, to vote the Shares purchased hereunder at any meeting of
stockholders of the Company in connection with the Debt Exchange and Preferred
Stock Conversion Agreement between the Company, Fursa Capital Partners LP, Fursa
Master Rediscovered Opportunities L.P., Blackfriars Master Vehicle LLC - Series
2 and Fursa Master Global Event Driven Fund L.P. and any adjournments thereto or
execute any written consents necessary in connection with such agreement. Each
Purchaser hereby affirms that the foregoing proxy is coupled with an interest
and, subject to the terms of this Agreement, shall be irrevocable.

     

    ARTICLE
V

     

    MISCELLANEOUS

     

    5.1      Termination. This
Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations
hereunder only and without any effect whatsoever on the obligations between the
Company and the other Purchasers, by written notice to the other parties, if the
Closing has not been consummated on or before March 16, 2010; provided, however,
that such termination will not affect the right of any party to sue for any
breach by the other party (or parties).

     

    5.2      Fees and Expenses. At
the Closing, the Company has agreed to reimburse Avalon Securities, Ltd. the sum
of $25,000 for its reasonable legal fees and expenses, $10,000 of which has been
paid prior to the Closing. The Company shall deliver to each Purchaser, prior to
the Closing, a completed and executed copy of the Closing Statement, attached
hereto as Annex A. Except as expressly set forth in the Transaction Documents to
the contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all Transfer Agent fees,
stamp taxes and other taxes and duties levied in connection with the delivery of
any Securities to the Purchasers.

     

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

     

    5.4      Notices. Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of: (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
(2nd) Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.

     

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

     

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

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    5.7      Successors and
Assigns. This Agreement shall be binding upon and inure to the benefit of
the parties and their successors and permitted assigns. The Company may not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of each Purchaser (other than by merger). Any Purchaser may
assign any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers all of such Purchaser’s Securities, provided that
such transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
“Purchasers” and that such transferee is either (a) an Affiliate of the
Purchaser or (b) a purchaser of at least the greater of 25% of the Purchaser’s
Securities purchased pursuant to this Agreement or $250,000.

     

    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 United States District Court for the Southern District of New York or in any
state court located in New York County, New York. Each party hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court for
the Southern District of New York and any state court located in New York
County, New York 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, or 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 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 parties hereto, it being understood that all parties need not sign the
same counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.

     

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

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

    5.18    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.

     

    5.19    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.

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    5.20    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.

     

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

     

    (Signature
Pages Follow)

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    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.

     

    
      
        
          
            
              
                
                  
                    	
                            FREDERICK’S
      OF HOLLYWOOD GROUP INC.

                          	 	
                            Address
      for Notice:

                          
	  
      	 	
                            Frederick’s
      of Hollywood Group Inc.

                          
	 
      	 	
                            1115
      Broadway, 11th
      Floor 

                          
	
                            By:

                          	
                            /s/
      Thomas Rende

                          	 	
                            
                              New
      York, New York 10010

                            

                          
	
                            Name:  Thomas
      Rende

                          	 	
                              
      

                          
	
                            Title:  Chief
      Financial Officer

                          	 	
                            Fax:  (212) 213-4925 
      

                          
	  
      	 	
                             

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

                          	 	 
      
	 	 	 
	
                            Graubard
      Miller

                          	 	 
      
	
                            The
      Chrysler Building

                          	 	 
      
	
                            405
      Lexington Avenue

                          	 	 
      
	
                            New
      York, New York 10174

                          	 	 
      
	
                            Attention:  David
      Alan Miller, Esq.

                          	 	 
      
	
                            Fax:
      (212) 818-8881

                          	 	 
      

                  

                

              

            

          

        

      

    

    

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    [PURCHASER
SIGNATURE PAGES TO FOH SECURITIES PURCHASE AGREEMENT]

     

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

     

    
      
        
          
            
              
                	
                        Name of Purchaser:

                      	 

              

            

          

        

      

      

      
        
          
            
              
                	
                        Signature of Authorized
      Signatory of Purchaser:

                      	 

              

            

          

        

      

      

      
        
          
            
              
                	
                        Name
      of Authorized Signatory:

                      	 

              

            

          

        

      

      

      
        
          
            
              
                	
                        Title
      of Authorized Signatory:

                      	 

              

            

          

        

      

      

      
        
          
            
              
                	
                        Email
      Address of Authorized Signatory:

                      	 

              

            

          

        

      

      

      
        
          
            
              	
                      Facsimile
      Number of Authorized Signatory:

                    	 

            

          

        

      

      

      
        
          
            
              	
                      Address
      for Notice of Purchaser:

                    	 

            

          

        

      

      

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

                      	 
      

              

            

          

        

      

    

          

    
      

    

    
      

      

    

     

    
      
        
          
            
              	
                      Subscription
      Amount:  $

                    	 

            

          

        

      

      

      
        
          
            
              	
                      Shares:

                    	 

            

          

        

      

      

      
        
          
            
              
                	
                        Warrant
      Shares:

                      	 

              

            

          

        

      

    

     

    EIN
Number:  [PROVIDE
THIS UNDER SEPARATE COVER]

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    Annex
A

     

    CLOSING
STATEMENT

     

    Pursuant to the attached Securities
Purchase Agreement, dated as of the date hereof, the purchasers shall purchase
up to $6,000,000 of Common Stock and Warrants from Frederick’s of Hollywood
Group Inc., a New York corporation (the “Company”). All funds
will be wired into an escrow account as specified in the Escrow Agreement. All
funds will be disbursed in accordance with this Closing Statement.

     

    Disbursement Date:
March 16, 2010

     

    I.      PURCHASE
PRICE

     

    Gross Proceeds to be
Received                $_____________

     

    II.     DISBURSEMENTS                                                      

     

                                                                    $_____________
to Avalon Securities, Ltd.

     

                                                                    $_____________
to Mintz Levin

     

                                                                    $_____________                                

     

                                                                    $_____________                                

     

                                                                    $_____________                                

     

    Total
Amount
Disbursed:                                          $______________                                

     

    WIRE
INSTRUCTIONS:

     

    To Avalon
Securities,
Ltd.:                                                                 

     

    [insert wire instructions]

     

    To Mintz
Levin:

     

    [insert wire instructions]

     

    To:           

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    

    Disclosure
Schedules of Frederick’s of Hollywood Group Inc.

    

    to
the

    

    SECURITIES
PURCHASE AGREEMENT

    

    between

    

    FREDERICK’S
OF HOLLYWOOD GROUP INC.

    (the
“Company”),

    

    and

    

    EACH
PURCHASER IDENTIFIED ON THE SIGNATURE PAGES THERETO

    (each
a “Purchaser” and collectively, the “Purchasers”)

    

    The
section numbers in these Schedules correspond to the section numbers in the
above referenced Securities Purchase Agreement (“Purchase
Agreement”).  Any information disclosed herein under any section
number shall be deemed to be disclosed and incorporated into any other section
number under the Purchase Agreement if such fact or combination of facts has
been disclosed in sufficient detail and is reasonably apparent to put a
reasonable person on notice of the relevance of the facts or circumstances so
disclosed.  All capitalized terms not otherwise defined in these
Schedules shall have the meaning ascribed to them in the Purchase
Agreement.

    

    These
Schedules and the information and disclosures contained in these Schedules are
intended only to respond to, qualify or limit the representations, warranties
and covenants of the Company and shall not be deemed to expand in any way the
scope or effect any such representation, warranty or covenant.  The
inclusion of any item in any section of the Schedules (i) does not represent a
determination by the Company that such item is “material” or has, or would
reasonably be expected to have, a Material Adverse Effect, (ii) does not
represent a determination by the Company that such item did not arise in the
ordinary course of business and (iii) does not constitute an admission to any
third party of any liability or obligation to any third
party.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
3.1(a)

    SUBSIDIARIES

    

    
      
        	
                FOH
      Holdings, Inc.

              	 
      	
                Incorporated:

              	 
      	
                Delaware,
      May 9, 1997

              
	 
      	 
      	
                Authorized
      Stock:

              	 
      	
                100
      Common Shares, $.01 par value

              
	 
      	 
      	
                Issued
      Stock:

              	 
      	
                100
      Common Shares*

              
	 
      	 
      	
                Shareholder:

              	 
      	
                Frederick’s
      of Hollywood Group Inc.

              
	 
      	 
      	 
      	 
      	 
      
	
                Fredericks.com,
      Inc.

              	 
      	
                Incorporated:

              	 
      	
                Nevada,
      April 19, 1999

              
	 
      	 
      	
                Authorized
      Stock:

              	 
      	
                120,000,000
      common shares of which 80,000,000 Shares are Class A Common $0.01 par
      value and

                40,000,000
      Shares Class B Common $0.01 par value

              
	 
      	 
      	 
      	 
      	
                1,000,000
      Preferred $0.01 par value

              
	 
      	 
      	
                Issued
      Stock:

              	 
      	
                11,575,000
      Class B Common*

              
	 
      	 
      	
                Shareholder:

              	 
      	
                Frederick’s
      of Hollywood, Inc.

              
	 
      	 
      	 
      	 
      	 
      
	
                Frederick’s
      of Hollywood, Inc.

              	 
      	
                Incorporated:

              	 
      	
                Delaware,
      March 1, 1962

              
	 
      	 
      	
                Authorized
      Stock:

              	 
      	
                3,000
      Common Shares, $0.01 par value

              
	 
      	 
      	
                Issued
      Stock

              	 
      	
                1,000
      Common Shares*

              
	 
      	 
      	
                Shareholder:

              	 
      	
                FOH
      Holdings, Inc.

              
	 
      	 
      	 
      	 
      	 
      
	
                Frederick’s
      of Hollywood Stores, Inc.

              	 
      	
                Incorporated:

              	 
      	
                Nevada,
      July 8, 1998

              
	 
      	 
      	
                Authorized
      Stock:

              	 
      	
                1,000
      common shares, $0.01 par value

              
	 
      	 
      	
                Issued
      Stock

              	 
      	
                100
      common shares*

              
	 
      	 
      	
                Shareholder:

              	 
      	
                Frederick’s
      of Hollywood, Inc.

              
	 
      	 
      	 
      	 
      	 
      
	
                Hollywood
      Mail Order, LLC

              	 
      	
                Formation:

              	 
      	
                Nevada,
      July 20, 1999

              
	 
      	 
      	
                Manager:

              	 
      	
                FOH
      Holdings, Inc.

              
	 
      	 
      	
                Membership
      Interest:

              	 
      	
                Frederick’s
      of Hollywood, Inc.

              
	 
      	 
      	 
      	 
      	 
      
	
                Cinejour
      Lingerie Inc.

              	 
      	
                Incorporated:

              	 
      	
                Canada,
      May 7, 2004

              
	 
      	 
      	
                Authorized
      Stock:

              	 
      	
                Unlimited
      Class A Common

              
	 
      	 
      	 
      	 
      	
                Unlimited
      Class B Common

              
	 
      	 
      	 
      	 
      	
                Unlimited
      Preferred A

              
	 
      	 
      	 
      	 
      	
                Unlimited
      Preferred B

              
	 
      	 
      	 
      	 
      	
                Unlimited
      Preferred C

              
	 
      	 
      	 
      	 
      	
                Unlimited
      Preferred D

              
	 
      	 
      	
                Issued
      Stock:

              	 
      	
                100
      Class A Common*

              
	 
      	 
      	
                Shareholder:

              	 
      	
                Frederick’s
      of Hollywood Group Inc.

              
	 
      	 
      	 
      	 
      	 
      
	
                FOH
      (Hong Kong) Limited

              	 
      	
                Incorporated:

              	 
      	
                Hong
      Kong, September 7, 2009

              
	 
      	 
      	
                Authorized
      Stock:

              	 
      	
                100
      Shares

              
	 
      	 
      	
                Issued
      Stock:

              	 
      	
                100
      Shares*

              
	 
      	 
      	
                Shareholder

              	 
      	
                Frederick’s
      of Hollywood Group Inc.

              

      

    

    
       

      
        

      

    

    
      	
            	
              *

            	
              Securities
      pledged to Wells Fargo Retail Finance II, LLC (“Senior Lender”) in
      accordance with the terms of that certain Pledge and Security Agreement,
      dated as of January 28, 2008, by the Company for the benefit of the Senior
      Lender.

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
3.1(g)

    CAPITALIZATION

    

    Authorized Capital of
Frederick’s of Hollywood Group Inc. (“Company”)

    Common Stock:  200,000,000
shares, $.01 par value

    Preferred Stock:  10,000,000
shares, $.01 par value

    

    
      Outstanding Stock Options
and Convertible Securities

    

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  	
                                          Number of

                                          option grants

                                        	 	 	
                                          Total Shares

                                          Granted

                                        	 	 	
                                          Price Range

                                        	 	 	
                                          Remaining life in years

                                        	 
	
                                          6

                                        	 	 	 	442,500	 	 	 	
                                          $.17
      - $.96

                                        	 	 	
                                          8.56

                                        	 
	
                                          10

                                        	 	 	 	518,729	 	 	 	
                                          $1.12
      - $1.95

                                        	 	 	
                                          5.46

                                        	 
	
                                          16

                                        	 	 	 	629,071	 	 	 	
                                          $2.00
      - $2.90

                                        	 	 	
                                          6.50

                                        	 
	
                                          6

                                        	 	 	 	596,253	 	 	 	
                                          $3.10
      - $3.10

                                        	 	 	
                                          5.28

                                        	 
	
                                          3

                                        	 	 	 	31,171	 	 	 	
                                          $4.44 - $4.52

                                        	 	 	
                                          7.21

                                        	 
	
                                          41

                                        	 	 	 	2,217,724	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      
        
          
            
              
                
                  	
                          Number of

                          Warrant Grants

                        	 	 	
                          Total Shares

                          Granted

                        	 	 	
                          Price Range

                        	 	 	
                          Remaining life in years

                        	 
	
                          2

                        	 	 	 	596,591	 	 	
                          $3.52

                        	 	 	
                          0.92

                        	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

                

              

            

          

        

      

    

    
      Anti-Dilution

    

    

    Upon the
closing of the transactions contemplated by the Purchase Agreement (“Offering”),
the Company will be required to adjust the exercise price and/or the number of
shares of the following securities:

    

    
      	
               
      

            	
              ·

            	
              Warrant,
      dated January 28, 2008, to purchase 298,296 shares of the Company’s common
      stock issued to Tokarz Investments,
LLC

            

    

    

    
      	
               
      

            	
              ·

            	
              Warrant,
      dated January 28, 2008, to purchase 298,296 shares of the Company’s common
      stock issued to Fursa Master Global Event Driven Fund
  L.P.

            

    

    

    
      	
               
      

            	
              ·

            	
              3,629,325
      shares of the Company’s Series A 7.5% Convertible Preferred Stock1

            

    

    

    Beneficial Ownership
Table

     The
following table sets forth information regarding the beneficial ownership of the
Company’s common stock as of March 8, 2010 by:

     

    
      	
               
      

            	
              ·

            	
              each
      person or group (as that term is used in Section 13(d)(3) of the
      Securities Exchange Act of 1934) known by the Company to be the beneficial
      owner of more than 5% of the Company’s outstanding shares of common stock
      on March 8, 2010;

            

    

     

      

    

    1 Such shares are subject to the terms
of a Debt Exchange and Preferred Stock Conversion Agreement (“Exchange and
Conversion Agreement”) pursuant to which all of the shares of Series A 7.5%
Convertible Preferred Stock, as adjusted as a result of the Offering, will be
converted into the same number of shares of common stock as originally provided
for in the Exchange and Conversion Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              ·

            	
              each
      of the Company’s named executive officers and directors;
    and

            

    

     

    
      	
               
      

            	
              ·

            	
              all
      of the Company’s named executive officers and directors, as a
      group.

            

    

     

    The percentage of beneficial ownership
indicated below is based on 26,429,658 shares of common stock outstanding on
March 8, 2010.  The Company’s outstanding Series A preferred stock is
convertible into and votes together with the common stock and not as a separate
class.

     

    
      
        
          	 
      	 	
                  
                    Beneficial Ownership of

                    Our Common Stock on

                    March 8, 2010

                  

                	 
	
                  
                    Name and Address of

                    Beneficial Owner(1)

                  

                	 	
                  
                    Number

                    of Shares

                  

                	 	 	
                  
                    Percent of

                    Class

                  

                	 
	
                  TTG
      Apparel, LLC

                  287
      Bowman Avenue

                  Purchase,
      New York 10577

                	 	 	1,766,322	

                  (2)

                	 	 	6.7	%
	
                  Tokarz
      Investments, LLC

                  287
      Bowman Avenue

                  Purchase,
      New York 10577

                	 	 	8,685,273	

                  

                    (2)(3)

                  

                	 	 	32.5	%
	
                  Fursa
      Alternative Strategies LLC, on behalf of certain funds and accounts
      affiliated with or managed by it or its affiliates

                  25
      Smith Street

                  Farmingdale,
      New York 11735

                	 	 	10,197,475	

                  (4)

                	 	 	36.1	%
	
                  Thomas
      J. Lynch

                	 	 	590,000	

                  (5)

                	 	 	2.2	%
	
                  Peter
      Cole

                	 	 	578,112	

                  (6)

                	 	 	2.2	%
	
                  Thomas
      Rende

                	 	 	320,544	

                  (7)

                	 	 	1.2	%
	
                  Linda
      LoRe

                	 	 	850,249	

                  (8)

                	 	 	3.2	%
	
                  John
      L. Eisel

                	 	 	97,561	

                  (9)

                	 	 	*	 
	
                  William
      F. Harley

                  Fursa
      Alternative Strategies LLC

                  25
      Smith Street

                  Farmingdale,
      New York 11735

                	 	 	85,073	

                  (10)

                	 	 	*	 
	
                  Michael
      A. Salberg

                	 	 	42,267	

                  (11)

                	 	 	*	 
	
                  Joel
      M. Simon

                	 	 	78,738	

                  (9)

                	 	 	*	 
	
                  Milton
      J. Walters

                	 	 	78,032	

                  (12)

                	 	 	*	 
	
                  All
      directors and executive officers as a group (9
individuals)

                	 	 	2,720,576	

                  (13)

                	 	 	9.9	%

        

      

    

     

    
      	
              *

            	
              Less
      than 1%.

            

    

     

    
      	
              (1)

            	
              Unless
      otherwise noted, the business address of each of (a) Thomas J. Lynch,
      Peter Cole, Thomas Rende, John L. Eisel, Michael A. Salberg, Joel M. Simon
      and Milton J. Walters is c/o Frederick’s of Hollywood Group Inc., 1115
      Broadway, New York, New York 10010 and (b) Linda LoRe is c/o Frederick’s
      of Hollywood Group Inc., 6255 Sunset Boulevard, Sixth Floor, Hollywood,
      California 90028.

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
              (2)

            	
              According
      to a Schedule 13D, dated January 28, 2008, and filed with the SEC on
      February 5, 2008, Michael T. Tokarz is the sole controlling person and
      manager of each of TTG Apparel, LLC and Tokarz Investments,
      LLC.

            

    

     

    
      	
              (3)

            	
              Includes
      298,296 shares of common stock issuable upon exercise of currently
      exercisable warrants.

            

    

     

    
      	
              (4)

            	
              Includes
      (a) 298,296 shares of common stock issuable upon exercise of currently
      exercisable warrants and (b) 1,512,219 shares of common stock issuable
      upon conversion of 3,629,325 shares of Series A preferred
      stock.  Certain of these securities are subject to a Pledge
      Agreement between Fursa Master Global Event Driven Fund LP and Scotia
      Capital (USA) Inc.

            

    

     

    
      	
              (5)

            	
              Includes
      (a) currently exercisable options to purchase 240,000 shares and (b)
      100,000 shares of restricted stock, of which 50,000 shares are vested and
      50,000 shares will vest on January 2, 2011.  Excludes options to
      purchase 120,000 shares that are not exercisable within 60 days of March
      8, 2010.

            

    

     

    
      	
              (6)

            	
              Includes
      (a) 50,000 shares of common stock held by Performance Enhancement
      Partners, LLC and (b) currently exercisable options to purchase 162,500
      shares of common stock granted to Performance Enhancement Partners,
      LLC.  Peter Cole, as sole member of Performance Enhancement
      Partners, has voting and dispositive power over these
    shares.

            

    

     

    
      	
              (7)

            	
              Includes
      (a) currently exercisable options to purchase 161,250 shares, (b) 157,644
      shares held jointly with Mr. Rende’s spouse and (c) 1,650 shares owned by
      Mr. Rende’s spouse. Excludes options to purchase 30,000 shares that are
      not exercisable within 60 days of March 8,
2010.

            

    

     

    
      	
              (8)

            	
              Includes
      (a) currently exercisable options to purchase 500,249 shares and (b)
      200,000 shares of restricted stock, of which 100,000 shares are vested and
      50,000 shares vest on each of December 31, 2010 and
      2011.  Excludes options to purchase 85,113 shares that are not
      exercisable within 60 days of March 8,
2010.

            

    

     

    
      	
              (9)

            	
              Includes
      currently exercisable options to purchase 6,000
  shares.

            

    

     

    
      	
              (10)

            	
              As
      Chief Investment Officer of Fursa Alternative Strategies LLC, William F.
      Harley exercises voting and dispositive power over shares beneficially
      owned by certain funds and accounts affiliated with, managed by, or over
      which Fursa or any of its affiliates exercises investment authority,
      including, without limitation, with respect to voting and dispositive
      rights, described in Footnote 4 above. Mr. Harley disclaims beneficial
      ownership of the shares described in Footnote 4 above except to the extent
      of his pecuniary interest therein.

            

    

     

    
      	
              (11)

            	
              Represents
      (a) 36,267 shares owned by Mr. Salberg’s spouse and (b) currently
      exercisable options to purchase 6,000
shares.

            

    

     

    
      	
              (12)

            	
              Includes
      (a) 22,835 shares of common stock held by Sagebrush Group, Inc. and (b)
      currently exercisable options to purchase 26,718
      shares.  Excludes options to purchase 4,452 shares that are not
      exercisable within 60 days of March 8, 2010.  Milton Walters, as
      the sole shareholder of Sagebrush Group, Inc. has voting and dispositive
      power over the shares held by Sagebrush Group,
  Inc.

            

    

     

    
      	
              (13)

            	
              Includes
      an aggregate of 1,143,717 shares that Thomas J. Lynch, Peter Cole, Thomas
      Rende, Linda LoRe, John L. Eisel, Michael A. Salberg, Joel M. Simon and
      Milton J. Walters have the right to acquire upon exercise of outstanding
      options that are exercisable within 60 days of March 8,
    2010.

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    SCHEDULE
3.1(q)

    TRANSACTIONS
WITH AFFILIATES AND EMPLOYEES

    

    None.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
3.1(s)

    CERTAIN
FEES

     

    Upon the closing of the Offering,
Avalon Securities Ltd. and/or its designees (“Avalon”) will receive from the
Company: (i) an amount of cash equal to six and one-half percent (6.5%) of the
total gross proceeds raised in the Offering and (ii) Series B warrants to
purchase shares of the Company’s common stock in an amount equal to seven and
one-half percent (7.5%) of the number of shares of common stock sold in the
Offering.  Notwithstanding the foregoing, Avalon shall not receive any
fees relating to purchases of shares in the Offering by officers, directors or
affiliates of the Company.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
3.1(w)

    LISTING
AND MAINTENANCE REQUIREMENTS

    

    The Company’s has sustained net losses
in two of its three most recent fiscal years and as of January 23, 2010, had
shareholders’ equity of less than $2,000,000.  Accordingly, the NYSE
Amex may notify the Company that it is not in compliance with NYSE Amex policies
regarding the financial condition of listed companies.  To date, the
Company has not received such notification.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
3.1(x)

    APPLICATION
OF TAKEOVER PROVISIONS

    

    The Company has not opted out of
Section 912 of the New York Business Corporation Law, which regulates
acquisitions of New York corporations.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
3.1(aa)

    OUTSTANDING
INDEBTEDNESS

    

    Frederick’s
of Hollywood Group Inc.

    Schedule
of Indebtedness

    as
of March 5, 2010

    

    
      
        
          
            
              
                	 
      	 	
                        Amounts
      in

                      	 
	 
      	 	
                        Dollars

                      	 
	
                        Wells
      Fargo Loans:

                      	 	 	 
	
                        Revolving
      Line of Credit

                      	 	 	9,628,173.39	 
	
                        Bridge
      Loan

                      	 	 	2,000,000.00	 
	
                        Balance
      as of March 5, 2010

                      	 	 	11,628,173.39	 
	 
      	 	 	 	 
	
                        Letters
      of Credit:

                      	 	 	 	 
	
                        Stand-by
      Letters of Credit

                      	 	 	620,000.00	 
	
                        Documentary
      Letters of Credit

                      	 	 	173,383.00	 
	
                        Balance
      as of March 5, 2010

                      	 	 	793,383.00	 
	 
      	 	 	 	 
	
                        Tranche
      C Note2:

                      	 	 	 	 
	
                        Balance
      as of January 23, 2010

                      	 	 	14,002,794.45	 
	
                        Additional
      Accrued Interest @ 6%

                      	 	 	72,348.06	 
	
                        Additional
      Accrued Interest @ 1%

                      	 	 	12,197.48	 
	
                        Balance
      as of March 5, 2010

                      	 	 	14,087,339.99	 
	 
      	 	 	 	 
	
                        Preferred
      Stock3:

                      	 	 	 	 
	
                        Original
      Balance

                      	 	 	7,500,000.00	 
	
                        Accrued
      Dividend

                      	 	 	1,182,020.55	 
	
                        Balance
      as of March 5, 2010

                      	 	 	8,682,020.55	 
	 
      	 	 	 	 
	
                        Capital
      Lease:

                      	 	 	 	 
	
                        Verizon
      Phone System as of March 5, 2010

                      	 	 	144,234.00	 

              

            

          

        

      

    

     

    
      
        
2
The Tranche C Note, including accrued interest, will be exchanged for shares of
common stock pursuant to the Exchange and Conversion
Agreement.

    

    
      3
The Preferred Stock, including accrued dividends, will be converted into shares
of common stock pursuant to the Exchange and Conversion Agreement.

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
4.7

    USE
OF PROCEEDS

    

    
      
        
          
            	
                    Use of Proceeds

                  	 	 	 
	
                    NYSE
      Amex Listing fee and other fees

                  	 	$	50,000	 
	
                    Legal
      expenses relating to the Offering

                  	 	 	60,000	 
	
                    Fees
      related to the Offering

                  	 	 	200,000

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