SECURITIES PURCHASE AGREEMENT

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (this “ Agreement ”) is made May 31, 2009 by and among Jamba, Inc., a Delaware corporation (the “ Company ”), and each of those Persons, severally and not jointly, listed as a Purchaser on the Schedule of Purchasers attached as Exhibit A hereto (the “ Schedule of Purchasers ”). Such Persons are hereinafter collectively referred to herein as “Purchasers” and each individually as a “Purchaser.” Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in Article I hereof.

RECITALS

WHEREAS, upon the terms and conditions set forth in this Agreement, the Company proposes to issue and sell to the Purchasers at the Closing, as set forth on Exhibit A , an aggregate of 170,000 shares of Series B-1 Convertible Preferred Stock of the Company, par value $0.001 per share (the “ Series B-1 Preferred Stock ”) and an aggregate of 134,348 shares of Series B-2 Convertible Preferred Stock of the Company, par value $0.001 per share (the “ Series B-2 Preferred Stock ” and together with the Series B-1 Preferred Stock, the “ Preferred Stock ”), initially convertible into an aggregate of 30,434,800 shares of Common Stock (as may be adjusted in accordance with the terms of the Certificate of Designation (the “ Underlying Shares ”). The shares of Preferred Stock being issued and sold pursuant to this Agreement shall be referred to herein as “ Purchased Shares .”

WHEREAS, the Company and the Purchasers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D (“ Regulation D ”) as promulgated by the SEC under the Securities Act.

WHEREAS, as a condition to the willingness of the Purchasers to enter into this Agreement, in connection with the Closing the Purchasers and the Company will execute and deliver a Registration Rights Agreement, substantially in the form attached hereto as Exhibit B (the “ Registration Rights Agreement ”), pursuant to which the Company shall provide certain registration rights under the Securities Act.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

AGREEMENT

ARTICLE I     DEFINITIONS

1.1 Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated:

“ 2008 10-K ” has the meaning set forth in the definition of “Qualifying SEC Documents” as set forth in Section 1.1 of this Agreement.

“ Affiliate ” means, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially or as a trustee, guardian or other fiduciary, ten percent (10%) or more of any class of Equity Securities of such Person, (b) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person or (c) each of such Person’s officers, directors, joint venturers and partners; provided, however, that !

in no case shall a Purchaser be deemed to be an Affiliate of the Company or any of its Subsidiaries for purposes of this Agreement or the other Transaction Documents. For the purpose of this definition, “control” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.

“ Agreement ” means this Agreement as the same may be amended, supplemented or modified in accordance with the terms hereof.

“ Board Membership Qualifications ” has the meaning set forth in Section 7.1(c) of this Agreement.

“ Board Nomination Rights ” has the meaning set forth in Section 7.1(b) of this Agreement.

“ Board Observer ” has the meaning set forth in Section 7.1(h) of this Agreement.

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

“ Board Representative ” means any individual nominated by the Mistral Purchasers or the Serruya Purchaser for membership to the Board of Directors.

“ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law or executive order to close.

“ Bylaws ” means the Bylaws of the Company, and all amendments thereto.

“ Certificate of Designation ” means the Certificate of Designation with respect to the Preferred Stock adopted by the Board of Directors and duly filed with the Secretary of State of the State of Delaware on or before the Closing Date in the form attached hereto as Exhibit C .

“ Certificate of Incorporation ” means the Certificate of Incorporation of the Company and all amendments and certificates of designations thereto, in effect on the Closing Date.

“ Claim ” has the meaning set forth in Section 3.7 of this Agreement.

“ Closing ” has the meaning set forth in Section 2.2(a) of this Agreement.

“ Closing Amount ” means, with respect to any Purchaser, the total number of shares of Common Stock beneficially owned by such Purchaser or issued or issuable upon the conversion of the Purchased Shares owned by such Purchaser immediately following the Closing.

“ Closing Date ” has the meaning set forth in Section 2.2(a) of this Agreement.

“ Code ” means the Internal Revenue Code of 1986, as amended, or any successor statute thereto.

“ Common Stock ” means the common stock, par value $0.001 per share, of the Company.

 

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“ Common Stock Equivalents ” means any security or obligation which is by its terms, directly or indirectly, substantively analogous to, convertible into or exchangeable or exercisable into or for, shares of Common Stock, including, without limitation, the Purchased Shares and any option, warrant or other subscription or purchase right with respect to Common Stock.

“ Company ” has the meaning set forth in the preamble to this Agreement.

“ Company Disclosure Schedule ” means the disclosure schedule delivered by the Company to the Purchasers on the date hereof and attached hereto as Exhibit D .

“ Company Indemnified Parties ” has the meaning set forth in Section 9.2(b) of this Agreement

“ Company Material Adverse Effect ” means any change, effect, event, occurrence, state of facts or development that, individually or in the aggregate, has had, or would reasonably be expected to have, a material adverse effect on the business, properties, results of operations or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole or on the transactions contemplated hereby and by other Transaction Documents, or on the authority or ability of the Company to fully and timely perform its obligations under any Transaction Document; provided, that none of the following shall be taken into account when determining whether there has been a Company Material Adverse Effect: any adverse change, effect, event, occurrence, state of facts or development attributable to: (i) economic conditions generally in the United States, or conditions in general in the industry and markets in which the Company and its Subsidiaries conduct their businesses, except to the extent such changes materially and disproportionately affect, in an adverse manner, the Company and its Subsidiaries, taken as a whole, (ii) any change in the laws or regulations generally applicable to the industry or markets in which the Company and its Subsidiaries operate, except to the extent such changes materially and disproportionately affect, in an adverse manner, the Company and its Subsidiaries, taken as a whole, (iii) any decrease in the market price or trading volume of the Common Stock (provided that the underlying causes of such decrease (subject to the other provisions of this paragraph) shall not be excluded), (iv) any failure to meet internal projections or forecasts or published revenue or earnings predictions for any period (provided that the underlying causes of such failures (subject to the other provisions of this paragraph) shall not be excluded), (v) any adverse change, effect, event, occurrence, state of facts or development resulting from the announcement or pendency of the transactions contemplated by this Agreement or (vi) any adverse change, effect, occurrence, state of facts or development resulting from compliance with the terms and conditions of this Agreement.

“ Continuing Director ” means (i) the members of the Board of Directors on the Closing Date and (ii) each other member of the Board of Directors for whom such other member’s nomination for election to the Board of Directors is recommended by at least a majority of the then Continuing Directors.

“ Contractual Obligations ” means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument to which such Person is a party or by which it or any of its property is bound.

“ Current UFOC ” means the Uniform Franchise Offering Circular or Franchise Disclosure Document in use in connection with the offer or sale of Franchises in the United States and its territories (or to a Person domiciled anywhere therein) as of the date of this Agreement.

 

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“ DGCL ” has the meaning set forth in Section 3.31(d) of this Agreement.

“ Disclosing Party ” has the meaning set forth in Section 7.7(a) of this Agreement.

“ Environmental Laws ” means all federal, state, local or foreign Laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including Laws relating to Hazardous Materials into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, Permits, plans or regulations issued, entered, promulgated or approved thereunder.

“ Equity Plans ” means the Company’s 2006 Employee, Director and Consultant Stock Plan, the Jamba Juice Company 2001 Equity Incentive Plan and the Jamba Juice Company 1994 Stock Incentive Plan or any other equity compensation plan, agreement, or arrangement maintained by the Company or any of its Subsidiaries.

“ Equity Securities ” of any Person means (a) all common stock, preferred stock, participations, shares, partnership interests, membership interests or other equity interests in and of such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire (whether by conversion, exchange, exercise or otherwise) any of the foregoing, including all equity awards granted under the Equity Plans.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, and the regulations and published interpretations thereunder.

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

“ Exercise Notice ” has the meaning set forth in Section 7.9(b) of this Agreement.

“ Exercising Party ” has the meaning set forth in Section 7.9(a) of this Agreement.

“ Financial Statements ” means, with respect to any accounting period for any Person, statements of income and of cash flow of such Person for such period, and balance sheets of such Person as of the end of such period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year if such period is less than a full fiscal year or, if such period is a full fiscal year, corresponding figures from the preceding fiscal year, all prepared in reasonable detail and in accordance with GAAP. Unless otherwise indicated, each reference to Financial Statements of any Person shall be deemed to refer to Financial Statements prepared on a consolidated basis.

“ Foreign Franchises ” has the meaning set forth in Section 3.23(c) of this Agreement.

“ Form 8-K ” has the meaning set forth in Section 7.7(b) of this Agreement

“ Franchise ” means the franchise granted by the Company or any of its Subsidiaries to a Person to establish and operate a “Jamba Juice” store, and other food products and beverages and related services under the name “Jamba Juice.”

 

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“ Franchise Agreement ” has the meaning set forth in Section 3.23(a) of this Agreement.

“ Franchisee ” means a Person to whom the Company or any of its Subsidiaries grants a Franchise.

“ FTC Rule ” means the Trade Regulation Rule on Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures promulgated by the Federal Trade Commission, 16 CFR Part 436.

“ GAAP ” means generally accepted accounting principles and practices as in effect in the United States of America from time to time, consistently applied.

“ Governance Committee ” has the meaning set forth in Section 7.1(c) of this Agreement.

“ Governmental Authority ” means the government of any nation, state, province, city, locality or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

“ Hazardous Materials ” means emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes.

“ Hedging Obligations ” means, with respect to any specified Person, the obligations of such Person under: (i) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements; (ii) other agreements or arrangements designed to manage interest rates or interest rate risk; and (iii) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices.

“ IFOC ” means a franchise offering circular for use in connection with the offer or sale of Franchises in jurisdictions outside of the United States and its territories.

“ Indebtedness ” means, as to any Person, without duplication: (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, excluding “capital” and “operating” leases; (c) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, excluding (i) letters of credit issued as collateral for self-insured worker’s compensation and self-insured health insurance plans, in an aggregate amount not to exceed $5,000,000 through June 30, 2009 and in an aggregate amount not to exceed $3,000,000 thereafter, and (ii) surety bonds issued to secure operating activities in an aggregate amount not to exceed $1,000,000; (d) all obligations evidenced by notes, bonds, notes or similar instruments whether convertible or not, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case, with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (f) all indebtedness referred to in clauses (a) through (e) above secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though

 

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the Person that owns such assets or property has not assumed or become liable for the payment of such indebtedness, (g) all contingent obligations in respect of indebtedness or obligations of others, of the kinds referred to in clauses (a) through (f) above; (h) banker’s acceptances; (i) the balance deferred and unpaid of the purchase price of any property or services due more than six (6) months after such property is acquired or such services are completed; and (j) Hedging Obligations. In addition, the term “Indebtedness” of Company or any of its Subsidiaries, as applicable, includes (i) all Indebtedness of others secured by a Lien on any assets of any of the Company or any of its Subsidiaries (whether or not such Indebtedness is assumed by the Company or such Subsidiaries), and (ii) to the extent not otherwise included, the guarantee by the Company or any of its Subsidiaries of any Indebtedness of any other Person; provided, however, that Indebtedness shall not include, in connection with any refranchising transaction, any lease guarantee of a franchisee or any sublease entered into between the Company and a franchisee by which the franchisee does not pay the Company, as sublandlord, the full amount the Company, as a lessee, is required to pay the landlord under the lease.

“ Indemnified Party ” has the meaning set forth in Section 9.2(c) of this Agreement.

“ Indemnifying Party ” has the meaning set forth in Section 9.2(c) of this Agreement.

“ Insolvent ” means, with respect to each of the Company or any of its Subsidiaries, (i) the present fair saleable value of the Company’s or any of its Subsidiaries’ assets is less than the amount required to pay the Company’s or any of its Subsidiaries’ total Indebtedness as applicable, (ii) the Company or any of its Subsidiaries is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (iii) the Company or any of its Subsidiaries intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature or (iv) the Company or any of its Subsidiaries has unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted.

“ Intellectual Property Rights ” means in any and all jurisdictions throughout the world: (a) all trademarks, service marks, logos, designs, business names, trade dress, domain names, brand names or other indicia of origin, including all registrations and applications thereof and all goodwill associated therewith; (b) all copyrightable works, all copyrights, including all applications, registrations, renewals and extensions in connection therewith; (c) all inventions (whether patentable or not patentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures; (d) all trade secrets, and, to the extent confidential, know-how, processes, procedures, customer lists and personally identifiable information, databases, confidential business information, ideas, research and development, formulae, supplier lists, pricing and cost information, business and marketing plans and proposals and other confidential proprietary information and rights (whether or not patentable or subject to copyright or trade secret protection); (e) all computer programs, whether in source code or object code form, all data, database specifications, designs and compilations and all documentation relating to any of the foregoing; (f) all advertising and promotional materials; and (g) all other rights, of any nature, similar to the foregoing.

“ Inventory ” has the meaning provided in the Uniform Commercial Code.

“ IP Contract ” has the meaning set forth in Section 3.22(d) of this Agreement.

“ Knowledge ” means the knowledge of the executive officers of the Company, after due inquiry.

 

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“ Law ” means any federal, state, provincial, local, municipal, foreign, international, multinational, or other administrative statute, regulation, order, rule, directive, ordinance, code, constitution, principle of common law, equity or treaty.

“ Liabilities ” has the meaning set forth in Section 3.14(b) of this Agreement.

“ Lien ” means any lien, security interest, pledge, bailment, mortgage, hypothecation, deed of trust, conditional sales and title retention agreement (including any lease in the nature thereof), charge, encumbrance or other similar arrangement or interest in real or personal property, whether or not filed, recorded or otherwise perfected under applicable Law, whether now or hereafter owned, operated or leased, and includes conditional sales contracts, title retention agreements, capital trusts and capital leases.

“ Losses ” has the meaning set forth in Section 9.2(a) of this Agreement.

“ Majority Interest ” means (i) for all periods prior to the Closing, those Purchasers whose Transaction Percentages are greater than or equal to fifty percent (50%) in the aggregate and (ii) for all periods from and after the Closing, those holders (or their permitted assigns) who hold a majority of the shares of Common Stock issued or issuable upon conversion of all of the Purchased Shares (as adjusted for any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse split or other like changes in the Company’s capital structure).

“ Material Contract ” means any contract or arrangement to which the Company or any of its Subsidiaries is a party (other than the Transaction Documents) that is (x) material to the Company and its Subsidiaries, taken as a whole or (y) that is required to be filed as an exhibit to the reports of the Company filed with the SEC pursuant to its obligations under the Exchange Act and in accordance with Item 601 of Regulation S-K.

“ Mistral Manager ” has the meaning set forth in Section 2.2(c) of this Agreement.

“ Mistral Ownership Floor ” has the meaning set forth in Section 7.1(f) of this Agreement.

“ Mistral Purchaser ” means any of Mistral Equity Partners, LP, Mistral Equity Partners QP, LP and MEP Co-Investment, LLC.

“ Mistral Purchaser Sale ” has the meaning set forth in Section 7.1(f) of this Agreement.

“ Mistral Representatives ” means two (2) individuals identified by the Mistral Purchasers for membership to the Board of Directors by way of written notice delivered to the Company not fewer than two (2) Business Days prior to the Closing Date.

“ Mistral Seats ” has the meaning set forth in Section 7.1(a) of this Agreement.

“ Monitoring Fee ” means an amount equal to (a) $150,000 less (b) the annual cash compensation payable (pro-rated for the appropriate period ending on the respective Payment Date) to the Mistral Manager for the services of the Mistral Representatives as members of the Board of Directors under Section 7.1(g); provided, however, that in no event shall the aggregate amount paid to the Mistral Manager as a Monitoring Fee from and after the Closing Date exceed $3,060,000 in the aggregate.

 

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“ NASDAQ Global Market ” has the meaning set forth in Section 3.8(b) of this Agreement.

“ NASDAQ Stock Market ” means The NASDAQ Stock Market, LLC.

“ New Security ” has the meaning set forth in Section 7.9(a) of this Agreement.

“ Offer Notice ” has the meaning set forth in Section 7.9(b) of this Agreement.

“ Orders ” has the meaning set forth in Section 3.2 of this Agreement.

“ Payment Date ” has the meaning set forth in Section 7.10 of this Agreement.

“ Permits ” has the meaning set forth in Section 3.8(c) of this Agreement.

“ Permitted Dispositions ” means (i) sales of Inventory in the ordinary course of business, (ii) disposals of obsolete, worn out or surplus property in the ordinary course of business, (iii) the granting of Permitted Liens, (iv) the licensing of patents, trademarks, copyrights and other intellectual property rights to Franchisees in the ordinary course of business, (v) the leasing or subleasing of assets of the Company and its Subsidiaries to Franchisees in the ordinary course of business, (vi) the termination of leases in connection with closed Restaurants and the leasing or subleasing of assets of the Company and its Subsidiaries in lieu of the termination of leases in connection with closed Restaurants, (vii) the licensing of trademarks to third parties in connection with product license agreements entered into in the ordinary course of business, (viii) the sale of each of the Restaurants identified on Section 3.14 of the Company Disclosure Schedule and (ix) development agreements and Franchise Agreements in each case entered into in the ordinary course of business.

“ Permitted Liens ” means (i) Liens for unpaid taxes, assessments, or other governmental charges or levies that are not yet delinquent, so long as in each case the underlying taxes, assessments, charges or levies are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, (ii) Liens securing judgments for the payment of money, (iii) Liens as set forth on Section 3.9(a)(iv) of the Company Disclosure Schedule, provided that any such Lien only secures the Indebtedness that it secures, (iv) the interests of lessors under operating leases and licensors under license agreements in each case entered into in the ordinary course of business, (v) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers or suppliers, in each case, incurred in the ordinary course of business and not in connection with the borrowing of money and either (A) for amounts that are not yet delinquent or (B) for amounts that are no more than 30 days overdue that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserves or appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts, (vi) Liens incurred in the ordinary course of business in connection with workers’ compensation and other unemployment insurance, or to secure the performance of tenders, surety and appeal bonds, bids, leases, government contracts, trade contracts and other similar obligations (exclusive of obligations for the payment of borrowed money), and (vii) rights of setoff or bankers’ liens upon deposits of cash in favor of banks or other depository institutions, solely to the extent incurred in connection with the maintenance of such deposit accounts in the ordinary course of business.

“ Permitted Transferee ” has the meaning set forth in Section 8.2(a) of this Agreement.

 

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“ Person ” means any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity.

“ Plan ” means each “employee benefit plan” within the meaning of section 3(3) of ERISA and all other plans, arrangements, policies, programs, agreements or other commitments providing for retirement, employee benefits, compensation, incentive compensation or fringe benefits, including, without limitation, any employment, consulting or deferred compensation agreement, executive compensation, bonus, incentive, pension, profit-sharing, savings, retirement, stock option, stock purchase or severance pay plan, any life, health, disability or accident insurance plan, whether oral or written, whether or not subject to ERISA, as to which the Company or its Subsidiaries sponsor, maintain, contribute to, on behalf of any current or former employee, executive, director, officer, consultant or independent contractor, have or could have any direct or indirect, actual or contingent liability.

“ Preemptive Rights Fraction ” has the meaning set forth in Section 7.9(a) of this Agreement.

“ Preferred Director ” means at any given point in time, any Board Representative that fills any of the Mistral Seats or any Serruya Seat or Seats, as the case may be.

“ Preferred Director Voting Right ” has the meaning set forth in Section 7.1(b) of this Agreement.

“ Preferred Stock ” has the meaning set forth in the recitals to this Agreement.

“ Purchase Price ” has the meaning set forth in Section 2.1(b) of this Agreement.

“ Purchaser New Securities ” has the meaning set forth in Section 7.9(a) of this Agreement.

“ Purchased Shares ” has the meaning set forth in the recitals to this Agreement.

“ Purchaser Disclosure Schedule ” means, with respect to any Purchaser, the disclosure schedule delivered by such Purchaser on the date hereof and attached hereto as Exhibit E .

“ Purchasers ” has the meaning set forth in the preamble to this Agreement.

“ Qualifying SEC Documents ” means the Annual Report of the Company for the fiscal year ended December 30, 2008, filed on Form 10-K with the SEC (the “ 2008 10-K ”), and all other SEC Documents filed by the Company with the SEC following the date of the filing of such Form 10-K with the SEC but on or prior to May 26, 2009 and excluding, in each case, (ii) all forward-looking statements, (ii) risk factor disclosure and (iii) documents incorporated by reference therein.

“ Rebates ” means “rebates” as defined for purposes of the UFOC and applicable United States Law with respect to Franchises in the United States and its territories and rebates and similar payments regulated or required to be disclosed under applicable Laws outside of the United States and its territories with respect to such non-United States jurisdictions, as applicable.

 

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“ Registration Laws ” means any and all Laws of the various states of the United States that require disclosure and/or registration before a company may offer and/or sell franchises or business opportunities.

“ Registration Rights Agreement ” has the meaning set forth in the recitals to this Agreement.

“ Registration Statement ” has the meaning set forth in the Registration Rights Agreement.

“ Regulation D ” has the meaning set forth in the recitals to this Agreement.

“ Rejection Date ” has the meaning set forth in Section 8.3(a) of this Agreement.

“ Remaining New Securities ” has the meaning set forth in Section 7.9(d).

“ Requirement of Law ” means, as to any Person, any Law, right, privilege, qualification, license or franchise or determination of an arbitrator or a court or other Governmental Authority or stock exchange, in each case, applicable or binding upon such Person or any of its property or to which such Person or any of its property is subject or pertaining to any or all of the transactions contemplated or referred to herein.

“ Restaurant ” means any “Jamba Juice” store or restaurant.

“ Rights Agreement ” has the meaning set forth in Section 3.31(b) of this Agreement.

“ Rights Amendment ” has the meaning set forth in Section 5.13 of this Agreement.

“ Schedule of Purchasers ” has the meaning set forth in the preamble to this Agreement.

“ SEC ” means the United States Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act.

“ SEC Documents ” means all reports, schedules, forms, statements and other documents required to be filed by the Company with the SEC pursuant to the reporting requirements of the Exchange Act.

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

“ Serruya Ownership Floor ” has the meaning set forth in Section 7.1(f).

“ Serruya Purchaser ” means initially 1082272 Ontario Inc., and prior to and after Closing shall mean a newly-created entity at least 60% of which is beneficially owned by Michael Serruya and/or his “immediate family members” (as defined in the rules and regulations of the SEC), which entity shall be reasonably acceptable to the Company and to which the rights and obligations of 1082272 Ontario Inc. under this Agreement shall be transferred prior to Closing.

“ Serruya Purchaser Sale ” has the meaning set forth in Section 7.1(f).

“ Serruya Representative ” means Michael Serruya.

 

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“ Serruya Seat ” has the meaning set forth in Section 7.1(a) of this Agreement.

“ Serruya Seats ” has the meaning set forth in Section 7.1(a) of this Agreement.

“ Standstill Period ” means with respect to any Purchaser the period beginning on the Closing Date and ending on the earlier of (a) the first calendar day following the Company’s 2011 annual stockholder meeting, (b) June 1, 2011, (c) the date on which a majority of the Board of Directors (excluding for these purposes any Preferred Directors) is no longer comprised of Continuing Directors and (d) the date on which there exists dividend arrearages in respect of three (3) quarterly dividend payments under the terms of the Certificate of Designation until such time as all accrued quarterly dividend payments required thereunder have been paid in full and in cash.

“ Subsidiaries ” means, with respect to any Person, a corporation or other Person of which 50% or more of the voting power of the outstanding voting Equity Securities or 50% or more of the outstanding economic equity interest is held, directly or indirectly, by such Person. Unless otherwise qualified, or the context otherwise requires, all references to a “ Subsidiary ” or to “ Subsidiaries ” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company.

“ Survival Period ” has the meaning set forth in Section 9.1 of this Agreement.

“ Transaction Documents ” means, collectively, this Agreement, the Registration Rights Agreement, the Certificate of Designation and the Rights Amendment.

“ Transaction Expenses ” has the meaning set forth in Section 2.2(c) of this Agreement.

“ Transaction Fee ” has the meaning set forth in Section 2.2(c) of this Agreement.

“ Transaction Percentage ” means, with respect to any Purchaser, a fraction, the numerator of which is such Purchaser’s aggregate Purchase Price payable for its Purchased Shares at the Closing pursuant to Section 2.1(b) and the denominator of which is the aggregate Purchase Price payable by all of the Purchasers for their Purchased Shares at the Closing pursuant to Section 2.1(b).

“ UFOC ” means a franchise offering circular or franchise disclosure document for use in connection with the offer or sale of a franchise in the United States and its territories.

“ UFOC Guidelines ” means the Uniform Franchise Offering Circular Guidelines adopted by the North American Securities Administrators Association on April 25, 1993 or, to the extent permitted under applicable Law, the Interim Guidelines for Filing a Uniform Franchise Registration Application Using the New FTC Franchise Rule After July 1, 2007, adopted by the North American Securities Administrators Association on June 22, 2007.

“ Underlying Shares ” has the meaning set forth in the recitals of this Agreement.

“ VCOC ” has the meaning set forth in Section 3.35 of this Agreement.

“ VCOC Letter ” has the meaning set forth in Section 7.12 of this Agreement.

“ Victory Indebtedness ” has the meaning set forth in Section 7.8 of this Agreement.

 

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ARTICLE II     PURCHASE AND SALE OF PURCHASED SECURITIES

2.1 Purchase and Sale of Preferred Stock.

(a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing the Certificate of Designation.

(b) Subject to the terms and conditions of this Agreement, including Section 2.2(c) below, at the Closing, the Company shall issue and sell to the Purchasers, and each Purchaser agrees, severally and not jointly, to purchase from the Company, that number of Purchased Shares set forth opposite such Purchaser’s name on Exhibit A , at a purchase price of $115.00 per share (the “ Purchase Price ”).

2.2 Closing.

(a) The purchase and sale of the Purchased Shares (the “ Closing ”) shall take place at the offices of DLA Piper LLP (US), 2000 University Avenue, East Palo Alto, California, 94303 at 10:00 a.m., local time on the later of (x) June 16, 2009 and (y) the second (2nd) Business Day after the satisfaction (or waiver) of the conditions set forth in Article V and Article VI hereof (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or wavier of those conditions) or at such other time, place and date that the Company and the Purchasers may agree in writing (the “ Closing Date ”).

(b) On the Closing Date, the Company (i) shall issue and submit via courier or overnight courier for delivery to each Purchaser to an address designated by each such Purchaser by written notice to the Company not fewer than two (2) Business Days prior to the Closing Date a certificate or certificates with respect its Purchased Shares, in definitive form and representing its Purchased Shares issued and sold at the Closing against delivery by such Purchaser to the Company of the aggregate purchase price therefor by wire transfer of immediately available funds to a bank account designated by the Company by written notice to such Purchaser not fewer than two (2) Business Days prior to the Closing Date.

(c) At the Closing, the Company shall (i) pay Mistral Capital Management, L.L.C. (the “ Mistral Manager ”) a transaction fee of $500,000 (the “ Transaction Fee ”) and (ii) reimburse the Mistral Purchasers for $300,000 of the fees and expenses incurred by them in connection with the transactions contemplated by the Transaction Documents and the Serruya Purchaser for $85,000 of the fees and expenses incurred by them in connection with the transactions contemplated by the Transaction Documents (the “ Transaction Expenses ”). In lieu of the reimbursement of any Purchaser for its Transaction Expenses, each Purchaser may elect to deduct its Transaction Expenses from the Purchase Price payable thereby under Section 2.1(b) above. Further, in lieu of the payment of such Transaction Fee to the Mistral Manager, each Mistral Purchaser may also, based on the amount of its Purchase Price relative to the Purchase Price payable by all of the Mistral Purchasers, elect to deduct a pro rata share of such Transaction Fee from the Purchase Price payable thereby under Section 2.1(b) above.

 

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ARTICLE III     REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as otherwise disclosed in the Qualifying SEC Documents, or as set forth on the Company Disclosure Schedule (provided, that disclosure in any subparagraph of such Company Disclosure Schedule shall apply to any section or subparagraph hereof to the extent it is reasonably apparent on its face that such disclosure is relevant to such section or subparagraph of this Agreement), the Company hereby represents and warrants to each Purchaser, as follows:

3.1 Corporate Existence and Power. The Company (a) is a corporation duly incorporated and organized, validly existing and in good standing under the Laws of the state of Delaware; (b) has all requisite corporate power and authority to own, operate its property, lease the property it operates as lessee and conduct the business in which it is currently engaged; and (c) is duly qualified as a foreign corporation, licensed and in good standing under the Laws of each jurisdiction in which its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Company Material Adverse Effect. The Company has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and each of the other Transaction Documents. Prior to the date hereof, true, correct and complete copies of the Certificate of Incorporation and the Bylaws have been provided to or made available to each Purchaser. Set forth on Section 3.1 of the Company Disclosure Schedule is a list of all of the Subsidiaries of the Company.

3.2 Authorization; No Contravention. The execution, delivery and performance by the Company of this Agreement and each of the other Transaction Documents and the transactions contemplated hereby and thereby, including the issuance and sale of the Purchased Shares and the issuance of the Underlying Shares, (a) have been duly authorized by all necessary corporate action of the Company, including all actions, consents and approvals required by the Board of Directors, other than the filing of the Certificate of Designation with the Secretary of State of the State of Delaware, and do not require any further filing, consent or authorization by the Company, the Board of Directors, the Company’s stockholders or others; (b) do not and will not contravene the terms of the Certificate of Incorporation or the Bylaws or the organizational documents of the Company or the terms of any capital stock or other Equity Securities of the Company; (c) do not and will not violate, conflict with or result in any breach, default or contravention of (or an event which, with due notice or lapse of time or both, would result in any breach, default or contravention of), or the creation of any Lien under, or give to others any rights of termination, amendment, acceleration or cancellation of, any Contractual Obligation of the Company or any of its Subsidiaries or any Requirement of Law applicable to the Company or any of its Subsidiaries; and (d) do not and will not violate any judgment, injunction, writ, award, decree or order of any nature (collectively, “ Orders ”) of any Governmental Authority against, or binding upon, the Company or any of its Subsidiaries. The Board of Directors has (i) determined that this Agreement, the other Transaction Documents, the issuance and sale of the Purchased Shares and the issuance of the Underlying Shares and the transactions contemplated hereby and thereby are fair to and in the best interests of the Company’s stockholders, (ii) approved and adopted this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby in accordance with all applicable Requirements of Law and (iii) approved and adopted the Certificate of Designation.

3.3 Valid Issuance. Upon the filing of the Certificate of Designation with the Secretary of State of the State of Delaware, as of the Closing, the Preferred Stock will be duly authorized and, upon issuance in accordance with the terms hereof, shall be (a) validly issued, fully paid and non-assessable; (b) free from all preemptive or similar rights, taxes, Liens and charges with respect to the issuance thereof; and (c) entitled to the rights and preferences set forth in the Certificate of Designation. Upon the filing of the Certificate of Designation with the Secretary of State of the State of Delaware, and as of the Closing, a sufficient number of shares of Common Stock to permit the conversion in full of such Preferred Stock shall be duly authorized and reserved for issuance upon conversion of the Preferred Stock. Upon conversion in

 

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accordance with the Certificate of Designation, the Underlying Shares will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, Liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. Subject only to accuracy of the representations of each Purchaser set forth in Article IV, the issuance by the Company of the Preferred Stock is exempt from registration under the Securities Act and all applicable state securities Laws.

3.4 Governmental Authorization; Third Party Consents. No approval, consent, compliance, exemption, authorization, order, license, franchise, Permit, certificate or accreditation of, or other action by, or notice to, or filing, application or registration with, any Governmental Authority or any other Person, and no lapse of a waiting period under a Requirement of Law, is necessary or required in connection with the execution, delivery or performance (including the sale, issuance and delivery of the Purchased Shares and the issuance of the Underlying Shares) by the Company of, or enforcement against the Company in relation to, this Agreement and the other Transaction Documents or the transactions contemplated hereby and thereby. All approvals, consents, compliances, exemptions, authorizations, orders, licenses, franchises, Permits, certificates, accreditations, other actions, notices, filings, applications or registrations, which the Company is required to obtain or effect pursuant to the preceding sentence have been or will be obtained or effected on or prior to the Closing Date, and the Company has no Knowledge of any facts or circumstances which might prevent the Company from obtaining or effecting any of the foregoing.

3.5 Binding Effect. This Agreement has been, and as of the applicable Closing Date each of the other Transaction Documents will have been, duly executed and delivered by the Company, and this Agreement constitutes, and as of the applicable Closing Date each of the other Transaction Documents will constitute, the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar Laws affecting the enforcement of creditors’ rights generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

3.6 Indebtedness and Other Contracts. Neither the Company nor any of its Subsidiaries has any outstanding Indebtedness or is, immediately prior to this Agreement, or will be, at the time of the Closing after giving effect thereto, (i) a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party or parties to such contract, agreement or instrument could reasonably be expected to result in a Company Material Adverse Effect, or (ii) in default in the payment of any Indebtedness or in violation or default under any contract, agreement or instrument relating to its material Indebtedness or in violation or default under any mortgage, deed of trust, security agreement or lease to which it is a party.

3.7 Litigation. There is no action, suit, claim, proceeding, inquiry, dispute, complaint, arbitration or investigation before or by any court, public board, Governmental Authority (including the SEC, self-regulatory organization or other governmental body) (in each case, a “ Claim ”) pending or, to the Knowledge of the Company, threatened against or affecting the Company or any of the Company’s Subsidiaries, which (i) could reasonably be expected to result in a Company Material Adverse Effect or (ii) questions the validity of this Agreement or any of the other Transaction Documents or any of the transactions contemplated hereby or thereby or any action taken or to be taken pursuant hereto or thereto. No Order has been issued by any court or other Governmental Authority against the Company purporting to enjoin or restrain the execution, delivery or performance.

 

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3.8 Compliance with Governing Documents and Laws.

(a) The Company is in compliance with, and is not in default under, its Certificate of Incorporation or its Bylaws or other governing documents.

(b) The Company and each of its Subsidiaries are in compliance in all material respects with all Requirements of Law and all Orders issued by any court or Governmental Authority. To the Company’s Knowledge, there is no existing or proposed Requirement of Law which could reasonably be expected to prohibit or restrict the Company or any of its Subsidiaries from, or otherwise materially adversely effect any of the foregoing in, conducting its business in any jurisdiction in which it conducts business.

(c) The Common Stock is registered pursuant to Section 12(b) of the Exchange Act, and is listed on the NASDAQ Global Market (the “ NASDAQ Global Market ”), and the Company has not taken any action designed to, or reasonably likely to, have the effect of violating the listing requirements of, or terminating the registration of the Common Stock under the Exchange Act or delisting or suspending the Common Stock from, the NASDAQ Global Market. The Company has no Knowledge of any facts or circumstances that would reasonably lead to delisting or suspension of the Common Stock by the NASDAQ Global Market in the foreseeable future. The Company has complied with all rules, regulations or requirements of the NASDAQ Stock Market, including with respect to the issuance of the Purchased Shares and any Underlying Shares. Neither the Company nor any of its Subsidiaries, nor any officer, director, Affiliate, or other agent or representative of the Company or any of its Subsidiaries has (i) taken, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in the stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Purchased Shares or the Underlying Shares, (ii) sold, bid for, purchased or paid any compensation for soliciting purchases of, any of the Purchased Shares (except for customary placement fees payable in connection with this transaction), or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company (except for customary placement fees payable in connection with this transaction). During the one (1) year period prior to the Closing Date, (i) the Common Stock has been designated for quotation or listed on the NASDAQ Global Market, (ii) trading in the Common Stock has not been suspended by the SEC or the NASDAQ Global Market and (iii) the Company has received no communication, written or oral, from the SEC or the NASDAQ Global Market regarding the suspension or delisting of the Common Stock from the NASDAQ Global Market.

(d) (i) The Company and each of its Subsidiaries have all material consents, authorizations, orders, licenses, franchises, permits, certificates, accreditations and approvals of any Governmental Authority (collectively, “ Permits ”) that are necessary for the conduct of the business of the Company and each such Subsidiary; (ii) such Permits are in full force and effect; (iii) no material violations are or have been recorded in respect of any Permit; and (iv) none of the Company or any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such consents, authorizations, orders, licenses, franchises, Permits, certificates, accreditations or approvals.

(e) Since December 30, 2008, other than as filed with the SEC on Forms 4, no officer subject to Section 16(b) of the Exchange Act, director or Affiliate of the Company or any of its Subsidiaries, nor any Affiliate of any of the foregoing, or anyone acting on their behalf has sold, bid, purchased or traded in the Common Stock of the Company.

 

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3.9 Capitalization.

(a) The authorized capital stock of the Company consists of (i) 150,000,000 shares of Common Stock, of which 54,690,728 shares are issued and outstanding as of the close of business on Friday, May 29, 2009 and (ii) 1,000,000 shares of preferred stock, par value $0.001 per share, of which no shares are issued and outstanding (disregarding the Purchased Shares). All of the outstanding Equity Securities of the Company have been duly authorized, are validly issued, fully paid and non-assessable and have been issued in compliance with all federal and state securities Laws, and none of such outstanding Equity Securities was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. The capitalization of the Company conforms as to legal matters to the description thereof contained in the Company’s most recent periodic report filed with the SEC. No issued outstanding Equity Securities of the Company are subject to preemptive or similar rights or any Liens suffered or permitted by the Company, and no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth on Section 3.9(a) of the Company Disclosure Schedules, as of the date hereof, (i) 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 other Equity Security of the Company or of any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of Common Stock or other Equity Security of the Company or of any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, shares of Common Stock or other Equity Security of the Company or of any of its Subsidiaries; (ii) there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company or any of its Subsidiaries is a party or, to the Knowledge of the Company, between or among any of the Company’s or any of its Subsidiaries’ stockholders; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing statements securing obligations in any material amounts, either singly or in the aggregate, filed in connection with the Company or any of its Subsidiaries; (v) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its securities under the Securities Act (except the Registration Rights Agreement); (vi) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Purchased Shares or the Underlying Shares; and (viii) none of the Company or any of its Subsidiaries has any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. The issuance and sale of the Purchased Shares and the Underlying Shares do not and will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and do not and will not result in any “price reset,” other material change in or other modification to the terms of any Indebtedness, Equity Securities or other securities of the Company or any of its Subsidiaries or a right of any holder of such securities to adjust the exercise, conversion, exchange or reset price under such securities.

 

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(b) Section 3.9(b) of the Company Disclosure Schedule sets forth all legal entities in which the Company holds directly or beneficially Equity Securities and the type and amount thereof.

(c) Each compensatory grant of Equity Securities of the Company or of any of its Subsidiaries and all shares of capital stock of the Company or any of its Subsidiaries underlying each such grant, either (i) are subject to an effective registration statement under the Securities Act or similar Requirement of Law or (ii) are exempt from such registration; and each such grant complies with all applicable state or federal securities Law requirements, including any “blue sky” Laws. !

3.10 SEC Documents; Financial Statements. The Company has filed in a timely manner all SEC Documents since becoming subject to the requirements of the Exchange Act. As of their respective filing dates (or, if amended prior to the date of this Agreement, when amended), all of the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder. None of the SEC Documents as of their respective dates contained any untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Financial Statements of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. The Financial Statements have been prepared in accordance with GAAP and fairly present the financial position of the Company at the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, year-end audit adjustments).

3.11 Employment Matters; Labor Relations. Neither the Company nor its Subsidiaries is or, in the past three years, has been a party to any collective bargaining agreement or employs any member of a union in such person’s capacity as a union member or to perform union labor work. The Company and its Subsidiaries believe that its relations with its employees are generally good and no union organizing activities are taking place. No executive officer of the Company or any of the Subsidiaries has notified the Company or the Subsidiaries that such officer intends to leave the Company or the Subsidiaries or otherwise terminate such officer’s employment. No executive officer of the Company or any of its Subsidiaries, 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, non-competition agreement, or any other contract or agreement or any restrictive covenant. Each of the Company and its Subsidiaries is in material compliance with all federal, state, local and foreign laws and regulations with respect to labor, employment and employment practices and benefits, including terms and conditions of employment and wages and hours, tax withholding and reporting, prohibited discrimination, pay equity, equal employment, fair employment practices, safety and health, advance notice for termination of employment including the WARN Act and similar state Laws and immigration status.

3.12 Employee Benefit Plans.

(a) Neither the Company nor any Subsidiary nor any other entity which, together with the Company or any Subsidiary would be treated as a single employer under Section 4001 of ERISA or Section 414 of the Code maintains or contributes to, or has within the preceding six (6) years maintained or contributed to, or may have any liability with respect to, any Plan subject to Title IV of ERISA or Section 412 of the Code, or any “multiple employer

 

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plan” or any “multiemployer,” each within the meaning of the Code or ERISA. Each Plan (and related trust, insurance contract or fund) has been established and administered in all material respects in accordance with its terms, and complies in all material respects in form and in operation with the applicable requirements of ERISA and the Code and all other applicable Requirements of Law. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each Plan.

(b) Except for the continuation coverage requirements under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or other Requirement of Law, neither the Company nor any Subsidiary has any obligation or liability for health, life insurance, death benefits or other welfare benefits to their employees or their respective dependents following termination of employment.

(c) No Claim with respect to the administration or the investment of the assets of any Plan (other than routine Claims for benefits) is pending.

(d) Each Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and has received a favorable determination letter from the Internal Revenue Service to such effect and no circumstance, fact or event has occurred or exists that is reasonably likely to adversely affect the qualified status of any such Plan.

(e) Neither the execution of this Agreement and each of the other Transaction Documents nor the consummation of the transactions contemplated by the foregoing will either alone or in combination with another event result in (i) severance pay or any increase in severance pay upon any termination of employment after the date of this Agreement, (ii) any payment, compensation or benefit becoming due to any current or former employee, director, consultant or independent contractor of the Company or any Subsidiary; (iii) acceleration of the time of the payment or vesting of, or increase in the amount of, compensation due to any current or former employee, director, consultant or independent contractor of the Company or any of its Subsidiaries; (iv) any material obligation pursuant to any of the Plans; or (v) the payment of any amount that, individually or in combination with any other such payment, right, or benefit constitutes an “excess parachute payment,” as defined in Section 280G(b)(1) of the Code.

(f) Neither the Company nor any Subsidiary is a party to any agreement, contract, arrangement or Plan pursuant to which it is bound to compensate or indemnify any employee for any excise or other additional taxes paid pursuant to Section 409A or Section 4999 of the Code or any similar Requirements of Law.

(g) There are no unfunded obligations under any Plan which are not fully reflected on the Company’s Financial Statements.

(h) No insurance policy or any other agreement affecting any Plan requires or permits a retroactive increase in contributions, premiums or other payments due under such insurance policy or agreement. The level of insurance reserves under each Plan is reasonable and sufficient to provide for all incurred but unreported Claims.

(i) With respect to any material Plan or exclusion therefrom with respect to any independent contractor, (i) no actions, Liens, lawsuits, Claims or complaints including any workers’ compensation claims (other than routine Claims for benefits) are pending or, to the Company’s Knowledge, threatened, (ii) to the Company’s Knowledge, no facts or circumstances exist that give rise to any such actions, suits or Claims, and (iii) no administrative investigation, audit or other administrative proceeding by the Department of Labor, the Pension Benefit Guarantee Corporation, the Internal Revenue Service or any other Governmental Authority is pending, in progress, or to the Company’s Knowledge, threatened.

 

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(j) Neither the Company nor any Subsidiary has any liability, whether absolute or contingent, including any obligations under any Plan, with respect to any misclassification of any person as an independent contractor rather than as an employee or with respect to any current or former employee classified as exempt from overtime wages.

(k) No Plan that is subject to Section 409A of the Code or similar Requirement of Law has been materially modified (as defined in Section 409A of the Code or similar Requirement of Law) and all such Plans subject to Section 409A of the Code or similar Requirement of Law have been operated and administered in compliance with Section 409A of the Code or similar Requirement of Law.

(l) No awards under the Equity Plans have been granted with an effective date that is prior to the date on which the committee or other administrator of such Equity Plans with authority thereunder to make such awards has taken all necessary corporate action to grant or complete such awards. All stock options granted under the Equity Plans have an exercise price per share that was not less than the “fair market value” of one share of Common Stock (or predecessor security) on the date of grant, as determined in accordance with the terms of the applicable Equity Plans and, to the extent applicable, Sections 162(m), 409A and 422 of the Code or any similar Requirements of Law. All stock options granted under the Equity Plans have been properly accounted for in accordance with GAAP, and no change is expected in respect of any prior financial statements relating to expenses for stock-based compensation. There is no pending audit, investigation or inquiry by any Governmental Entity or by the Company or the Board of Directors of the Company (directly or indirectly) with respect to the Company’s stock option granting practices or other equity compensation practices.

(m) Section 3.12(m) of the Company Disclosure Schedule contains a true, correct and complete list of each material Plan. Neither the Company nor any Subsidiary has made any legally binding commitment, proposal or communication to employees regarding the creation of any plan, agreement, policy, practice, or arrangement that would be a Plan if in effect on the date of this Agreement or any increase in benefits under any Plan that would materially increase the annual cost to the Company or any of its Subsidiaries. Except as set forth on Section 3.12(m) of the Company Disclosure Schedule, no Plan is self-insured.

3.13 Taxes. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Company Material Adverse Effect, the Company and each of its Subsidiaries have (i) made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and paid or accrued all taxes and other governmental assessments and charges shown or determined to be due thereon, and (ii) set aside on its books adequate reserves in accordance with GAAP for the payment of all 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 Company has no Knowledge of a tax deficiency which has been asserted or threatened against the Company or any of its Subsidiaries or a basis for any such Claim. On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the sale and transfer of the Purchased Shares to be sold to each Purchaser hereunder will be, or will have been, fully paid or provided for, and all Laws imposing such taxes will be or will have been complied with.

 

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3.14 Material Changes; Undisclosed Events, Liabilities or Developments.

(a) Since December 30, 2008, (a) there has been no Company Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries has incurred any material liabilities or obligations of any nature (contingent or otherwise) other than (i) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (ii) liabilities not required to be reflected in the Company’s Financial Statements pursuant to GAAP or required to be disclosed in filings made with the SEC; (c) neither the Company nor any of its Subsidiaries has altered its method of accounting or the identity of its auditors; (d) except as specifically disclosed in the Qualifying SEC Documents, neither the Company nor any of its Subsidiaries has 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; (e) except as specifically disclosed in the Qualifying SEC Documents, neither the Company nor any of its Subsidiaries has issued any Equity Securities to any officer, director or Affiliate, except pursuant to its existing Equity Plans; and (f) except as disclosed in the Qualifying SEC Documents, neither the Company nor any of its Subsidiaries has sold any material assets (other than Permitted Dispositions). Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any bankruptcy Law nor does the Company have any Knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any Knowledge of any fact which would reasonably lead a creditor to do so. Neither the Company nor any of its Subsidiaries intends to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no Knowledge of any facts or circumstances which leads it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization Laws of any jurisdiction within two (2) years of the Closing Date. Neither the Company nor any of its Subsidiaries is and, after giving effect to the transactions contemplated hereby and by the other Transaction Documents, will be Insolvent. The Company does not have pending before the SEC any request for confidential treatment of information. Except for the transactions contemplated by the Transaction Documents, no event, liability, development or circumstance has occurred or exists, or is contemplated to occur or may occur, with respect to the Company or any of its Subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities Laws at the time this representation is made that has not been publicly disclosed one (1) Business Day prior to the date that this representation is made.

(b) Neither the Company nor any of its Subsidiaries has any direct or indirect obligation or liability (whether absolute, accrued, contingent, intercompany or otherwise) (collectively, the “ Liabilities ”) other than (i) Liabilities reflected or reserved against on the Financial Statements contained in the 2008 10-K, (ii) Liabilities incurred in the ordinary course of business consistent with past practice, none of which has had or would reasonably be expected to have, individually or in the aggregate, has resulted in or would reasonably be expected to result in, a Company Material Adverse Effect or (iii) Liabilities and obligations incurred pursuant to the Transaction Documents.

3.15 Investment Company. The Company is not an “investment company” or controlled by or affiliated with an “investment company” or a “principal underwriter” of an “investment company” within the meaning of the Investment Company Act of 1940.

 

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3.16 No General Solicitation. None of the Company, its Subsidiaries, any of its Affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D promulgated under the Securities Act) in connection with the offer or sale of the Purchased Shares. The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions (other than for Persons engaged by the Purchasers or their investment advisors) relating to or arising out of the transactions contemplated hereby and by the other Transaction Documents. The Company shall pay, and hold each Purchaser harmless against, any liability, loss or expense (including attorney’s fees and out-of-pocket expenses) arising in connection with any Claim for such fees or commissions. Except as described on Section 3.16 of the Company Disclosure Schedule, the Company has not engaged any placement agent or other agent in connection with the sale of the Purchased Shares.

3.17 No Integrated Offering . None of the Company, its Subsidiaries, any of their Affiliates, nor any Person acting on 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 require registration of any of the Purchased Shares under the Securities Act or cause this offering of the Purchased Shares to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable stockholder approval provisions, including under the rules and regulations of the NASDAQ Stock Market. None of the Company, its Subsidiaries, any of their Affiliates, nor any Person acting on their behalf will take any action or steps referred to in the preceding sentence that would require registration of any of the Purchased Shares under the Securities Act or cause the offering of the Purchased Shares to be integrated with other offerings. The Company does not have a registration statement currently under the SEC’s review.

3.18 Compliance with the Sarbanes-Oxley Act . The Company is in compliance in all material respects with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective and applicable to the Company, and any and all applicable rules and regulations promulgated by the SEC thereunder that are effective and applicable to the Company.

3.19 Subsidiary Rights . Except as set forth on Section 3.19 of the Company Disclosure Schedule, the Company has the unrestricted right to vote, and (subject to limitations imposed by applicable Law) to receive dividends and distributions on, all capital stock and other Equity Securities of its Subsidiaries as owned by the Company or such Subsidiary.

3.20 Off Balance Sheet Arrangements . There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its Exchange Act filings and is not so disclosed or that otherwise would be reasonably likely to have a Company Material Adverse Effect.

3.21 Title . Each of the Company and its Subsidiaries has (i) good and marketable title to (in the case of fee interests in real property, (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), (iii) valid licensed rights in (in the case of licensed interests in Intellectual Property), and (iv) good and marketable title to (in the case of all other personal property) all of its real property and other properties and assets owned by it which is material to the business of the Company or its Subsidiaries, in each case free and clear of all Liens, encumbrances and defects, other than Permitted Liens. Any real property and facilities held under lease by the Company or any of its Subsidiaries are held by it under valid, subsisting and enforceable leases.

 

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3.22 Intellectual Property . The Company owns or possesses adequate and valid rights or licenses to use all Intellectual Property Rights that are necessary to conduct its respective businesses as now conducted and as reasonably expected to be conducted in the future, and such Intellectual Property Rights are free and clear of all liens, encumbrances and defects other than Permitted Liens. Section 3.22(a) of the Company Disclosure Schedule sets forth a true and complete list of all: (a) trademark, service mark, trade dress and domain name registrations and applications for registration thereof and material unregistered trademarks and service marks; (b) issued patents and applications for patents; and (c) registered copyrights and material unregistered copyrights, in each case, that are owned or purported to be owned by the Company or any of its Subsidiaries. None of the Company’s material Intellectual Property Rights have expired or terminated, or are expected to expire or terminate within two (2) years from the Closing Date. Except as described in Section 3.22(b) of the Company Disclosure Schedule, (i) the Company does not have any Knowledge of any infringement, misappropriation or dilution or other violation by the Company of Intellectual Property Rights of other Persons; (ii) the Company does not have any Knowledge of any infringement, misappropriation or dilution or other violation by any other Persons of the Company’s Intellectual Property Rights; (iii) there is no claim, action or proceeding being made or brought, or, to the Knowledge of the Company, being threatened in writing, against the Company regarding its Intellectual Property Rights or the Intellectual Property Rights of other Persons; and (iv) the Company is not aware of any other facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings. The Company has taken and is taking commercially reasonable security measures, consistent with industry standards, to maintain and protect the secrecy, confidentiality and value of all of their Intellectual Property Rights and, to the Knowledge of the Company, no Person has gained unauthorized access to or made any unauthorized use of any data maintained by the Company or any of its Subsidiaries.

3.23 Franchises .

(a) Section 3.23(a) of the Company Disclosure Schedule sets forth a true, correct and complete list of all Franchises in existence as of the date of this Agreement, along with each franchise agreement to which the Company or any of its Subsidiaries is a party or by which the Company’s or any of its Subsidiaries’ or its or their properties is bound and that grant or purport to grant a Franchisee the right to operate or license others to operate or to develop a Franchise within a specific geographic area or at a specific location. Each Franchise listed on Section 3.23(a) of the Company Disclosure Schedule is subject to an agreement, substantially in the form provided to Purchasers on or prior to the date of this Agreement, entered into by the Company or any of its Subsidiaries, on the one hand, and a Franchisee, on the other hand, pursuant to which, among other things, the Company or Subsidiary grants a Franchise to such Franchisee (a “ Franchise Agreement ”).

(b) The Franchise Agreement complies with all applicable Laws, except for any non-compliance that has not had, since December 30, 2008, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

(c) Since December 30, 2007, (i) the Company and its Subsidiaries have prepared and maintained each UFOC in compliance in all material respects with: (A) the UFOC Guidelines; (B) the FTC Rule and (C) applicable Registration Laws; and (ii) the Company and its Subsidiaries have offered and sold each Franchise for a franchised Restaurant to be located in a jurisdiction outside of the United States and its territories (the “ Foreign Franchises ”), and have prepared and maintained each IFOC, in compliance with applicable Laws, including pre-sale registration and disclosure Laws, in all cases except for any non-compliance that has not had, since December 30, 2007, and would not reasonably be expected to have, a Company Material Adverse Effect.

 

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(d) Since December 30, 2007, the Company and its Subsidiaries have not, in any UFOC, IFOC, other franchise disclosure document, in applications and/or filings with states under the Registration Laws, or in any applications or filings with any Governmental Authorities outside of the United States and its territories, made any untrue statement of a material fact, omitted to state a material fact required to be stated therein, or omitted to state any fact necessary to make the statements made therein, taken as a whole, not misleading, except to the extent any such matter would not, individually or in the aggregate, have a Company Material Adverse Effect.

(e) Section 3.23(e) of the Company Disclosure Schedule sets forth all material contracts pursuant to which the Company or any of its Subsidiaries receives Rebates as a result of transactions between the Franchisees and suppliers selling products or services to the Franchisees. When the Company or any of its Subsidiaries buys products, goods and services from a supplier, such supplier charges the Company or its Subsidiary, as applicable, for these items on the same basis as the supplier charges a Franchisee operating a franchised Restaurant for similar products, goods and services purchased for use in connection with such Restaurant. No contract pursuant to which the Company or its Subsidiaries receives a Rebate is (i) prohibited by any Franchise Agreement, (ii) not disclosed in accordance with the UFOC Guidelines and/or the FTC Rule in the relevant UFOC, if applicable or (iii) not disclosed in accordance with applicable Law with respect to foreign Franchises.

(f) Section 3.23(f) of the Company Disclosure Schedule sets forth a true and complete list of the material contracts, other than the Franchise Agreements, that are in effect as of the date hereof with any formal franchisee association or group of Franchisees regarding any Franchise Agreement or franchise operational matter.

(g) Section 3.23(g) of the Company Disclosure Schedule sets forth a true and complete list of the Franchisees, if any, that, to the Knowledge of the Company, are currently the subject of a bankruptcy or similar proceeding.

(h) The Company has provided to or made available to each Purchaser a true, correct and complete copy of each Current UFOC.

3.24 Foreign Corrupt Practices . None of the Company or any of its Subsidiaries, nor any director, officer, agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

3.25 Environmental Laws . Except as set forth on Section 3.25 of the Company Disclosure Schedule, each of the Company and its Subsidiaries (i) is in compliance with any and all Environmental Laws, (ii) has received all Permits, licenses or other approvals required of them under applicable Environmental Laws to conduct its respective businesses and (iii) is in compliance with all terms and conditions of any such Permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Company Material Adverse Effect.

 

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3.26 U.S. Real Property Holding Corporation . None of the Company or any of its Subsidiaries is, nor has it ever been, a U.S. real property holding corporation within the meaning of Section 897 of the Code, and the Company will so certify upon the request of any Purchaser .

3.27 Internal Accounting and Disclosure Controls . The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorizations and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference. The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15 under the Exchange Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure. Except as set forth on Section 3.27 of the Company Disclosure Schedule, during the twelve (12) months prior to the Closing Date, none of the Company or any of its Subsidiaries has received any notice or correspondence from any accountant relating to any potential material weakness in any part of the system of internal accounting controls of the Company or any of its Subsidiaries.

3.28 Transactions with Affiliates . None of the officers, directors or employees of the Company or any of its Subsidiaries is presently a party to any transaction with the Company or any of its Subsidiaries (other than for ordinary course services as employees, officers or 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 such officer, director or employee or, to the Company’s Knowledge, any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner.

3.29 Registration Statement . To the Company’s Knowledge, no facts or circumstances exist that would inhibit or delay the preparation and filing of the Registration Statement with respect to the Purchased Shares in accordance with the Registration Rights Agreement.

3.30 Insurance . Each of the Company and its Subsidiaries is 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 its Subsidiaries are engaged. None of the Company or any of its Subsidiaries has been refused any insurance coverage sought or applied for and none of the Company or any of its Subsidiaries believes 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 at a cost that would not have a Company Material Adverse Effect.

 

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3.31 Application of Takeover Protections; Rights Agreement .

(a) Each of the Company and its respective Board of Directors (or other governing body) has 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 other governing documents) or Laws (including any “fair price, “moratorium,” “control share acquisition” or other similar anti-takeover statute or regulations enacted under federal or state Laws) that are or could become applicable to any Purchaser as a result of the transactions contemplated by this Agreement, including the Company’s issuance of the Purchased Shares and the issuance of the Underlying Shares and any Purchaser’s ownership of the Purchased Shares and the ownership of the Underlying Shares.

(b) Except for Rights Agreement, dated as of October 8, 2008 between the Company and Continental Stock Transfer & Trust Company (the “ Rights Agreement ”), the Company has not adopted a stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company.

(c) Without limiting the generality of the foregoing representations and warranties contained in this Section 3.31, the Company has taken all necessary action so that neither the execution or delivery of this Agreement nor the consummation of the transactions contemplated by any Transaction Document (including the sale of the Purchased Shares to the Purchasers at Closing or the issuance of the Underlying Shares to the Purchasers) will (i) cause the rights granted under the Rights Agreement to become exercisable, (ii) cause any Purchaser or any of their Affiliates to become an “Acquiring Person” (as defined in the Rights Agreement) or (iii) give rise to a “Distribution Date” (as defined in the Rights Agreement) or other triggering event under the Rights Agreement.

(d) Also without limiting the generality of the foregoing representations and warranties contained in this Section 3.31, the Board of Directors has adopted resolutions approving the transactions contemplated hereby and the Transaction Documents for purposes of Section 203(a)(i) of the Delaware General Corporations Law (the “ DGCL ”) in order to provide that the restrictions on “business combinations” set forth and defined therein shall not apply to the Company or the Purchasers as a result of the consummation of such transactions. As a result of the adoption of such resolutions by the Board of Directors, no Purchaser shall be deemed an “interested stockholder” for purposes of Section 203 of the DGCL as a result of the consummation of the transactions contemplated by the Transaction Documents.

3.32 Disclosure . All disclosure provided to the Purchasers regarding each of the Company and its Subsidiaries, its business and properties, and the transactions contemplated hereby, including the Company Disclosure Schedules to this Agreement, furnished by or on behalf of the Company 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, taken as a whole and in the light of the circumstances under which they were made, not materially misleading. During the twelve (12) months preceding the date hereof, the Company did not issue any press release that, at the time of such release, 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. All projections and forecasts delivered to the Purchasers represent the Company’s good faith estimate of the Company’s and its respective Subsidiaries’ future performance for the periods covered thereby, based on assumptions that the Company believes to be reasonable at the time of the delivery thereof (it being understood that such projections and forecasts are subject to uncertainties and contingencies, many of which are beyond the control of the Company and its respective Subsidiaries and no assurance can be given that such projections and forecasts will be achieved).

 

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3.33 Material Contracts . Section 3.33 of the Company Disclosure Schedule contains a true correct and complete list of all the Material Contracts of the Company and its Subsidiaries, as of the date hereof, and all Material Contracts of the Company and its Subsidiaries are in full force and effect. The Company and its Subsidiaries have not breached, violated or otherwise caused a default under any Material Contracts to which any of them are a party and, to the Company’s Knowledge, no third party defaults exist thereunder.

3.34 Reporting Company; Form S-3 . The Company is, and will be immediately after the consummation of the transaction contemplated by this Agreement and the other Transaction Documents, eligible to register Common Stock for resale by the Purchasers on a registration statement on Form S-3 under the Securities Act.

3.35 Management Rights Letter . The Company acknowledges that one or more of the Purchasers, or the owner of a Purchaser, is intended to be a “venture capital operating company” (“ VCOC ”) within the meaning of 2510.3-101(d) of ERISA. In that regard, any right of the Purchasers to advise with respect to management activities may be assigned or allocated among the Purchasers as they may agree among themselves, and such right may be assigned to the owners of one or more relevant Purchasers, or any of their respective affiliates, for the purpose of qualifying any such owner or affiliate as a VCOC. In addition, the Company agrees to provide a letter to any such Purchaser, confirming certain management rights appropriate for VCOC investors, in form and substance as previously provided in connection with the negotiation of this Agreement.

ARTICLE IV     REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

4.1 Subject to Section 9.2(h) hereof, each Purchaser hereby represents and warrants, severally and not jointly, to the Company as follows:

(a) Existence and Power . Such Purchaser is (i) a limited partnership, corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation or (ii) an individual, in each case, having the requisite partnership, corporate or limited liability company, as the case may be, power and authority, or with respect to a Purchaser that is an individual, full legal capacity, to execute, deliver and perform its or his obligations under this Agreement and each of the other Transaction Documents to which it or he is a party.

(b) Authorization; No Contravention . The execution, delivery and performance by such Purchaser of this Agreement and each of the other Transaction Documents to which it is a party and the transactions contemplated hereby and thereby, including the purchase of the Purchased Shares, (a) have been duly authorized by all necessary actions, consents and approvals required and do not require any further filing, consent or authorization by such Purchasers; (b) do not and will not contravene the terms of such Purchaser’s organizational documents, if applicable; (c) do not and will not violate, conflict with or result in any breach, default or contravention of (or an event which, with due notice or lapse of time or both, would result in any breach, default or contravention of), or the creation of any Lien under, or give to others any rights of termination, amendment, acceleration or cancellation of, any Contractual Obligation of such Purchaser or any Requirement of Law applicable to such Purchaser; and (d) do not and will not violate any Orders of any Governmental Authority against, or binding upon, such Purchaser.

 

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(c) Governmental Authorization; Third Party Consents . No approval, consent, compliance, exemption, authorization, order, license, franchise, permit, certificate or accreditation of, or other action by, or notice to, or filing, application or registration with, any Governmental Authority or any other Person, and no lapse of a waiting period under a Requirement of Law, is necessary or required in connection with the execution, delivery or performance (including the purchase of the Purchased Shares) by such Purchaser of, or enforcement against such Purchaser in relation to, this Agreement and each of the other Transaction Documents to which it is a party or the transactions contemplated hereby and thereby.

(d) Binding Effect . This Agreement has been, and as of the Closing Date each of the other Transaction Documents to which such Purchaser is a party will have been, duly executed and delivered by such Purchaser and this Agreement constitutes, and as of the Closing Date each of the other Transaction Documents to which such Purchaser is a party will constitute, the legal, valid and binding obligations of such Purchaser, enforceable against it in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

(e) Purchase for Own Account . The Purchased Shares to be purchased by such Purchaser pursuant to this Agreement are being or will be acquired for its own account and with no intention of distributing or reselling such Purchased Shares or Underlying Shares or any part thereof in any transaction that would be in violation of the securities laws of the United States of America, any state of the United States or any foreign jurisdiction, without prejudice, however, to the rights of such Purchaser at all times to sell or otherwise dispose of all or any part of such Purchased Shares or Underlying Shares under an effective registration statement under the Securities Act, or under an exemption from such registration available under the Securities Act, and subject, nevertheless, to the disposition of such Purchaser’s property being at all times within its control. If such Purchaser should in the future decide to dispose of any of such Purchased Shares or Underlying Shares, such Purchaser understands and agrees that it may do so only in compliance with the Securities Act and applicable state and foreign securities laws, as then in effect. Such Purchaser agrees to the imprinting, so long as required by law, of a legend on certificates representing all of its Purchased Shares and Underlying Shares, to the following effect:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

(f) Restricted Securities . Such Purchaser understands that the Purchased Shares to be issued to the Purchasers pursuant to this Agreement will not be registered at the time of their issuance under the Securities Act for the reason that the sale provided for in this Agreement is exempt pursuant to Section 4(2) of the Securities Act and that the reliance of the Company on such exemption is predicated in part on such Purchaser’s representations set forth herein.

 

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(g) Accredited Investor . Such Purchaser is an “Accredited Investor” within the meaning of Rule 501 of Regulation D under the Securities Act, as presently in effect.

(h) Broker’s, Finder’s or Similar Fees . There are no brokerage commissions, finder’s fees or similar fees or commissions payable by such Purchaser in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with such Purchaser or any action taken by such Purchaser.

(i) Stock Ownership . Except as set forth on Section 4.1(i) of the Purchaser Disclosure Schedule, such Purchaser and its Affiliates do not beneficially own any shares of Common Stock, nor is such Purchaser a party to any stockholder agreement, voting agreement, partnership agreement, or other similar agreements or arrangements with any other Purchaser or Person relating to the Common Stock of the Company. By reason of the acquisition of the Purchased Shares hereunder, such Purchaser would not, to its knowledge, be required to make any filing in accordance with Section 13(d) of the Exchange Act with any other person holding Common Stock of the Company or securities convertible into Common Stock of the Company. Such Purchaser does not own any equity or limited partnership interest in any other Purchaser. Notwithstanding the foregoing, none of the Mistral Purchasers shall be deemed to be in breach of the foregoing representation and warranty as a result of any relationship, cross or common ownership, agreement, arrangement or understanding agreement among them. For purposes of the representation of the Serruya Purchaser hereunder, the Serruya Purchaser shall be deemed to also include the entity to which it transfers the rights and obligations under this Agreement prior to Closing (i.e., the Serruya Purchaser at Closing).

(j) Reliance on Exemptions . Such Purchaser understands that the Purchased Shares are being offered and sold to it in reliance on specific exemptions from the registration requirements of the United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Purchased Shares.

(k) Information . Such Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Purchased Shares which have been requested by the Purchaser. The Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company. The Purchaser understands that its investment in the Purchased Shares involves a high degree of risk. The 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 Purchased Shares.

(l) Purchasers’ Financing . Such Purchaser currently has or at Closing will have available funds necessary to purchase the Purchased Shares at Closing on the terms and conditions contemplated by this Agreement.

 

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ARTICLE V     CONDITIONS TO THE OBLIGATION OF EACH PURCHASER TO CLOSE

The obligation of each Purchaser at the Closing (1) to purchase its Purchased Shares, (2) to pay the aggregate purchase price therefor and (3) to perform any obligations hereunder shall be subject to the satisfaction as determined by, or waiver by, such Purchaser of the following conditions on or before the Closing Date; provided, however, that the conditions set forth in Sections 5.1, 5.2 and 5.3 shall only be subject to the satisfaction as determined by, or waived by, the Mistral Purchasers unless the failure of such condition adversely affects the Serruya Purchaser in a disproportionate manner than the Mistral Purchasers with respect to any of the provisions of this Agreement, in which case such waiver shall also require the consent of the Serruya Purchaser (for example, if the Company does not appoint a Serruya Representative to the Serruya Seat):

5.1 Representations and Warranties . The representations and warranties of the Company contained in Article III hereof (other than the representations and warranties contained in Sections 3.2, 3.3, 3.9(a), 3.31 and 3.34 which are covered by the following sentence) shall be true and correct (without giving effect to any qualifications or limitations as to “materiality,” “Company Material Adverse Effect” and words of similar import) on and as of the date of this Agreement and on and as of the Closing Date as if made on and as of such date (except for those representations and warranties that are expressly limited by their terms to dates or times other than the Closing Date, which representations or warranties need only be true and correct as of such other dates or times (without giving effect to any qualifications or limitations as to “materiality,” “Company Material Adverse Effect” and words of similar import)) except where the failure of such representations and warranties to be true and correct has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. The representations and warranties of the Company contained in Sections 3.2, 3.3, 3.9(a), 3.31 and 3.34 shall be true and correct in all respects (except in the case of Section 3.9(a) for such inaccuracies as are de minimis in the aggregate and Section 3.2(c) which shall be true and correct in all material respects) as of the date of this Agreement and on and as of the Closing Date as if made on and as of such date (except for those representations and warranties that are expressly limited by their terms to dates or times other than the Closing Date, which representations or warranties need only be true and correct).

5.2 Covenants . The Company shall have performed and complied in all material respects with all of its covenants and agreements set forth herein that are required to be performed by the Company on or before the Closing Date.

5.3 No Material Adverse Change . There shall have been no Company Material Adverse Effect with respect to the Company since December 30, 2008.

5.4 Victory Repayment . Concurrent with such Purchaser’s purchase of its Purchased Shares hereunder, the Company shall have (i) paid and discharged in full, or shall cause to have been paid and discharged in full, the Victory Indebtedness in accordance with Section 7.8 of this Agreement and (ii) delivered to such Purchaser a pay-off letter in form and substance reasonably satisfactory to such Purchaser to be executed at the Closing by the applicable lender parties under the Victory Indebtedness.

5.5 Officer’s Certificate . The Company shall have delivered to such Purchaser a certificate dated as of the Closing and signed by an executive officer of the Company, confirming the satisfaction of the conditions contained in Sections 5.1, 5.2, 5.3 and 5.4 above.

 

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5.6 No Purchaser Default . (a) For and with respect to each Mistral Purchaser only, the Serruya Purchaser shall have consummated the purchase of its Purchased Shares in accordance with Section 2.2(a) hereof and (b) for and with respect to the Serruya Purchaser only, the Mistral Purchasers shall have consummated the purchase of their Purchased Shares in accordance with Section 2.2(a) hereof.

5.7 Filing of Certificate of Designation . The Certificate of Designation shall have been duly filed by the Company with the Secretary of State of the State of Delaware in accordance with the DGCL, and such Purchaser shall have received evidence of such filing in form and substance reasonably satisfactory to such Purchaser.

5.8 Purchased Shares . The Company shall have delivered to such Purchaser certificates in definitive form and with such substance as is reasonably satisfactory to such Purchaser representing the number of Purchased Shares being purchased by such Purchaser (as set forth on Exhibit A hereto) registered in the name of such Purchaser.

5.9 Registration Rights Agreement . The Company shall have duly executed and delivered the Registration Rights Agreement.

5.10 Opinion of Counsel . Such Purchaser shall have received an opinion of DLA Piper LLP (US), dated the Closing Date, relating to the transactions contemplated by or referred to herein, substantially in the form attached hereto as Exhibit F .

5.11 Board of Directors . The Board of Directors shall be comprised of eleven (11) directors and the Company shall have caused each of the Mistral Representatives and the Serruya Representative to have been elected or appointed to the Board of Directors effective as of the Closing in accordance with Section 7.1(a).

5.12 Indemnification Agreement . The Company shall have duly executed and delivered to each Mistral Representative and the Serruya Representative the Company’s standard indemnification agreement, a true and correct copy of which has been provided or made available to such Purchaser.

5.13 Rights Agreement Amendment . The Company and the rights agent under the Rights Agreement shall have duly executed and delivered the Rights Agreement Amendment in the form attached as Exhibit G (the “ Rights Amendment ”) and such Rights Amendment shall be in full force and effect.

5.14 No Order or Proceeding . (a) No Law or Order by any Governmental Authority that prohibits the consummation of any of the transactions contemplated by the Transaction Documents shall have been adopted or entered and shall continue to be in effect and (b) no proceeding by or before any Governmental Authority shall be pending in which an unfavorable Order would prevent the performance of any Transaction Document or the consummation of any of the transactions contemplated by the Transaction Documents, declare unlawful such transactions or cause any such transactions to be rescinded.

5.15 VCOC Letter . The Company shall have delivered to any VCOC (or owner thereof) a VCOC Letter to the extent directed to do so by a Purchaser pursuant to Section 7.12.

 

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ARTICLE VI     CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE

The obligation of the Company to (1) issue and sell the Purchased Shares to be purchased by any Purchaser and (2) to perform its other obligations hereunder shall be subject to the satisfaction as determined by, or waiver by, the Company of the following conditions on or before the Closing Date:

6.1 Representations and Warranties . The representations and warranties of each Purchaser contained in Article IV hereof (other than the representations and warranties contained in Section 4.1(i) which are covered by the following sentence) shall be true and correct (without giving effect to any qualifications or limitations as to “materiality,” “material adverse effect” and words of similar import) on or as of the date hereof and as of the Closing Date as if made on and as of such date (except for those representations and warranties that are expressly limited by their terms to dates or times other than the Closing Date, which representations or warranties need only be true and correct as of such other dates or times (without giving effect to any qualifications or limitations as to “materiality,” “material adverse effect” and words of similar import)) except where the failure of such representations and warranties to be true and correct has not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of the Purchasers to consummate the transactions contemplated by the Transaction Documents. The representations and warranties of each Purchaser contained in Section 4.1(i) shall be true and correct in all respects, except for such inaccuracies as are de minimis in the aggregate, as of the date of this Agreement and on and as of the Closing Date as if made on and as of such date.

6.2 Purchaser’s Certificate . Such Purchaser shall have delivered to the Company a certificate dated as of the Closing and signed by such Purchaser or a duly authorized representative thereof, confirming the satisfaction of the conditions contained in Section 6.1.

6.3 Registration Rights Agreement . Such Purchaser shall have duly executed and delivered the Registration Rights Agreement.

6.4 No Order . No Law or Order by any Governmental Authority that prohibits the consummation of any of the transactions contemplated by the Transaction Documents shall have been adopted or entered and shall continue to be in effect.

 

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ARTICLE VII     COVENANTS OF THE COMPANY

The Covenants set forth in this Article VII shall be personal to the Purchasers hereunder and may only be transferred or assigned to a transferee or assignee in connection with any transfer or assignment of Purchased Shares by a Purchaser, provided, that (i) such transfer or assignment must be effected in accordance with applicable securities laws and any other restrictions on transfer set forth in the Transaction Documents, (ii) such transferee or assignee acquires at least twenty-five percent (25%) of a Purchaser’s Closing Amount and (iii) such transferee or assignee agrees to be bound by the provisions of this Agreement and the other Transaction Documents as a Purchaser hereunder and thereunder. In no event may the Covenants set forth in this Article VII be transferred or assigned to a transferee or assignee of Underlying Shares; provided, however, that for purposes of clarification, any transfer or assignment of Purchased Shares shall in no event increase the aggregate number of members of the Company’s Board of Directors to which the Purchasers are entitled to nominate hereunder and any transfer of at least at least twenty-five percent (25%) of a Purchaser’s Closing Amount should state whether any of the Board nomination rights are transferring therewith. The Company hereby covenants and agrees with the Purchasers as follows:

7.1 Board of Directors .

(a) On or prior to the Closing, the Company shall take such appropriate action to accommodate the election or appointment at the Closing of each Mistral Representative and the Serruya Representative to the Board of Directors, including, if necessary, taking such appropriate action to increase the size of the Board of Directors to accommodate such election or appointment. The two (2) membership seats occupied by the Mistral Representatives or whose occupants can be selected by the Mistral Purchasers under the terms of the Certificate of Designation or, when applicable, this Agreement, are hereby referred to as the “ Mistral Seats .” The one (1) initial membership seat occupied by the Serruya Representative or whose occupant can be selected by the Serruya Purchaser under the terms of the Certificate of Designation or, when applicable, this Agreement, is hereby referred to as the “ Serruya Seat ” (and if such number of membership seats whose occupants are to be selected by the Serruya Purchaser under the terms of the Certificate of Designation is increased to two (2), will hereby be referred to as the “ Serruya Seats ”).

(b) Notwithstanding anything to the contrary herein, the provisions of Section 7.1(c) through (f) below, which set forth the rights of the Mistral Purchasers and the Serruya Purchaser to nominate individuals as members of the Board of Directors (the “ Board Nomination Rights ”), shall be suspended and of no force or effect until such time as either the Mistral Purchasers or the Serruya Purchaser, as the case may be, shall cease to have to the right to vote for any one Preferred Director to occupy a Mistral Seat (in the case of the Mistral Purchasers) or the Serruya Seat (in the case of the Serruya Purchaser) under the terms of the Certificate of Designation (the “ Preferred Director Voting Right ”). Furthermore, to the extent any such Board Nomination Right becomes exercisable by the Mistral Purchasers, on the one hand, or the Serruya Purchaser, on the other hand, such right shall only be exercisable for that number of seats on the Board of Directors for which the applicable Preferred Director Voting Right ceases to apply.

(c) From and after the Closing and subject to Section 7.1(f) below, in connection with any annual or special meeting of the stockholders of the Company called for the purpose of electing the members of the Board of Directors, or whenever members of the Board of Directors are elected by written consent, the Mistral Purchasers, on the one hand, and the Serruya Purchaser, on the other hand, shall be entitled, but not obligated, to nominate by written notice to the Company individual(s) for membership to the Board of Directors to occupy one or both of the Mistral Seats, as the case may be, and the Serruya Seat (or both of the Serruya Seats, if the provision for the right to two membership seats in the Certificate of Designation was effected and the Serruya Purchaser designated two Board members pursuant thereto), respectively; it being understood that if the identities of such nominees are different than the Mistral Representatives (in the case of a nomination submitted by the Mistral Purchasers) or the Serruya Representative and any other additional member appointed by the Serruya Representative (in the case of a nomination submitted by the Serruya Purchaser), the Mistral Purchasers or the Serruya Purchaser, as applicable, shall cause its Board Representative(s) to resign from the Board of Directors in connection with such nomination. Subject to the satisfaction of all legal and governance requirements regarding service as a director of the Company and to the reasonable approval of the Company’s Nominating and Corporate Governance Committee (“ Governance Committee ”) (such approval not to be unreasonably withheld, conditioned or delayed) (all such requirements and approval, “ Board Membership Qualifications ”), the Company shall recommend to its stockholders the election of such nominees at the applicable annual or special meeting.

 

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(d) Any Board Representative (including any successor nominee) duly nominated by the Mistral Purchasers or the Serruya Purchaser in accordance with Section 7.1(b) shall, subject to applicable Law, be the Company’s and the Governance Committee’s nominee to serve on the Board of Directors. The Company shall use its reasonable best efforts to have the Board Representative elected as a director of the Company and the Company shall solicit proxies for each such individual to the same extent as it does for any of its other nominees to the Board of Directors.

(e) The Mistral Purchasers and the Serruya Purchaser shall have the power to designate their respective Board Representative’s replacement upon the death, resignation, retirement, disqualification or removal from office of a director currently occupying a Mistral Seat or the Serruya Seat or Seats, as the case may be, subject to satisfaction of all Board Membership Qualifications. The Board of Directors will promptly take all action reasonably required to fill the vacancy resulting therefrom with such individual (including (i) such individual, subject to applicable Law, being the Company’s and the Governance Committee’s nominee to serve on the Board of Directors, (ii) using reasonable best efforts to have such individual elected as director of the Company and (iii) the Company soliciting proxies for such individual to the same extent as it does for any of its other nominees to the Board of Directors).

(f)

(i) the number of Mistral Seats that may filled by the Mistral Purchasers shall be reduced (A) first, from two (2) to one (1) following the consummation by one or more of the Mistral Purchasers of any sale, assignment, transfer or other disposition of any shares of Common Stock held thereby (including, for this purpose, shares of Common Stock issuable upon conversion of the Purchased Shares) (a “ Mistral Purchaser Sale ”) that results in the Mistral Purchasers’ aggregate beneficial ownership of shares of Common Stock to be less than fifty percent (50%) of its Closing Amount (as adjusted for any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other like changes in the Company’s capital structure) and (B) second, from one (1) to none (and the right of the Mistral Purchasers to nominate a Board Representative shall be terminated) following any Mistral Purchaser Sale that results in the Mistral Purchasers’ aggregate beneficial ownership of shares of Common Stock to be less than twenty-five percent (25%) of its Closing Amount (as adjusted for any reorganization, recapitalization, reclassification, stock dividend stock split, reverse stock split or other like changes in the Company’s capital structure) (the “ Mistral Ownership Floor ”);

(ii) in the event the number of members the Serruya Purchaser is entitled to appoint to the Serruya Seat is one, the right of the Serruya Purchaser to nominate a Board Representative shall be terminated following the consummation by the Serruya Purchaser of any sale, assignment, transfer or other disposition of any shares of Common Stock held thereby (including, for this purpose, shares of Common Stock issuable upon conversion of the Purchased Shares) (a “ Serruya Purchaser Sale ”) that results in the Serruya Purchaser’s beneficial ownership of shares of Common Stock to be less than twenty-five percent (25%) of its Closing Amount (as adjusted for any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other like changes in the Company’s capital structure) (the “ Serruya Ownership Floor ”);

 

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(iii) in the event the number of members the Serruya Purchaser is entitled to appoint to the Serruya Seats is two, the number of Serruya Seats that may filled by the Serruya Purchaser shall be reduced (A) first, from two (2) to one (1) following the consummation by the Serruya Purchaser of any Serruya Purchaser Sale that results in the Serruya Purchaser’s aggregate beneficial ownership of shares of Common Stock to be less than fifty percent (50%) of its Closing Amount (as adjusted for any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other like changes in the Company’s capital structure) and (B) second, from one (1) to none (and the right of the Serruya Purchaser to nominate a Board Representative shall be terminated) following any Serruya Purchaser Sale that results in the Serruya Purchaser’s aggregate beneficial ownership of shares of Common Stock to be less than the Serruya Ownership Floor;

Upon the occurrence of any event described in clauses (i)(A), (i)(B) or (ii) above, the applicable Purchaser shall, at the written request of the Board of Directors, use reasonable best efforts to cause its Board Representative to resign from the Board of Directors as promptly as practicable thereafter.

(g) The Mistral Purchasers hereto agree and acknowledge that no Board Representative occupying the Mistral Seats shall be entitled to any annual cash or equity compensation in connection with his or her role as a member of the Board of Directors; provided, however, that any such annual cash compensation amount that would otherwise be payable to such Board Representative(s) shall be paid directly to the Mistral Manager. Notwithstanding the immediately preceding sentence, each Board Representative shall be entitled to the same indemnification in connection with his or her role as a director as the other members of the Board of Directors, and each Board Representative shall be entitled to reimbursement for documented, reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors or any committees thereof, to the same extent as the other members of the Board of Directors. The Company shall notify each Board Representative of all regular and special meetings of the Board of Directors and shall notify such Board Representative of all regular and special meetings of any committee of the Board of Directors of which such Board Representative is a member. The Company shall provide each Board Representative with copies of all notices, minutes, consents and other materials provided to all other members of the Board of Directors concurrently as such materials are provided to the other members. The Company agrees and acknowledges that, in the event the Company fails to pay to the Mistral Manager the annual cash compensation required to be paid thereby pursuant to the first sentence of this Section 7.1(g), one or more of the Mistral Purchasers shall be entitled to enforce this Section 7.1(g) for the benefit of the Mistral Manager.

(h) Subject to the final two sentences of this Section 7.1(h), the Mistral Purchasers, on the one hand, and the Serruya Purchaser, on the other hand, shall each be entitled, by way of written notice to the Board of Directors to request a representative attend any particular meeting of the Board of Directors and any particular meeting of each committee thereof as an observer (each, a “ Board Observer ”) which request shall not be unreasonably denied. The right of the Mistral Purchasers to request a Board Observer shall be terminated for any period of time during which the Mistral Purchasers’ aggregate ownership of shares of Common Stock (including, for this purpose, shares of Common Stock issuable upon conversion of their Purchased Shares) falls below the Mistral Ownership Floor. The right of the Serruya Purchaser to request a Board Observer shall be terminated for any period of time during which the Serruya Purchaser’s ownership of shares of Common Stock (including, for this purpose, shares of Common Stock issuable upon conversion of the Purchased Shares) falls below its Serruya Ownership Floor.

 

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(i) From and after the Closing, unless consented to in writing by the holders of a majority of the Underlying Shares (assuming conversion of the Purchased Shares), the Company shall not adopt an amendment to Section 3.1 of the Bylaws (or any successor provision thereto) that (i) alters the minimum number of directors to an amount less than three (3) or (ii) increases the maximum number of directors to an amount greater than twelve (12).

7.2 Information Rights .

(a) In addition and without limitation to the information rights afforded to its Board Representatives and Board Observer in Section 7.1 above, each Purchaser shall be entitled, but not obligated, to reasonably request financial or other information (including non-public information) regarding the business and operations of the Company and its Subsidiaries, including all annual, quarterly and monthly financial reports delivered to the Board of Directors. The Company shall permit, and shall cause each of its Subsidiaries to permit, the authorized representatives of each Purchaser with reasonable access during normal business hours and upon reasonable advance notice, to the offices, properties, personnel, books and records of the Company and each of its Subsidiaries.

(b) The information rights under this Section 7.2 shall be terminated and not exercisable (i) by any Mistral Purchaser following any Mistral Purchaser Sale that results in the Mistral Purchasers’ aggregate beneficial ownership of shares of Common Stock to be less than fifteen percent (15%) of its Closing Amount (as adjusted for any reorganization, recapitalization, reclassification, stock dividend stock split, reverse stock split or other like changes in the Company’s capital structure) and (ii) by the Serruya Purchaser following any Serruya Purchaser Sale that results in the Serruya Purchaser’s beneficial ownership of shares of Common Stock to be less than fifteen percent (15%) of its Closing Amount (as adjusted for any reorganization, recapitalization, reclassification, stock dividend stock split, reverse stock split or other like changes in the Company’s capital structure).

7.3 NASDAQ Listing . The Company shall use its reasonable best efforts to maintain the listing of the Common Stock (including any shares of Common Stock reserved for issuance pursuant to Section 7.4 below) on the NASDAQ Global Market, including (a) taking all actions reasonably related to maintaining NASDAQ Stock Market listing standards and (b) refraining from taking actions reasonably expected to cause the Company to not meet NASDAQ Stock Market listing standards.

7.4 Reservation of Common Stock . The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issue or delivery upon conversion of the Preferred Stock, as provided in the Certificate of Designation, the maximum number of Underlying Shares that may be issuable or deliverable upon such conversion. Such Underlying Shares are duly authorized and, when issued or delivered in accordance with the Certificate of Designation, shall be validly issued, fully paid and non-assessable. The Company shall issue such Underlying Shares in accordance with the terms of the Certificate of Designation, and otherwise comply with the terms hereof and thereof.

7.5 Restrictions on Public Sale . The Company agrees (a) not to effect any public offering or distribution of any Equity Securities of the Company and (b) not to register any Equity Securities of the Company (except pursuant to registration on Form S-8 or any successor thereto), in each case, during the period beginning on the date hereof and ending 90 days after the effective date of the shelf registration statement to be filed in accordance with the Registration Rights Agreement, except as part of such registration; provided, however, that for the purpose of clarity, any repricing of the Company’s outstanding warrants shall not be deemed to constitute any public offering or distribution of Equity Securities of the Company.

 

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7.6 Indebtedness . From and after the Closing, unless consented to in writing by the holders of a majority of the Underlying Shares (assuming conversion of the Purchased Shares), the Company shall not permit the outstanding Indebtedness of the Company and its Subsidiaries, taken as a whole, to exceed $10,000,000 in the aggregate, at any time.

7.7 Publicity, Filing of Form 8-K, Press Release .

(a) No public release or announcement concerning the transactions contemplated hereby or by any of the other Transaction Documents shall be issued by either party without the prior consent of the other party (which consent shall not be unreasonably withheld, conditioned or delayed), except as such release or announcement may be required by applicable Law or the rules or regulations of the NASDAQ Stock Market, in which case, the party required to make the release or announcement (the “ Disclosing Party ”) shall, to the extent reasonably practicable, allow the other party reasonable time to comment on such release or announcement in advance of such issuance; provided, that nothing in this Agreement shall restrict any Purchaser from disclosing the name of the Company, the name of its executive officers, a brief description of the business of the Company, the Company’s logo and the type and aggregate amount of such Purchaser’s investment in the Company (a) on the world wide web page(s) maintained by such Purchaser or any Affiliate thereof, (b) in any tombstone advertisement placed by such Purchaser or any Affiliate thereof or (c) in any promotional or marketing materials regarding the Purchaser or any Affiliate thereof. Each party, to the extent such party constitutes a Disclosing Party hereunder, agrees to consider the comments of the other parties reasonably and in good faith.

(b) Each Purchaser acknowledges that, on or before the third (3rd) Business Day following the date hereof, the Company shall file a Current Report on Form 8-K with the SEC (the “ Form 8-K ”) describing the terms of the transactions contemplated by the Transaction Documents and including as exhibits to such Form 8-K this Agreement, the Certificate of Designation and the Registration Rights Agreement, in the form required by the Exchange Act. The Company shall also issue a press release or other announcement of this Agreement or the transactions contemplated hereby within one Business Day following the date hereof, and shall file such press release with the filing of the Form 8-K with the SEC; it being understood that the issuance of such press release or other announcement shall be subject to Section 7.7(a) above.

7.8 Use of Proceeds . The Company shall use the proceeds from the sale of the Purchased Shares contemplated hereby to repay in full the outstanding Indebtedness, of the Company under that certain Financing Agreement, dated as of September 11, 2008 (as modified and amended from time to time) by and among the lender parties thereto, Victory Park Management, LLC as agent and the Company (the “ Victory Indebtedness ”) and for other ordinary course working capital purposes of the Company. In addition, the Company may use a portion of the proceeds from the sale of the Purchased Shares to satisfy its obligations under the Common Stock Put and Call Agreement dated as of September 11, 2008 entered into in connection with the Victory Indebtedness following exercise of the put right contained in such agreement.

 

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7.9 Preemptive Rights .

(a) Subject to Section 7.9(g) below, from and after the Closing, each Purchaser shall have the right (or may appoint an Affiliate to exercise such right) to exercise the preemptive rights set forth in this Section 7.9 (such Purchaser or any such Affiliate thereof who exercises such right, an “ Exercising Party ”). If the Company, at any time following the Closing, intends to consummate a public or non-public offering of Equity Securities (any such security, a “ New Security ”) (other than (i) pursuant to the granting or exercise of compensatory stock options or other equity-based awards pursuant to the Company’s stock incentive plans in the ordinary course of equity compensation awards and any other compensatory stock options or equity-based awards that may be considered an “inducement grant” pursuant to NASDAQ Marketplace Rule 5635(c)(4), (ii) issuances for the purposes of consideration in acquisition transactions, (iii) issuances of shares of Common Stock issued upon conversion of, or as a dividend on, any convertible or exchangeable securities of the Company issued either (A) pursuant to the transactions contemplated hereby or (B) prior to the date hereof and (iv) distributions or issuances pursuant to any rights plan adopted by the Company), the Exercising Party shall be afforded the opportunity to acquire from the Company a portion of such New Securities (the “ Purchaser New Securities ”) for the same price (net of any underwriting discounts or sales commissions) and on the same terms as such New Securities are sold to others, up to the amount specified in the following sentence. The amount of Purchaser New Securities that the Exercising Party shall be entitled to purchase in the aggregate shall be determined by multiplying (x) the total number of such offered shares of New Securities by (y) a fraction, the numerator of which is the number of shares of Common Stock held by such Purchaser on a fully-diluted basis (assuming conversion, exercise or exchange of all “in-the-money” securities or other “in-the-money” interests convertible into, exercisable for or exchangeable for shares of Common Stock) from either Purchased Shares or the Underlying Shares, as of such date, and the denominator of which is the number of shares of Common Stock then outstanding on a fully-diluted basis (assuming conversion, exercise or exchange of all “in-the-money” securities or other “in-the-money” interests convertible into, exercisable for or exchangeable for shares of Common Stock), as of such date (such fraction, a “ Preemptive Rights Fraction ”). For the avoidance of doubt, for purposes of calculating any Purchaser’s Preemptive Rights Fraction, the calculation of the number of shares of Common Stock on a fully-diluted basis shall disregard any such convertible, exercisable or exchangeable securities or such other interests that are “out-of-the-money.”

(b) In the event the Company proposes to offer New Securities, it shall deliver written notice thereof to each Purchaser (the “ Offer Notice ”), which Offer Notice shall also describe the price, anticipated amount of New Securities to be sold, the anticipated timing of such sale and the other material terms upon which the Company proposes to offer same (including, in the case of a registered public offering, to the extent possible, a copy of the prospectus included in the registration statement filed with respect to such offering) no later than ten (10) Business Days, as the case may be, after the initial filing of a registration statement with the SEC with respect to an underwritten public offering, after the commencement of marketing with respect to a Rule 144A offering or after the Company determines to pursue any other offering. The Exercising Party shall have ten (10) Business Days from the date of receipt of such notice to notify the Company in writing that it intends to exercise such preemptive rights and as to the amount of New Securities the Exercising Party desires to purchase, up to the maximum amount of Purchaser New Securities calculated pursuant to Section 7.9(a) above (such notice, the “ Exercise Notice ”). An Exercise Notice s