Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of April 29,
2013, is by and among Crumbs Bake Shop, Inc., a Delaware corporation with
offices located at 110 West 40th Street, Suite 2100, New York, New York 10018
(the “Company”), and each of the investors listed on the Schedule of Buyers
attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

 

RECITALS

 

A.          The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and
Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the 1933 Act.

 

B.           The Company has authorized the issuance of senior convertible
notes, in the aggregate amount of up to $10,000,000, in the form attached hereto
as Exhibit A (the “Notes”), which Notes shall be convertible into shares of the
Company’s common stock, $0.0001 par value per share (the “Common Stock”) (as
converted, collectively, the “Conversion Shares”), in accordance with the terms
of the Notes.

 

C.           Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, a Note in the aggregate
original principal amount set forth opposite such Buyer’s name on the Schedule
of Buyers.

 

D.           The Notes are entitled to interest, and certain other amounts,
which, at the option of the Company and subject to certain conditions, may be
paid in shares of Common Stock (the “Interest Shares”) or in cash.

 

E.           At the First Closing, the parties hereto shall execute and deliver
a Registration Rights Agreement, in the form attached hereto as Exhibit B (the
“Registration Rights Agreement”), pursuant to which the Company has agreed to
provide certain registration rights with respect to the Registrable Securities
(as defined in the Registration Rights Agreement), under the 1933 Act and the
rules and regulations promulgated thereunder, and applicable state securities
laws.

 

F.           The Notes, the Conversion Shares and the Interest Shares are
collectively referred to herein as the “Securities.”

 

G.           Each of the Company’s Subsidiaries (as defined below) will execute
a guaranty, in the form set forth in Exhibit C, in favor of each Buyer (each, a
“Guaranty” and collectively, the “Guaranties”) pursuant to which each of such
Subsidiaries will guarantee the obligations of the Company under the Notes.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Buyer hereby
agree as follows:

 

1.           PURCHASE AND SALE OF NOTES.

 

(a)          Notes. Subject to the satisfaction (or waiver) of the conditions
set forth in Sections 6 and 7 below, the Company shall issue and sell to each
Buyer, and each Buyer severally, but not jointly, shall purchase from the
Company on each Closing Date (as defined below), a Note in the original
principal amount as is set forth opposite such Buyer’s name on Exhibit A hereto.

 

 

 

 

(b)          Closing. The first closing (the “First Closing”) and each
subsequent closing (a “Subsequent Closing”) of the purchase of the Notes by the
Buyers (each, a “Closing” and together, the “Closings”) shall occur at the
offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (“Mintz Levin”),
666 Third Avenue, New York, NY 10017 or remotely via the exchange of documents
and signatures by facsimile or e-mail. The date and time of the First Closing
(the “First Closing Date”) shall be 10:00 a.m., New York time, on the first
(1st) Business Day on which the conditions to the Closing set forth in Sections
6 and 7 below are satisfied or waived, but in no event prior to May 10, 2013 (or
such other date mutually agreed to by the Company and each participating Buyer)
and shall require, at minimum, a purchase of Notes by the participating Buyers
in the aggregate principal amount of $2,000,000, in accordance with their Note
purchase allocation as set forth on the Schedule of Buyers. The date and time of
any Subsequent Closing (a “Subsequent Closing Date”, and together with the First
Closing Date, the “Closing Dates”), shall be 10:00 a.m., New York time, on such
later date as is mutually agreed to by the Company and each participating Buyer,
but in no event later than 30 days following the First Closing Date. As used
herein “Business Day” means any day other than a Saturday, Sunday or other day
on which commercial banks in New York, New York are authorized or required by
law to remain closed.

 

(c)          Purchase Price. The aggregate purchase price for the Notes to be
purchased by each Buyer (the “Purchase Price”) shall be the amount set forth
opposite such Buyer’s name on the Schedule of Buyers.

 

(d)          Form of Payment. On each Closing Date, (i) each participating Buyer
shall pay its respective Purchase Price (less, in the case of any Buyer, the
amounts withheld pursuant to Section 4(g)) to the Company for the Notes to be
issued and sold to such Buyer at such Closing, by wire transfer of immediately
available funds in accordance with the Flow of Funds Letter (as defined below)
and (ii) the Company shall deliver to each participating Buyer (A) a Note in the
aggregate original principal amount as is set forth opposite such Buyer’s name
on the First Closing or a Subsequent Closing Date, as applicable, found on the
Schedule of Buyers, duly executed on behalf of the Company and registered in the
name of such Buyer or its designee.

 

(e)          Buyer Assignees. Each Buyer shall have the option to appoint one or
more assignees (each a “Buyer Assignee”) as listed on the Schedule of Buyer
Assignees, which may be amended from time to time without the consent of the
Company, to purchase all or a portion of its aggregate original principal amount
of Notes (as set forth on column (3) of the Schedule of Buyers) to satisfy such
Buyer’s obligation to purchase Notes hereunder; provided, however, that each
Buyer Assignee who purchases Notes at a Closing shall be deemed a Buyer for
purposes of this Agreement with respect to such Notes and the representations
and warranties contained in Section 2 of this Agreement shall be true and
correct in all material respects with respect to such Buyer Assignee as of the
applicable Closing Date.

 

2.           BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer, severally and not jointly, represents and warrants to the Company
with respect to only itself that, as of the date hereof and as of each Closing
Date:

 

(a)          Organization; Authority. If an entity, such Buyer is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents (as defined below) to which it is a party and otherwise to carry out
its obligations hereunder and thereunder.

 

(b)          No Public Sale or Distribution. Such Buyer (i) is acquiring its
Note, (ii) may acquire the Interest Shares in accordance with the terms of the
Notes and, (iii) upon conversion of its Note will acquire the Conversion Shares
issuable upon conversion thereof, in each case, for its own account and not with
a view towards, or for resale in connection with, the public sale or
distribution thereof in violation of applicable securities laws, except pursuant
to sales registered or exempted under the 1933 Act; provided, however, by making
the representations herein, such Buyer does not agree, or make any
representation or warranty, to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
under the 1933 Act. Such Buyer is acquiring the Securities hereunder in the
ordinary course of its business. Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person, and has no
present intention of having any such agreement or understanding, to distribute
any of the Securities in violation of applicable securities laws. Such Buyer is
neither (x) a broker-dealer registered under the Securities Exchange Act of
1934, as amended (the “1934 Act”), or an entity engaged in a business that would
require it to be so registered nor (y) in the business of underwriting
securities.

 

(c)          Accredited Investor Status. Such Buyer is an “accredited investor”
as that term is defined in Rule 501(a) of Regulation D, as amended, under the
1933 Act.

 

2

 

 

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

 

(e)          Information. Such Buyer 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 Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Such Buyer
understands that its investment in the Securities involves a high degree of
risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.

 

(f)          No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

(g)          Transfer or Resale. Such Buyer understands that except as provided
in the Registration Rights Agreement and Section 4(h) hereof: (i) the Securities
have not been and are not being registered under the 1933 Act or any state
securities laws and, accordingly, are characterized as “restricted securities”
under the U.S. federal securities laws inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company (if
requested by the Company) an opinion of counsel to such Buyer, in a form
reasonably acceptable to the Company, to the effect that such Securities to be
sold, assigned or transferred may be sold, assigned or transferred pursuant to
an exemption from such registration, or (C) such Buyer provides the Company with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor
rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made
in reliance on Rule 144 may be made only in accordance with the terms of Rule
144, and further, if Rule 144 is not applicable, any resale of the Securities
under circumstances in which the seller (or the Person (as defined below)
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC promulgated
thereunder; and (iii) neither the Company nor any other Person is under any
obligation to register the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder.

 

(h)          Validity; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and constitutes the legal, valid and binding obligations of
such Buyer enforceable against such Buyer in accordance with their respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.

 

(i)          No Conflicts. The execution, delivery and performance by such Buyer
of this Agreement and the Registration Rights Agreement and the consummation by
such Buyer of the transactions contemplated hereby and thereby will not (i)
result in a violation of the organizational documents of such Buyer, if
applicable, (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to such Buyer, except
in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of such
Buyer to perform its obligations hereunder.

 

(j)          Residency. If an individual, such Buyer is a resident of the
jurisdiction specified below his or her address on the Schedule of Buyers. If an
entity, such Buyer maintains its principal place of business in the jurisdiction
specified below its address on the Schedule of Buyers.

 

3

 

 

(k)          Certain Trading Activities. Such Buyer has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Buyer, engaged in any transactions in the securities of
the Company (including, without limitation, any Short Sales (as defined below)
involving the Company’s securities) during the period commencing as of the time
that such Buyer was first contacted regarding the specific investment in the
Company contemplated by this Agreement and ending immediately prior to the
execution of this Agreement by such Buyer (it being understood and agreed that
for all purposes of this Agreement, and, without implication that the contrary
would otherwise be true, that neither transactions nor purchases nor sales shall
include the location and/or reservation of borrowable shares of Common Stock).
“Short Sales” means all “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the 1934 Act.

 

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

 

(m)          Not a 10% Owner. Such Buyer is not a “beneficial owner” of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of
the 1934 Act).

 

(n)          No General Solicitation. Such Buyer did not learn of the investment
in the Securities as a result of any general solicitation or general advertising
(within the meaning of Regulation D).

 

(o)          Brokers and Finders. Except as set forth in this Agreement, no
Person will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company, any Subsidiary (as defined below) or such Buyer for any commission, fee
or other compensation pursuant to any agreement, arrangement or understanding
entered into by or on behalf of such Buyer.

 

3.           REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers that, as of the date
hereof and as of each Closing Date:

 

(a)          Organization and Qualification. Each of the Company and each of its
Subsidiaries are entities duly organized and validly existing and in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authorization to own their properties and to carry on
their business as now being conducted and as presently proposed to be conducted.
Each of the Company and each of its Subsidiaries is duly qualified as a foreign
entity to do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, “Material Adverse Effect” means any material adverse
effect on (i) the business, properties, assets, liabilities, operations
(including results thereof), condition (financial or otherwise) or prospects of
the Company and its Subsidiaries, taken as a whole, (ii) the transactions
contemplated hereby or in any of the other Transaction Documents or (iii) the
authority or ability of the Company or any of its Subsidiaries to perform any of
their respective obligations under any of the Transaction Documents (as defined
below). For the avoidance of doubt, the term “Material Adverse Effect” shall not
include any change in the market prices for the Company’s securities. Other than
the Persons (as defined below) set forth on Schedule 3(a), the Company has no
Subsidiaries. “Subsidiaries” means any Person in which the Company, directly or
indirectly, (I) owns a majority of the outstanding capital stock or holds a
majority of equity or similar interest of such Person or (II) controls or
operates all or any part of the business, operations or administration of such
Person, and each of the foregoing, is individually referred to herein as a
“Subsidiary.”

 

4

 

 

(b)          Authorization; Enforcement; Validity. The Company has the requisite
power and authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents and to issue the Securities in
accordance with the terms hereof and thereof. Each Subsidiary has the requisite
power and authority to enter into and perform its obligations under its
Guaranty. The execution and delivery of this Agreement and the other Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Notes and the reservation for issuance and issuance of the Conversion Shares
issuable upon conversion of the Notes and the reservation for issuance and
issuance any Interest Shares issuable pursuant to the terms of the Notes) have
been duly authorized by the Company’s board of directors or a duly appointed
committee thereof (collectively, the “Board”). The execution and delivery by
each Subsidiary of its Guaranty and the performance by such Subsidiary of its
obligations contained therein have been duly authorized by the board of
directors or other governing body of such Subsidiary. Other than the filing with
the SEC of one or more Registration Statements in accordance with the
requirements of the Registration Rights Agreement, the 8-K Filing (as defined
below), a Form D with the SEC, any other filings as may be required by any state
securities agencies and any listing application and related notices and filings
to be made with the Principal Market (as defined in Section 3(d) (collectively,
the “Required Approvals”), no further filing, consent or authorization is
required by the Company or its Subsidiaries, their respective boards of
directors or their stockholders (other than the Stockholder Approval (as defined
in Section 4(v), if required) or other governing bodies in connection with the
transactions contemplated by this Agreement. This Agreement has been, and the
other Transaction Documents to which it is a party will be prior to the Closing,
duly executed and delivered by the Company, and each constitutes the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with its respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies and except as rights to indemnification and to contribution may be
limited by federal or state securities law and public policy, and the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. Each Guaranty, when executed and
delivered by a Subsidiary, will be duly executed and delivered by such
Subsidiary and shall constitute the legal, valid and binding obligation of such
Subsidiary, enforceable against such Subsidiary in accordance with its terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies and except as rights to indemnification and to
contribution may be limited by federal or state securities law and public
policy, and the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. “Transaction
Documents” means, collectively, this Agreement, the Notes, the Guaranties, the
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as
defined below) and each of the other agreements and instruments entered into or
delivered by any of the parties hereto in connection with the transactions
contemplated hereby and thereby, as may be amended from time to time.

 

(c)          Issuance of Securities. The issuance of the Notes has been duly
authorized and upon issuance in accordance with the terms of this Agreement
shall be validly issued and free from all preemptive or similar rights, taxes,
liens, charges and other encumbrances with respect to the issue thereof. As of
the Closing, the Company shall have reserved from its duly authorized capital
stock not less than (i) 125% of the maximum number of Conversion Shares
initially issuable upon conversion of the Notes (assuming for purposes hereof
that the Notes are convertible at the initial Conversion Price (as defined in
the Notes) of $1.55 and without taking into account any limitations on the
conversion of the Notes set forth in the Notes) and (ii) 100% of the maximum
number of Interest Shares initially issuable pursuant to the terms of the Notes
from the Closing Date through the five year anniversary of the Closing Date
(determined as if issued on the Trading Day (as defined in the Notes)
immediately preceding the Closing Date without taking into account any
limitations on the issuance of securities set forth in the Notes). Upon issuance
or conversion in accordance with the Notes, the Conversion Shares and the
Interest Shares, respectively, when issued, will be validly issued, fully paid
and nonassessable and free from all preemptive or similar rights, taxes, liens,
charges and other encumbrances with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock.
Subject to the accuracy of the representations and warranties of the Buyers in
this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.

 

5

 

 

(d)          No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and its Subsidiaries and the consummation
by the Company and its Subsidiaries of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Notes, the
Conversion Shares and the Interest Shares and the reservation for issuance of
the Conversion Shares and the Interest Shares) will not (i) result in a
violation of the Charter (as defined below) or other organizational documents of
the Company or any of its Subsidiaries, any capital stock of the Company or any
of its Subsidiaries or Bylaws (as defined below) of the Company or any of its
Subsidiaries, (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) subject to the Required Approvals, result in a
violation of any law, rule, regulation, order, judgment or decree (including
foreign, federal and state securities laws and regulations and the rules and
regulations of the Nasdaq Capital Market (the “Principal Market”) and including
all applicable federal laws, rules and regulations) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected except, in the case of clause (ii) or
(iii) above, to the extent such violations that would not reasonably be expected
to have a Material Adverse Effect.

 

(e)          Consents. Except for the Required Approvals, neither the Company
nor any Subsidiary is required to obtain any consent from, authorization or
order of, or make any filing or registration with (other than the Required
Approvals), any Governmental Entity (as defined below) or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its respective obligations under or contemplated by the
Transaction Documents, in each case, in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and registrations which
the Company or any Subsidiary is required to obtain at or prior to the Closing
have been or will be obtained or effected on or prior to the Closing Date, and
neither the Company nor any of its Subsidiaries are aware of any facts or
circumstances which might prevent the Company or any of its Subsidiaries from
obtaining or effecting any of the registration, application or filings
contemplated by the Transaction Documents. The Company is not in violation of
the requirements of the Principal Market and has no knowledge of any facts or
circumstances which could reasonably lead to delisting or suspension of the
Common Stock in the foreseeable future. “Governmental Entity” means any nation,
state, county, city, town, village, district, or other political jurisdiction of
any nature, federal, state, local, municipal, foreign, or other government,
governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department, official, or entity and any court or
other tribunal), multi-national organization or body; or body exercising, or
entitled to exercise, any administrative, executive, judicial, legislative,
police, regulatory, or taxing authority or power of any nature.

 

(f)          Acknowledgment Regarding Buyer’s Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) an “affiliate” (as
defined in Rule 144) of the Company or any of its Subsidiaries or (iii) to its
knowledge, a “beneficial owner” of more than 10% of the shares of Common Stock
(as defined for purposes of Rule 13d-3 of the 1934 Act. The Company further
acknowledges that no Buyer is acting as a financial advisor or fiduciary of the
Company or any of its Subsidiaries (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated hereby and thereby,
and any advice given by a Buyer or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer’s purchase of the
Securities. The Company further represents to each Buyer that the Company’s and
each Subsidiary’s decision to enter into the Transaction Documents to which it
is a party has been based solely on the independent evaluation by the Company,
each Subsidiary and their respective representatives.

 

(g)          No General Solicitation; Placement Agent’s Fees. Neither the
Company, nor any of its Subsidiaries or 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) in connection with the offer or
sale of the Securities. 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 any Buyer or its investment advisor except as set
forth in this Agreement) relating to or arising out of the transactions
contemplated hereby. Except as set forth in Schedule 3(g) and except with
respect to Threadstone Advisors LLC (the “Placement Agent”), neither the Company
nor any of its Subsidiaries has engaged any placement agent or other agent in
connection with the offer or sale of the Securities.

 

6

 

 

(h)          No Integrated Offering. None of the Company, its Subsidiaries or
any of their affiliates, nor, to the knowledge of the Company, 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 the issuance of any of the Securities under the
1933 Act, whether through integration with prior offerings or otherwise, or
cause this offering of the Securities to require approval of stockholders of the
Company under any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated for quotation. None of the Company, its Subsidiaries, their
affiliates nor, to the knowledge of the Company, any Person acting on their
behalf will take any action or steps that would require registration of the
issuance of any of the Securities under the 1933 Act or cause the offering of
any of the Securities to be integrated with other offerings of securities of the
Company.

 

(i)           Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares and Interest Shares may increase in certain
circumstances. The Company further acknowledges that its obligation to issue the
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and the Interest Shares in accordance with this Agreement and the
Notes is absolute and unconditional (subject to any limitations on conversion as
set forth in the Notes) regardless of the dilutive effect that such issuance may
have on the ownership interests of other stockholders of the Company.

 

(j)          Application of Takeover Protections; Rights Agreement. At or prior
to Closing, the Company and its Board shall have taken all necessary action, if
any, in order to render inapplicable any control share acquisition, interested
stockholder, business combination, poison pill (including, without limitation,
any distribution under a rights agreement) or other similar anti-takeover
provision under the Charter, Bylaws or other organizational documents or the
laws of the jurisdiction of its incorporation or otherwise which is or could
become applicable to any Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company’s issuance of the
Securities and any Buyer’s ownership of the Securities. At or prior to Closing,
the Company and its Board shall have taken all necessary action, if any, in
order to render inapplicable any stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of shares of Common Stock or a
change in control of the Company or any of its Subsidiaries.

 

(k)          SEC Documents; Financial Statements. Except as set forth on
Schedule 3(k), during the two (2) years prior to the date hereof, the Company
has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements, notes and schedules thereto
and documents incorporated by reference therein being hereinafter referred to as
the “SEC Documents”). The Company has delivered to the Buyers or their
respective representatives true, correct and complete copies of each of the SEC
Documents not available on the EDGAR system. Except as set forth on Schedule
3(k), as of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC, 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. Except as
set forth on Schedule 3(k), as of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto as in effect as of the
time of filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and, except as set forth on Schedule 3(k), fairly present in
all material respects the financial position of the Company as of 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 which will not be material, either individually or in the
aggregate). No other information provided by or on behalf of the Company to any
of the Buyers which is not included in the SEC Documents (including, without
limitation, information referred to in Section 2(e) of this Agreement) contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein not misleading, in the light
of the circumstance under which they are or were made.

 

7

 

 

(l)          Absence of Certain Changes. Since the date of the Company’s most
recent audited financial statements contained in a Form 10-K, there has been no
material adverse change and no material adverse development in the business,
assets, liabilities, properties, operations (including results thereof),
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole. Since the date of the Company’s most recent
audited financial statements contained in a Form 10-K, neither the Company nor
any of its Subsidiaries has (i) declared or paid any dividends, (ii) sold any
assets, individually or in the aggregate, outside of the ordinary course of
business or (iii) made any material capital expenditures, individually or in the
aggregate, outside the ordinary course of business. Neither the Company nor any
of its Subsidiaries has taken any steps to seek protection pursuant to any law
or statute relating to bankruptcy, insolvency, reorganization, receivership,
liquidation or winding up, nor does the Company or any Subsidiary have any
knowledge or reason to believe that any of their respective creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any fact
which would reasonably lead a creditor to do so. The Company and its
Subsidiaries, on a consolidated basis, are not as of the date hereof, and after
giving effect to the transactions contemplated hereby to occur at the Closing,
will not be Insolvent (as defined below). For purposes of this Section 3(l),
“Insolvent” means, with respect to the Company and its Subsidiaries, on a
consolidated basis, (i) the present fair saleable value of the Company’s and its
Subsidiaries’ assets is less than the amount required to pay the Company’s and
its Subsidiaries’ total Indebtedness (as defined below), (ii) the Company and
its Subsidiaries are unable to pay their debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured or (iii) the Company and its Subsidiaries intend to incur or believe
that they will incur debts that would be beyond their ability to pay as such
debts mature. Neither the Company nor any of its Subsidiaries has engaged in any
business or in any transaction, and is not about to engage in any business or in
any transaction, for which the Company’s or such Subsidiary’s remaining assets
constitute unreasonably small capital.

 

(m)          No Undisclosed Events, Liabilities, Developments or Circumstances.
Except as disclosed in the SEC Documents, no event, liability, development or
circumstance has occurred or exists, or is reasonably expected to exist or occur
with respect to the Company, any of its Subsidiaries or any of their respective
businesses, properties, liabilities, prospects, operations (including results
thereof) or condition (financial or otherwise), that (i) would be required to be
disclosed by the Company under applicable securities laws on a registration
statement on Form S-1 filed with the SEC relating to an issuance and sale by the
Company of its Common Stock and which has not been publicly announced, (ii)
could have a material adverse effect on any Buyer’s investment hereunder or
(iii) could have a Material Adverse Effect.

 

(n)          Conduct of Business; Regulatory Permits. Neither the Company nor
any of its Subsidiaries is in violation of any term of or in default under its
Charter, any certificate of designation, preferences or rights of any other
outstanding series of preferred stock of the Company or any of its Subsidiaries
or Bylaws or their organizational charter, certificate of formation or
certificate of incorporation or bylaws, respectively. Except as disclosed in the
SEC Documents, neither the Company nor any of its Subsidiaries is in violation
of any judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries, and neither the Company
nor any of its Subsidiaries will conduct its business in violation of any of the
foregoing, except in all cases for possible violations which could not,
individually or in the aggregate, have a Material Adverse Effect. Except as set
forth on Schedule 3(n), without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or requirements of
the Principal Market and has no knowledge of any facts or circumstances that
could reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future. Since June 30, 2011, (i) the Common
Stock has been listed or designated for quotation on the Principal Market or the
Nasdaq Global Market, (ii) trading in the Common Stock has not been suspended by
the SEC or the Principal Market and (iii) except as disclosed in the SEC
Documents, the Company has received no communication, written or oral, from the
SEC or the Principal Market regarding the suspension or delisting of the Common
Stock from the Principal Market. The Company and each of its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.

 

8

 

 

(o)          Foreign Corrupt Practices. Neither the Company nor any of its
Subsidiaries nor, to the knowledge of the Company, 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, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

 

(p)          Sarbanes-Oxley Act. The Company and each Subsidiary is in material
compliance with all applicable requirements of the Sarbanes-Oxley Act of 2002
that are effective as of the date hereof, and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the date
hereof.

 

(q)          Transactions With Affiliates. Except as disclosed in the SEC
Documents, 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 knowledge of the Company or any of
its Subsidiaries, any corporation, partnership, trust or other Person in which
any such officer, director, or employee has a substantial interest or is an
employee, officer, director, trustee or partner.

 

(r)          Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 100,000,000 shares of Common Stock,
of which 13,577,437 are issued, 11,982,853 are issued and outstanding, and
12,774,095 shares are reserved for issuance pursuant to securities (other than
the Notes) exercisable or exchangeable for, or convertible into, shares of
Common Stock and (ii) 1,000,000 shares of preferred stock, 234,000 of which are
issued and outstanding and 440,000 of which are reserved for future issuance
pursuant to contractual obligations applicable to the Company. Of the issued
shares of Common Stock, 1,594,584 are held in treasury. All of such outstanding
shares are duly authorized and have been, or upon issuance will be, validly
issued and are fully paid and nonassessable. To the Company’s knowledge,
4,716,153 shares of the Company’s issued and outstanding Common Stock on the
date hereof are owned by Persons who are “affiliates” (as defined in Rule 405 of
the 1933 Act and calculated based on the assumption that only executive
officers, directors and holders of at least 10% of the Company’s issued and
outstanding Common Stock are “affiliates” without conceding that any such
Persons are “affiliates” for purposes of federal securities laws) of the Company
or any of its Subsidiaries. Except as disclosed in the SEC Documents or in a
Schedule 13G or Schedule 13D, as the same may be amended, that has been filed
with the SEC via EDGAR, to the Company’s knowledge, no Person owns 10% or more
of the Company’s issued and outstanding shares of Common Stock (calculated based
on the assumption that all Convertible Securities (as defined below), whether or
not presently exercisable or convertible, have been fully exercised or converted
(as the case may be) taking account of any limitations on exercise or conversion
(including “blockers”) contained therein without conceding that such identified
Person is a 10% stockholder for purposes of federal securities laws). (i) None
of the Company’s or any Subsidiary’s capital stock is subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company or any Subsidiary; (ii) except as set forth in the
capitalization table included in Schedule 3(r), there are no outstanding
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, any capital stock of the Company or 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 capital stock of the Company or 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, any capital stock of the Company or any of its
Subsidiaries; (iii) except as set forth in the capitalization table included in
Schedule 3(r), 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 amounts filed in connection
with the Company or any of its Subsidiaries; (v) except as disclosed in Schedule
3(r), there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act (except pursuant to the Registration Rights Agreement); (vi)
except as set forth in the capitalization table included in Schedule 3(r), 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) except as provided under the Company’s
Equity Incentive Plan, there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) except for the Company’s Equity Incentive Plan, neither
the Company nor any Subsidiary has any stock appreciation rights or “phantom
stock” plans or agreements or any similar plan or agreement; and (ix) neither
the Company nor any of its Subsidiaries have any liabilities or obligations
required to be disclosed in the SEC Documents which are not so disclosed in the
SEC Documents, other than those incurred in the ordinary course of the Company’s
or its Subsidiaries’ respective businesses and which, individually or in the
aggregate, do not or could not have a Material Adverse Effect. The Company has
furnished to the Buyers true, correct and complete copies of the Company’s
Certificate of Incorporation, as amended and supplemented and as in effect on
the date hereof (the “Charter”), and the Company’s bylaws, as amended and as in
effect on the date hereof (the “Bylaws”), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common Stock and
the material rights of the holders thereof in respect thereto.

 

9

 

 

(s)          Indebtedness and Other Contracts. Except as disclosed on Schedule
3(s), neither the the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of, or in default under, any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. For purposes of this Agreement: (x)
“Indebtedness” of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
“capital leases” in accordance with generally accepted accounting principles)
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, 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 monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) 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 the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; provided, however, that the term “Indebtedness” shall not
include any obligation of the Company or any Subsidiary to pay unsecured amounts
due under or with respect to real estate operating leases; (y) “Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any Indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto; and (z) “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and any Governmental
Entity or any department or agency thereof.

 

(t)          Absence of Litigation. Except as disclosed in the SEC Documents and
as disclosed in Schedule 3(t), there is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board, other
Governmental Entity, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, the Common Stock or any of the Company’s or its Subsidiaries’
officers or directors which is outside of the ordinary course of business or
individually or in the aggregate material to the Company or any of its
Subsidiaries. Without limitation of the foregoing, there has not been, and to
the knowledge of the Company, there is not pending or contemplated, any
investigation by the SEC involving the Company, any of its Subsidiaries or any
current or former director or executive officer of the Company or any of its
Subsidiaries. The SEC has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company under the
1933 Act or the 1934 Act.

 

10

 

 

(u)          Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for, and neither the Company nor any such
Subsidiary has any reason to believe that it will be unable 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 Material Adverse Effect.

 

(v)         Employee Relations. Except as disclosed in the SEC Documents,
neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or employs any member of a union. The Company believes that
its and its Subsidiaries’ relations with their respective employees are good. No
executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or
other key employee of the Company or any of its Subsidiaries has notified the
Company or any such Subsidiary that such officer intends to leave the Company or
any such Subsidiary or otherwise terminate such officer’s employment with the
Company or any such Subsidiary. To the knowledge of the Company, no executive
officer or other key employee of the Company or any of its Subsidiaries 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, and the continued employment of each such executive officer or other
key employee (as the case may be) does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters. The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

(w)          Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and have good and marketable title to
all personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and any of its Subsidiaries. Any real property and
facilities held under lease by the Company or any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company or any of its Subsidiaries.

 

(x)          Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, original works, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor (“Intellectual Property
Rights”) necessary to conduct their respective businesses as now conducted and
as presently proposed to be conducted. Except as disclosed on Schedule 3(x),
none of the Company’s or its Subsidiaries’ Intellectual Property Rights have
expired, terminated or been abandoned, or are expected to expire, terminate or
be abandoned, within two years from the date of this Agreement. The Company has
no knowledge of any infringement by the Company or any of its Subsidiaries of
Intellectual Property Rights of others. There is no claim, action or proceeding
being made or brought, or to the knowledge of the Company or any of its
Subsidiaries, being threatened, against the Company or any of its Subsidiaries
regarding their Intellectual Property Rights. The Company is not aware of any
facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings. The Company and each of its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights, except
where failure to take such measures would not, either individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.

 

11

 

 

(y)          Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with all Environmental Laws (as defined below) in all material
respects, (ii) have received all permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in material 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 Material Adverse Effect. The term
“Environmental Laws” means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, or toxic
or hazardous substances or wastes (collectively, “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.

 

(z)          Subsidiary Rights. Except as set forth on Schedule 3(z), the
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.

 

(aa)        Tax Status. Except as set forth on Schedule 3(aa), the Company and
each of its Subsidiaries (i) has made or filed all foreign, federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate 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 officers of the Company and its Subsidiaries know of
no basis for any such claim. The Company is not operated in such a manner as to
qualify as a passive foreign investment company, as defined in Section 1297 of
the U.S. Internal Revenue Code of 1986, as amended.

 

(bb)        Internal Accounting and Disclosure Controls. The Company and each of
its Subsidiaries maintains internal control over financial reporting (as such
term is defined in Rule 13a-15(f) under the 1934 Act) that is effective to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles, including 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 generally accepted accounting principles 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 authorization 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(e) under the 1934 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 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, 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 1934 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 disclosed in the SEC
Documents, neither the Company nor any of its Subsidiaries has received any
notice or correspondence from any accountant or other Person relating to any
potential material weakness or significant deficiency in any part of the
internal controls over financial reporting of the Company or any of its
Subsidiaries, that has not been cured or otherwise resolved prior to the date
hereof.

 

(cc)        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 1934 Act filings and is not so
disclosed or that otherwise could be reasonably likely to have a Material
Adverse Effect.

 

(dd)        Investment Company Status. The Company is not, and upon consummation
of the sale of the Securities will not be, an “investment company,” an affiliate
of an “investment company,” a company controlled by an “investment company” or
an “affiliated person” of, or “promoter” or “principal underwriter” for, an
“investment company” as such terms are defined in the Investment Company Act of
1940, as amended.

 

12

 

 

(ee)        Acknowledgement Regarding Buyers’ Trading Activity. It is understood
and acknowledged by the Company that (i) following the public disclosure of the
transactions contemplated by the Transaction Documents in accordance with the
terms thereof and except for the restrictions on transfer contemplated by
Section 2(g), none of the Buyers have been asked by the Company or any of its
Subsidiaries to agree, nor has any Buyer agreed with the Company or any of its
Subsidiaries, to desist from effecting any transactions in or with respect to
(including, without limitation, purchasing or selling, long and/or short) any
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) any Buyer,
and counterparties in “derivative” transactions to which any such Buyer is a
party, directly or indirectly, presently may have a “short” position in the
Common Stock which was established prior to such Buyer’s knowledge of the
transactions contemplated by the Transaction Documents; and (iii) each Buyer
shall not be deemed to have any affiliation with or control over any arm’s
length counterparty in any “derivative” transaction. The Company further
understands and acknowledges that following the public disclosure of the
transactions contemplated by the Transaction Documents pursuant to the Press
Release (as defined below) one or more Buyers may engage in hedging and/or
trading activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value
and/or number of the Interest Shares or Conversion Shares, as applicable,
deliverable with respect to the Securities are being determined and such hedging
and/or trading activities, if any, can reduce the value of the existing
stockholders’ equity interest in the Company both at and after the time the
hedging and/or trading activities are being conducted. The Company acknowledges
that such aforementioned hedging and/or trading activities do not constitute a
breach of this Agreement, the Notes, or any other Transaction Document or any of
the documents executed in connection herewith or therewith.

 

(ff)         Manipulation of Price. Neither the Company nor any of its
Subsidiaries has, and, to the knowledge of the Company, no Person acting on
their behalf has, directly or indirectly, (i) taken any action designed to cause
or to result in the stabilization or manipulation of the price of any security
of the Company or any of its Subsidiaries to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any of the Securities, or (iii) paid or agreed to
pay to any Person any compensation for soliciting another to purchase any other
securities of the Company or any of its Subsidiaries.

 

(gg)       U.S. Real Property Holding Corporation. Neither the Company nor any
of its Subsidiaries is, or has ever been, and so long as any of the Securities
are held by any of the Buyers, shall become, a U.S. real property holding
corporation within the meaning of Section 897 of the Internal Revenue Code of
1986, as amended, and the Company and each Subsidiary shall so certify upon any
Buyer’s request.

 

(hh)       Registration Eligibility. Subject to the Company’s compliance with
paragraphs (b) and (c) of General Instruction I.B.4 to Form S-3, the Company
believes that is eligible to register the Registrable Securities for resale by
the Buyers using Form S-3 promulgated under the 1933 Act.

 

(ii)         Transfer Taxes. 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 issuance, sale and transfer of the Securities to be sold to
each Buyer hereunder will be, or will have been, fully paid or provided for by
the Company, and all laws imposing such taxes will be or will have been complied
with.

 

(jj)          Shell Company Status. The Company is not currently, and has not
been within the last 12 months, an issuer identified in, or subject to, Rule
144(i).

 

(kk)        Illegal or Unauthorized Payments; Political Contributions. Neither
the Company nor any of its Subsidiaries nor, to the Company’s knowledge (after
reasonable inquiry of its executive officers and directors), any of the
officers, directors, employees, agents or other representatives of the Company
or any of its Subsidiaries or any other business entity or enterprise with which
the Company or any Subsidiary is or has been affiliated or associated, has,
directly or indirectly, made or authorized any payment, contribution or gift of
money, property, or services, whether or not in contravention of applicable law,
(a) as a kickback or bribe to any Person or (b) to any political organization,
or the holder of or any aspirant to any elective or appointive public office
except for personal political contributions not involving the direct or indirect
use of funds of the Company or any of its Subsidiaries.

 

(ll)         Money Laundering. The Company and its Subsidiaries are in
compliance with, and have not previously violated, the USA Patriot Act of 2001
and all other applicable U.S. and non-U.S. anti-money laundering laws and
regulations, including, but not limited to, the laws, regulations and Executive
Orders and sanctions programs administered by the U.S. Office of Foreign Assets
Control, including, but not limited, to (i) Executive Order 13224 of September
23, 2001 entitled, “Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079
(2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

 

13

 

  

(mm)      Management. Except as set forth in Schedule 3(mm) hereto, since the
Company’s incorporation on October 29, 2009, no current officer or director or,
to the knowledge of the Company, former officer or director of the Company or
any of its Subsidiaries has been the subject of:

 

(i)            a petition under bankruptcy laws or any other insolvency or
moratorium law or the appointment by a court of a receiver, fiscal agent or
similar officer for such Person, or any partnership in which such person was a
general partner at or within two years before the filing of such petition or
such appointment, or any corporation or business association of which such
person was an executive officer at or within two years before the time of the
filing of such petition or such appointment;

 

(ii)           a conviction in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations, including those
relating to driving while intoxicated or driving under the influence);

 

(iii)          any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining any such person from, or otherwise limiting, the following
activities:

 

(1)         Acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the United States Commodity
Futures Trading Commission or an associated person of any of the foregoing, or
as an investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;

 

(2)         Engaging in any type of business practice; or

 

(3)         Engaging in any activity in connection with the purchase or sale of
any security or commodity or in connection with any violation of securities laws
or commodities laws;

 

(iv)        any order, judgment or decree, not subsequently reversed, suspended
or vacated, of any authority barring, suspending or otherwise limiting for more
than 60 days the right of any such person to engage in any activity described in
the preceding sub paragraph, or to be associated with persons engaged in any
such activity;

 

(v)         a finding by a court of competent jurisdiction in a civil action or
by the SEC or other authority to have violated any securities law, regulation or
decree and the judgment in such civil action or finding by the SEC or any other
authority has not been subsequently reversed, suspended or vacated; or

 

(vi)        a finding by a court of competent jurisdiction in a civil action or
by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding has not been
subsequently reversed, suspended or vacated.

 

(nn)         No Additional Agreements. The Company does not have any agreement
or understanding with any Buyer with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction Documents.

 

(oo)         Public Utility Holding Act. None of the Company nor any of its
Subsidiaries is a “holding company,” or an “affiliate” of a “holding company,”
as such terms are defined in the Public Utility Holding Act of 2005.

 

(pp)         Federal Power Act. None of the Company nor any of its Subsidiaries
is subject to regulation as a “public utility” under the Federal Power Act, as
amended.

 

14

 

 

(qq)         Ranking of Notes. No Indebtedness of the Company, at the Closing,
will be senior to, or pari passu with, the Notes in right of payment, whether
with respect to payment or redemptions, interest, damages, upon liquidation or
dissolution or otherwise.

 

(rr)           Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably be expected to
constitute material, non-public information concerning the Company or any of its
Subsidiaries, other than (i) the existence of the transactions contemplated by
this Agreement and the other Transaction Documents and (ii) certain information
provided to the Buyers as part of their due diligence review of the Company and
its Subsidiaries (the “Other Data”). From and after the filing of the 8-K
Filing, no Buyer will be deemed by the Company to be in possession of any
material non-public information. The Company acknowledges that the Buyers will
be entitled to rely on the representation and warranty contained in the
foregoing sentence in effecting transactions in the Company’s securities and
that such reliance is reasonable. All disclosure provided to the Buyers
regarding the Company and its Subsidiaries, their businesses and the
transactions contemplated hereby, including the schedules to this Agreement,
furnished by or on behalf of the Company or any of its Subsidiaries is true and
correct in all material respects and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each press release issued by the Company or any of its
Subsidiaries during the twelve (12) months preceding the date of this Agreement
did not at the time of release contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, liabilities, prospects, operations (including
results thereof) or conditions (financial or otherwise), which, under applicable
law, rule or regulation, requires public disclosure at or before the date hereof
or announcement by the Company but which has not been so publicly disclosed. The
Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.

 

4.           COVENANTS.

 

(a)          Reasonable Best Efforts. Each Buyer shall use its reasonable best
efforts to timely satisfy each of the conditions to be satisfied by it as
provided in Section 6 of this Agreement. The Company shall use its reasonable
best efforts to timely satisfy each of the conditions to be satisfied by it as
provided in Section 7 of this Agreement.

 

(b)          Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
immediately after the Closing Date, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to,
qualify the Securities for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or “Blue Sky” laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to the Buyers on or immediately
after the Closing Date. Without limiting any other obligation of the Company
under this Agreement, the Company shall timely make all filings and reports
relating to the offer and sale of the Securities required under all applicable
securities laws (including, without limitation, all applicable federal
securities laws and all applicable “Blue Sky” laws), and the Company shall
comply in all material respects with all applicable federal, state and local
laws, statutes, rules, regulations and the like relating to the offering and
sale of the Securities to the Buyers.

 

(c)          Reporting Status. Until the fifth anniversary of the date of this
Agreement (the “Reporting Period”), the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would no
longer require or otherwise permit such termination.

 

(d)          Use of Proceeds. The Company will use the proceeds from the sale of
the Securities for general corporate purposes, but not for (i) except as set
forth on Schedule 4(d), the repayment of any outstanding Indebtedness of the
Company or any of its Subsidiaries, (ii) the redemption or repurchase of any
securities of the Company or any of its Subsidiaries, or (iii) the settlement of
any outstanding litigation.

 

15

 

 

(e)          Financial Information. The Company agrees to send the following to
each Buyer (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless the following are filed with the SEC through EDGAR
and are available to the public through the EDGAR system, within one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K and Quarterly Reports on Form 10-Q, any interim reports or any
consolidated balance sheets, income statements, stockholders’ equity statements
and/or cash flow statements for any period other than annual, any Current
Reports on Form 8-K and any registration statements (other than on Form S-8) or
amendments filed pursuant to the 1933 Act, and (ii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.

 

(f)          Listing. The Common Stock is currently traded only on the Principal
Market and the Company shall take all necessary actions to maintain the trading
of the Common Stock on the Principal Market. If the Common Stock becomes listed
or designated for quotation on any other Eligible Market (as defined below),
then the Company shall promptly secure the listing or designation for quotation
(as the case may be) of all of the Registrable Securities upon each national
securities exchange and automated quotation system, if any, upon which the
Common Stock is then listed or designated for quotation (as the case may be)
(subject to official notice of issuance) and shall maintain such listing or
designation for quotation (as the case may be) of all Registrable Securities
from time to time issuable under the terms of the Transaction Documents on such
then applicable national securities exchange or automated quotation system. The
Company shall take all necessary actions to maintain the Common Stock’s trading
on the Principal Market. If in the future, the Common Stock becomes listed or
designated for quotation on any of The New York Stock Exchange, the NYSE Amex,
the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital
Market (each, together with the Principal Market, an “Eligible Market”), the
Company shall maintain the Common Stock’s listing or designation for quotation
(as the case may be) on such market. Neither the Company nor any of its
Subsidiaries shall take any action which could be reasonably expected to result
in the delisting or suspension of the Common Stock on an Eligible Market on
which the Common Stock is then traded, listed or designated for quotation. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f). The Company’s obligations under this
Section 4(f) shall terminate and be of no further force or effect at the
expiration of the Reporting Period.

 

(g)          Fees. The Company shall reimburse Michael Serruya for (i) all
reasonable costs and expenses incurred by him or his affiliates in connection
with the transactions contemplated by the Transaction Documents (including,
without limitation, as applicable, all reasonable legal fees and disbursements
of Mintz Levin, counsel to Michael Serruya, any other reasonable fees and
expenses in connection with the structuring, documentation and implementation of
the transactions contemplated by the Transaction Documents and due diligence and
regulatory filings in connection therewith), which amount shall not exceed, in
the aggregate, $87,500 (the “Expense Amount”); and (ii) a corporate finance fee
of $200,000 to be paid to Delavaco Capital (the “Corporate Finance Fee”) in
cash, without prior written notice to the Company. The Expense Amount and
Corporate Finance Fee shall be withheld by Michael Serruya from his Purchase
Price at the Closing or paid by the Company upon termination of this Agreement
on demand by Michael Serruya and/or Mintz Levin. Subject to the limitation set
forth in the immediately preceding sentence, if the amount so withheld at the
Closing by Michael Serruya was less than the Expense Amount actually incurred by
Michael Serruya, in connection with the transactions contemplated by the
Transaction Documents and entitled to reimbursement from the Company in
accordance herewith or any other Transaction Document, the Company shall
promptly reimburse Michael Serruya, on demand for such Expense Amount not so
reimbursed by the Company on the date hereof or through such withholding at the
Closing. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, transfer agent fees, the fees and
expenses of DTC (as defined below) fees or broker’s commissions (other than for
Persons engaged by any Buyer) relating to or arising out of the transactions
contemplated hereby (including, without limitation, any fees payable to the
Placement Agent in connection with the transactions contemplated by this
Agreement). The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys’
fees and out-of-pocket expenses) arising in connection with any claim relating
to any such payment. Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with the
sale of the Securities to the Buyers.

 

16

 

 

(h)          Pledge of Securities. Notwithstanding anything to the contrary
contained in this Agreement, but subject to any requirements imposed by
applicable securities laws and rules, the Company acknowledges and agrees that
the Securities may be pledged by a Buyer in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Buyer effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Buyer.

 

(i)          Disclosure of Transactions and Other Material Information. The
Company shall, on or before 8:30 a.m., New York time, on the first (1st)
Business Day after the date of this Agreement, issue a press release (the “Press
Release”) reasonably acceptable to the Buyers disclosing all the material terms
of the transactions contemplated by the Transaction Documents. On or before 8:30
a.m., New York time, on the first (1st) Business Day after the date of this
Agreement, the Company shall file a Current Report on Form 8-K that (i)
describes all the material terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching all the
material Transaction Documents (including, without limitation, this Agreement
(and all schedules to this Agreement), the form of Notes and the form of the
Registration Rights Agreement) and (ii) discloses the Other Data (such Form 8-K,
including all attachments, the “8-K Filing”). From and after the filing of the
8-K Filing, the Company shall have disclosed all material, non-public
information (if any) provided to any of the Buyers by the Company or any of its
Subsidiaries or any of their respective officers, directors, employees or agents
in connection with the transactions contemplated by the Transaction Documents.
The Company shall not, and the Company shall cause each of its Subsidiaries and
each of its and their respective officers, directors, employees and agents not
to, provide any Buyer with any material, non-public information regarding the
Company or any of its Subsidiaries from and after the issuance of the Press
Release without the express prior written consent of such Buyer. In the event of
a breach of any of the foregoing covenants or any of the covenants or agreements
contained in any other Transaction Document, by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents (as determined in the reasonable good faith judgment of such Buyer),
in addition to any other remedy provided herein or in the Transaction Documents,
such Buyer shall have the right to make a public disclosure, in the form of a
press release, public advertisement or otherwise, of such breach or such
material, non-public information, as applicable, without the prior approval by
the Company, any of its Subsidiaries, or any of its or their respective
officers, directors, employees or agents. No Buyer shall have any liability to
the Company, any of its Subsidiaries, or any of its or their respective
officers, directors, employees, stockholders or agents, for any such disclosure
provided that such disclosure is true, accurate and complete in all material
respects. Subject to the foregoing, neither the Company, its Subsidiaries nor
any Buyer shall issue any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, the Company
shall be entitled, without the prior approval of any Buyer, to make the Press
Release and any press release or other public disclosure with respect to such
transactions (A) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (B) as is required by applicable law and
regulations (provided that in the case of clause (A) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release). Without the prior written consent of
the applicable Buyer, the Company shall not (and shall cause each of its
Subsidiaries and affiliates to not) disclose the name of such Buyer in any
filing, announcement, release or otherwise (other than the 8-K Filing or as
required by applicable law). Notwithstanding anything contained in this
Agreement to the contrary and without implication that the contrary would
otherwise be true, except with respect to confidentiality obligations of a
Designated Nominee (as defined herein) in respect of such Designated Nominee’s
position as a director of the Company, the Company expressly acknowledges and
agrees that upon filing of the Form 8-K, no Buyer shall have (unless expressly
agreed to by a particular Buyer in a written definitive and binding agreement
executed by the Company and such particular Buyer (it being understood and
agreed that no Buyer may bind any other Buyer with respect thereto)), any duty
of confidentiality with respect to, or a duty not to trade on the basis of, any
material, non-public information regarding the Company or any of it
Subsidiaries.

 

(j)          Additional Registration Statements. Until the Applicable Date (as
defined below) and at any time thereafter while any Registration Statement is
not effective or the prospectus contained therein is not available for use, the
Company shall not file a registration statement under the 1933 Act relating to
securities that are not the Registrable Securities (other than pursuant to a
registration statement on Form S-4 or Form S-8 (or a similar or successor
form)). “Applicable Date” means the first date on which the resale by the Buyers
of all Registrable Securities is covered by one or more effective Registration
Statements (as defined in the Registration Rights Agreement) (and each
prospectus contained therein is available for use on such date).

 

17

 

 

(k)          Additional Issuance of Securities. For so long as any Notes are
outstanding, the Company will not, without the prior written consent of Buyers
holding a majority in aggregate principal amount of the Notes then outstanding,
issue any Notes (other than to the Buyers as contemplated hereby) and the
Company shall not issue any other securities that would cause a breach or
default under the Notes. The Company agrees that for the period commencing on
the date hereof and ending on the date immediately following the one hundred
twentieth (120th) Trading Day following the Applicable Date (provided that such
period shall be extended by the number of Trading Days during such period and
any extension thereof contemplated by this proviso on which any Registration
Statement is not effective or any prospectus contained therein is not available
for use) (the “Restricted Period”), neither the Company nor any of its
Subsidiaries shall directly or indirectly issue, offer, sell, grant any option
or right to purchase, or otherwise dispose of (or announce any issuance, offer,
sale, grant of any option or right to purchase or other disposition of) any
equity security of the Company or any equity-linked or related security of the
Company (including, without limitation, any “equity security” (as that term is
defined under Rule 405 promulgated under the 1933 Act), any Convertible
Securities (as defined below), any debt, any preferred stock or any purchase
rights) (any such issuance, offer, sale, grant, disposition or announcement
(whether occurring during the Restricted Period or at any time thereafter) is
referred to as a “Subsequent Placement”). Notwithstanding the foregoing, this
Section 4(k) shall not apply in respect of, and the term “Subsequent Placment”
shall not include, the issuance of (A) shares of Common Stock or other
equity-based awards, including, without limitation, standard options to purchase
shares of Common Stock (“Equity Awards”), to directors, officers, employees or
consultants of the Company in their capacity as such pursuant to an Approved
Stock Plan (as defined below), provided that (1) all such issuances (taking into
account the shares of Common Stock issuable pursuant to Equity Awards) after the
date hereof pursuant to this clause (A) do not, in the aggregate, exceed more
than 10% of the Common Stock issued and outstanding immediately prior to the
date hereof and (2) the terms of such Equity Awards are not amended or changed
after the date of issuance to decrease the exercise, conversion, or exchange
price at which shares of Common Stock may be issued thereunder, to increase the
securities receivable upon the exercise, conversion or exchange thereof, or to
otherwise materially and adversely affect any of the Buyers; (B) shares of
Common Stock issued upon the conversion or exercise of Convertible Securities
(other than Equity Awards that are covered by clause (A) above) issued prior to
the date hereof or for which rights to require such issuance were outstanding
prior to the date hereof and disclosed in Schedule 3(r), provided that the
conversion, exercise or other method of issuance (as the case may be) of any
such Convertible Security is made solely pursuant to the conversion, exercise or
other method of issuance (as the case may be) provisions of such Convertible
Security that were in effect on the date immediately prior to the date of this
Agreement or, if not yet issued, on the date of issuance, the conversion,
exercise or issuance price of any such Convertible Securities (other than Equity
Awards that are covered by clause (A) above) is not lowered, none of such
Convertible Securities (other than Equity Awards that are covered by clause (A)
above) are amended after issuance to increase the number of shares issuable
thereunder and none of the terms or conditions of any such Convertible
Securities (other than Equity Awards that are covered by clause (A) above) are
otherwise materially changed in any manner that adversely affects any of the
Buyers; (C) the Conversion Shares, (D) the Interest Shares, and (E) shares of
Common Stock issued in connection with strategic mergers and acquisitions,
provided that (I) the primary purpose of such issuance is not to raise capital,
(II) the acquirer of such shares of Common Stock in such issuance solely
consists of either (1) the actual owners of such assets or securities acquired
in such merger or acquisition or (2) the stockholders, partners or members of
the foregoing Persons, (III) the number or amount (as the case may be) of such
shares of Common Stock issued to each such Person by the Company shall not be
disproportionate to such Person’s actual ownership of such assets or securities
to be acquired by the Company (as applicable) and (IV) all such issuances of
shares of Common Stock after the date hereof pursuant to this clause (E) do not,
in the aggregate, exceed more than 10% of the Common Stock issued and
outstanding immediately prior to the date hereof. “Approved Stock Plan” means
any compensatory benefit plan (within the meaning of Rule 701 under the
Securities Act but without regard to whether the Company is eligible to rely on
Rule 701) which has been approved by the Board prior to or subsequent to the
date hereof pursuant to which awards or grants of securities or other plan
interests may be issued to any employee, officer or director for services
provided to the Company in their capacity as such. “Convertible Securities”
means any capital stock or other security of the Company or any of its
Subsidiaries that is at any time and under any circumstances directly or
indirectly convertible into, exercisable or exchangeable for, or which otherwise
entitles the holder thereof to acquire, any capital stock or other security of
the Company (including, without limitation, Common Stock) or any of its
Subsidiaries.

 

18

 

 

(l)          Reservation of Shares. So long as any Notes remain outstanding, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance of no less than (i) 125% of the maximum
number of Conversion Shares initially issuable upon conversion of the Notes
(assuming for purposes hereof that the Notes are convertible at the initial
Conversion Price (as defined in the Notes) and without taking into account any
limitations on the conversion of the Notes set forth in the Notes) and (ii) 100%
of the maximum number of Interest Shares initially issuable pursuant to the
terms of the Notes from the Closing Date through the five year anniversary of
the Closing Date (determined as if issued on the Trading Day (as defined in the
Notes) immediately preceding the Closing Date without taking into account any
limitations on the issuance of securities set forth in the Notes).

 

(m)          Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except where such violations would not
reasonably be expected to result, either individually or in the aggregate, in a
Material Adverse Effect.

 

(n)          Other Notes; Variable Securities. For so long as any Notes remain
outstanding, (i) the Company will not issue any Notes (other than to the Buyers
as contemplated hereby) and the Company shall not issue any other securities
that would cause a breach or default under the Notes and (ii) the Company and
each Subsidiary shall be prohibited from effecting or entering into an agreement
to effect any Subsequent Placement involving a Variable Rate Transaction.
“Variable Rate Transaction” means a transaction in which the Company or any
Subsidiary (x) issues or sells any Convertible Securities either (1) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such Convertible Securities, or (2)
with a conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such Convertible Securities or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock, other
than pursuant to a customary “weighted average” anti-dilution provision or (y)
enters into any agreement (including, without limitation, an equity line of
credit or an “at-the-market” offering) whereby the Company or any Subsidiary may
sell securities at a future determined price (other than standard and customary
“preemptive” or “participation” rights). Each Buyer shall be entitled to obtain
injunctive relief against the Company and its Subsidiaries to preclude any such
issuance, which remedy shall be in addition to any right to collect damages. For
the avoidance of doubt, the issuance of a security which is subject to customary
anti-dilution protections, including where the conversion, exercise or exchange
price is subject to adjustment as a result of stock splits, reverse stock splits
and other similar recapitalization or reclassification events, shall not be
deemed to be a Variable Rate Transaction.

 

(o)          [Intentionally Omitted].

 

(p)          Dilutive Issuances . For so long as any Notes remain outstanding,
the Company shall not, in any manner, enter into or affect any Dilutive Issuance
(as defined in the Notes) if the effect of such Dilutive Issuance is to cause
the Company to be required to issue upon conversion of any Notes any shares of
Common Stock in excess of that number of shares of Common Stock which the
Company may issue upon conversion of the Notes and without breaching the
Company’s obligations under the rules or regulations of the Principal Market or
any such exchange or market that the Company’s Common Stock is then listed or
available for quotation on. As of any date, unless either (i) the Company has
obtained the written approval of its stockholders providing for the Company’s
issuance of all of the Securities as described in the Transaction Documents in
accordance with applicable law and the rules and regulations of the Principal
Market prior to such date and the Equity Conditions (as defined in the Notes)
are satisfied as of such date or (ii) no Notes remain outstanding, the Company
shall not, in any manner, enter into or affect any Dilutive Issuance.

 

(q)          Passive Foreign Investment Company. The Company shall conduct its
business in such a manner as will ensure that the Company will not be deemed to
constitute a passive foreign investment company within the meaning of Section
1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

19

 

 

(r)          Restriction on Redemption and Cash Dividends. So long as any Notes
are outstanding, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on, any securities of the
Company without the prior express written consent of the holders of a majority
in aggregate principal amount of the Notes then outstanding (“Majority of Note
Holders”); provided, however, that the foregoing restrictions shall not apply to
or impair the Company’s rights or obligations with respect to (i) redemptions,
dividends or distributions made under or pursuant to any Approved Stock Plan,
(ii) the Company’s redemption, at par value, of up to 674,000 shares (subject to
the anti-dilution and other adjustment provisions thereof) of its Series A
Voting Preferred Stock, par value $.0001 per share, upon the exchange of New
Crumbs Class B Exchangeable Units of Holdings for shares of Common Stock
pursuant to Holdings’ Third Amended and Restated Limited Liability Agreement,
dated as of May 5, 2011 (the “LLC Agreement”), the Amended and Restated
Certificate of Designation in respect of the Company’s Series A Voting Preferred
Stock (the “Certificate of Designation”), and the Exchange and Support Agreement
described in Schedule 3(r) hereto, or (iii) to the extent such distribution
thereunder is deemed to constitute a direct or indirect redemption, dividend or
distribution of or with respect to any capital stock, a distribution under the
Tax Receivable Agreement described in Schedule 3(z) hereto; and provided further
that the foregoing restrictions shall apply to any and all amendments or
modifications of any Approved Stock Plan, the LLC Agreement, the Certificate of
Designation, the Exchange and Support Agreement and/or the Tax Receivable
Agreement made after the date hereof.

 

(s)          Corporate Existence. So long as any Buyer beneficially owns any
Notes, the Company shall not be party to any Fundamental Transaction (as defined
in the Notes) unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Notes.

 

(t)          Board Representation. For so long as Michael Serruya is a holder of
a Note issued hereunder (the “Representation Period”), the Nominating and
Corporate Governance Committee (the “Nominating Committee”) of the Company’s
Board shall nominate a Designated Nominee (as defined below) for election to the
Board at each meeting of the Company’s stockholders held during the
Representation Period at which directors are to be elected, commencing with the
Company’s annual meeting of stockholders currently scheduled to be held in June
2013 (the “2013 Annual Meeting”), and the Board shall recommend to the
stockholders that such Designated Nominee be so elected at such meeting
(collectively, the “Nomination Obligations”).  The Board shall take all such
actions necessary during the Representation Period to ensure that the size of
the Board is large enough to accommodate the Designated Nominee’s election to
the Board as a director of the Company.  The Nomination Obligations are subject
to the following conditions: (i) the Designated Nominee’s satisfaction of all
legal and governance requirements regarding the Designated Nominee’s service as
a director of the Company and (ii) the fiduciary duties imposed on the directors
of the Company by the Nomination Obligations. “Designated Nominee” means a
person designated by Michael Serruya (x) who is able to satisfy all such legal
and governance requirements and (y) the nomination and recommendation of whom
would not cause the Nominating Committee or the Board, respectively, to breach
such fiduciary duty (collectively, the “Director Qualifications”).
Notwithstanding the foregoing, if (1) the timing of the Closing at which Michael
Serruya first purchases a Note makes it impracticable for the Company to prepare
and file with the SEC, on or before April 30, 2013, a definitive proxy statement
containing the information regarding the Designated Nominee that is required to
be disclosed therein pursuant to the SEC’s Schedule 14A or (2) the Designated
Nominee fails to timely provide the Company with all information needed to
prepare and file such definitive proxy statement by April 30, 2013 that it may
reasonably request from the Designated Nominee, then, subject to Director
Nominee’s satisfaction of the Director Qualifications, (A) the Nominating
Committee shall recommend for election, and the Board shall elect, the
Designated Nominee to the Board as soon as is reasonably practicable following
the 2013 Annual Meeting to serve until the next annual meeting of stockholders
at which directors are elected and until his or her successor is duly elected
and qualifies and (B) the Nomination Obligations shall commence with such next
annual meeting.

 

(u)          Stock Splits. Until the Notes are no longer outstanding, the
Company shall not effect any stock combination, reverse stock split or other
similar transaction (or make any public announcement or disclosure with respect
to any of the foregoing) without the prior written consent of the Majority of
Note Holders; provided, however, that no consent of the Majority of Note Holders
shall be required for a reverse stock split of the Common Stock that the Board,
in the good faith exercise of its business judgment, determines to be necessary
or advisable to list or continue listing the Common Stock on the Principal
Market or another trading market.

 

20

 

 

(v)         Stockholder Approval. If, as determined at the time this Agreement
is executed and delivered by the Company and the Buyers (the “Execution Time”),
the Conversion Price is less than the greater of (i) the Closing Bid Price
immediately prior to the Execution Time and (ii) the book value of a share of
the Common Stock (determined in accordance with the rules and regulations of the
Principal Market) at the Execution Time, or if otherwise required by the
Principal Market, then the Company shall provide each stockholder entitled to
vote at a special or annual meeting of stockholders of the Company (each, a
“Stockholder Meeting”), which shall be held no later than sixty (60) days after
the First Closing Date (the “Stockholder Meeting Deadline”), a proxy statement
(the “Proxy Statement”) soliciting each such stockholder's affirmative vote at
the Stockholder Meeting for adoption of resolutions (the “Resolutions”)
approving the issuance of all of the Conversion Shares and the Interest Shares
as described in the Transaction Documents in accordance with applicable law, the
provisions of the Bylaws and the rules and regulations of the Principal Market
(the “Stockholder Approval” and the date such approval is obtained, the
“Stockholder Approval Date”), and the Company shall use its reasonable best
efforts to solicit its stockholders’ adoption of the Resolutions and to cause
the Board of Directors of the Company to recommend to the stockholders that they
adopt the Resolutions. “Closing Bid Price” means the last closing bid price for
a share of the Common Stock on the Principal Market as reported by Bloomberg,
L.P. The Proxy Statement shall contain such disclosures relating to the
Resolutions and the issuance of the Conversion Shares and the Interest Shares as
are required by the SEC’s Schedule 14A and reasonably acceptable to the Buyers
after review by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. at the
expense of the Company. If Stockholder Approval is required pursuant to this
Section 4(v) and, despite the Company's reasonable best efforts, the Stockholder
Approval is not obtained at a Stockholder Meeting, then the Company shall cause
an additional Stockholder Meeting to be held each calendar quarter thereafter
until Stockholder Approval is obtained. If Stockholder Approval is required
pursuant to this Section 4(v), then, pursuant to the Principal Market rules,
each of the Buyers acknowledges that the Interest Shares and/or Conversion
Shares acquired prior to the Stockholder Approval may not be voted for the
Resolutions at the Stockholder Meeting.

 

(w)          Voting Agreement. If Stockholder Approval is required pursuant to
Section 4(v), then (i) the Company will execute, and will use its reasonable
best efforts to cause each of Stephen Fass, Julian Geiger, John Ireland, Edwin
Lewis, EHL Holdings LLC, Mark Klein, Frederick Kraegel, Leonard Potter, Alan
Rose, Jeffrey Roseman and Eric Wesolowski (collectively, the “Principal
Stockholders”) to execute, a voting agreement, in form and substance
satisfactory to the Required Buyers (the “Voting Agreement”), pursuant to which,
among other things, each Principal Stockholder will agree, from and after the
date of this Agreement and until the Stockholder Approval is obtained, to vote
or cause to be voted (including by written consent, if applicable) at the
Stockholder Meeting all of the voting securities of the Company that are
beneficially owned by such Principal Stockholder and entitled to vote thereon
(A) in favor of the adoption of the Resolutions and (B) against any resolution
that, if adopted, would be inconsistent with the Resolutions, and (ii) the
Company (A) shall use its reasonable best efforts to effectuate the transactions
contemplated by the Voting Agreement, (B) shall not amend, waive or terminate
any provision of the Voting Agreement, (C) and shall enforce the provisions of
the Voting Agreement in accordance with its terms, including, without
limitatoin, by promptly using its best efforts to seek specific performance of
the terms of the Voting Agreement in accordance with the terms thereof upon the
breach by any of the Principal Stockholders of any provisions thereof. The
Principal Stockholders hold approximately 20.0% of the issued and outstanding
shares of Common Stock of the Company.

 

(x)          Closing Documents. On or prior to fourteen (14) calendar days after
the Closing Date, the Company agrees to deliver, or cause to be delivered, to
each Buyer and Mintz Levin executed copies of the Transaction Documents,
Securities and other document required to be delivered to any party pursuant to
Section 7 hereof.

 

(y)          Additional Agreements. If a Buyer assigns its rights to purchase
Notes hereunder to a Buyer Assignee, then the Company and the Buyer Assignee
shall execute and deliver to each other an accession agreement and/or such other
documents (the “Assignment Documents”) as are reasonably necessary to reflect
the Buyer’s assignment of such right to such Buyer Assignee and in which the
Company and such Buyer Assignee (i) each confirm that the representations and
warranties contained in Section 2 of this Agreement with respect to such Buyer
Assignee and Section 3 of this Agreement with respect to the Company are true
and correct in all material respects as of the date of such Assignment Documents
and as of the applicable Closing Date, (ii) agree to be bound by all of the
terms and conditions of this Agreement and (iii) release, upon the Closing of
the sale of such assigned Notes, such assigning Buyer from any and all
obligations hereunder, including but not limited to that portion of its
commitment to purchase Notes from the Company, with respect to such assigned
Notes; provided, however, that such release of assigning Buyer shall apply if
such Closing of the sale of assigned Notes under this clause (iii) does not
occur due to a material breach of the Company’s obligations under this
Agreement.

 

21

 

 

5.           REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.

 

(a)          Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Notes in which the
Company shall record the name and address of the Person in whose name the Notes
have been issued (including the name and address of each transferee), the
principal amount of the Notes held by such Person, the number of Conversion
Shares issuable upon conversion of the Notes and the number of Interest Shares
issuable with respect to the Notes held by such Person. The Company shall keep
the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.

 

(b)          Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent and any subsequent transfer agent, in a form
acceptable to such transfer agent and reasonably acceptable to each of the
Buyers (the “Irrevocable Transfer Agent Instructions”), to issue certificates or
credit shares to the applicable balance accounts at The Depository Trust Company
(“DTC”), registered in the name of each Buyer or its respective nominee(s), for
the Conversion Shares and the Interest Shares in such amounts as specified from
time to time by each Buyer to the Company upon conversion of the Notes. The
Company represents and warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5(b), and stop transfer
instructions to give effect to Section 2(g) hereof, will be given by the Company
to its transfer agent with respect to the Securities, and that the Securities
shall otherwise be freely transferable on the books and records of the Company,
as applicable, to the extent provided in this Agreement and the other
Transaction Documents. If a Buyer effects a sale, assignment or transfer of the
Securities in accordance with Section 2(g), the Company shall permit the
transfer and shall promptly instruct its transfer agent to issue one or more
certificates or credit shares to the applicable balance accounts at DTC in such
name and in such denominations as specified by such Buyer to effect such sale,
transfer or assignment. In the event that such sale, assignment or transfer
involves Conversion Shares or Interest Shares sold, assigned or transferred
pursuant to an effective registration statement or in compliance with Rule 144,
the transfer agent shall issue such shares to such Buyer, assignee or transferee
(as the case may be) without any restrictive legend in accordance with Section
5(d) below. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5(b) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5(b), that a
Buyer shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required. The Company shall cause its counsel to
issue the legal opinion referred to in the Irrevocable Transfer Agent
Instructions to the Company’s transfer agent on each Effective Date (as defined
in the Registration Rights Agreement). Any fees (with respect to the transfer
agent, counsel to the Company or otherwise) associated with the issuance of such
opinion or the removal of any legends on any of the Securities shall be borne by
the Company.

 

(c)          Legends. Each Buyer understands that the Securities have been
issued (or will be issued in the case of the Conversion Shares and Interest
Shares) pursuant to an exemption from registration or qualification under the
1933 Act and applicable state securities laws, and except as set forth below,
the Securities shall bear any legend as required by the “blue sky” laws of any
state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock certificates):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] HAVE BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER
(IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE
TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

22

 

 

(d)          Removal of Legends. Certificates evidencing Securities shall not be
required to contain the legend set forth in Section 5(c) above or any other
legend (i) while a registration statement (including a Registration Statement)
covering the resale of such Securities is effective under the 1933 Act, (ii)
following any sale of such Securities pursuant to Rule 144 (assuming the
transferor is not an affiliate of the Company), (iii) if such Securities are
eligible to be sold, assigned or transferred under Rule 144 (provided that a
Buyer provides the Company with reasonable assurances that such Securities are
eligible for sale, assignment or transfer under Rule 144 which shall not include
an opinion of counsel), (iv) in connection with a sale, assignment or other
transfer (other than under Rule 144), provided that such Buyer provides the
Company with an opinion of counsel to such Buyer, in a generally acceptable
form, to the effect that such sale, assignment or transfer of the Securities may
be made without registration under the applicable requirements of the 1933 Act
or (v) if such legend is not required under applicable requirements of the 1933
Act (including, without limitation, controlling judicial interpretations and
pronouncements issued by the SEC). If a legend is not required pursuant to the
foregoing, the Company shall no later than three (3) Trading Days following the
delivery by a Buyer to the Company or the transfer agent (with notice to the
Company) of a legended certificate representing such Securities (endorsed or
with stock powers attached, signatures guaranteed, and otherwise in form
necessary to affect the reissuance and/or transfer, if applicable), together
with any other deliveries from such Buyer as may be required above in this
Section 5(d), as directed by such Buyer, either: (A) provided that the Company’s
transfer agent is participating in the DTC Fast Automated Securities Transfer
Program and such Securities are Conversion Shares or Interest Shares, credit the
aggregate number of shares of Common Stock to which such Buyer shall be entitled
to such Buyer’s or its designee’s balance account with through its
Deposit/Withdrawal at Custodian system or (B) if the Company’s transfer agent is
not participating in the Fast Automated Securities Transfer Program, issue and
deliver (via reputable overnight courier) to such Buyer, a certificate
representing such Securities that is free from all restrictive and other
legends, registered in the name of such Buyer or its designee (the date by which
such credit is so required to be made to the balance account of such Buyer’s or
such Buyer’s nominee with DTC or such certificate is required to be delivered to
such Buyer pursuant to the foregoing is referred to herein as the “Required
Delivery Date”). The Company shall be responsible for any transfer agent fees or
DTC fees with respect to any issuance of Securities or the removal of any
legends with respect to any Securities in accordance herewith.

 

(e)          Failure to Timely Deliver; Buy-In. If the Company fails to (i)
issue and deliver (or cause to be delivered) to a Buyer by the Required Delivery
Date a certificate representing the Securities so delivered to the Company by
such Buyer that is free from all restrictive and other legends or (ii) credit
the balance account of such Buyer’s or such Buyer’s nominee with DTC for such
number of Conversion Shares or Interest Shares so delivered to the Company,
then, in addition to all other remedies available to such Buyer, the Company
shall pay in cash to such Buyer on each day after the Required Delivery Date
that the issuance or credit of such shares is not timely effected an amount in
cash equal to 1.5% of the product of (A) the number of shares of Common Stock
not so delivered or credited (as the case may be) to such Buyer or such Buyer’s
nominee multiplied by (B) the Closing Sale Price (as defined in the applicable
Note) of the Common Stock on the Trading Day (as defined in the applicable Note)
immediately preceding the Required Delivery Date. In addition to the foregoing,
if the Company fails to so properly deliver such unlegended certificates or so
properly credit the balance account of such Buyer’s or such Buyer’s nominee with
DTC by the Required Delivery Date, and if on or after the Required Delivery Date
such Buyer purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by such Buyer of shares of
Common Stock that such Buyer anticipated receiving from the Company without any
restrictive legend, then, in addition to all other remedies available to such
Buyer, the Company shall, within three (3) Trading Days after such Buyer’s
request and in such Buyer’s sole discretion, either (i) pay cash to such Buyer
in an amount equal to such Buyer’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such certificate or
credit such Buyer’s balance account shall terminate and such shares shall be
cancelled, or (ii) promptly honor its obligation to deliver to such Buyer a
certificate or certificates or credit such Buyer’s DTC account representing such
number of shares of Common Stock that would have been issued if the Company
timely complied with its obligations hereunder and pay cash to such Buyer in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Conversion Shares or Interest Shares (as the case may
be) that the Company was required to deliver to such Buyer by the Required
Delivery Date times (B) the Closing Sale Price (as defined in the Note) of the
Common Stock on the Trading Day immediately preceding the Required Delivery
Date.

 

23

 

 

6.           CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

(a)          The obligation of the Company hereunder to issue and sell the Notes
to each Buyer at each Closing is subject to the satisfaction, at or before the
applicable Closing Date, of each of the following conditions, provided that
these conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:

 

(i)            Such Buyer shall have executed each of the other Transaction
Documents to which it is a party and delivered the same to the Company.

 

(ii)           Such Buyer and each other Buyer shall have delivered to the
Company the applicable Purchase Price (less, in the case of any Buyer, the
amounts withheld pursuant to Section 4(g)) for the Note being purchased by such
Buyer at the applicable Closing by wire transfer of immediately available funds
in accordance with the Flow of Funds Letter.

 

(iii)          The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of the
applicable Closing Date as though originally made at that time (except for
representations and warranties that speak as of a specific date, which shall be
true and correct as of such specific date), and such Buyer shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Buyer at or prior to such Closing Date.

 

(iv)          The Company shall have obtained approval of the Principal Market
to list or designate for quotation (as the case may be) the Conversion Shares
and the Interest Shares, which the Company shall use its best efforts to obtain.

 

(v)           Prior to the Closing at which such Buyer will purchase Notes, such
Buyer shall have delivered to the Company a true and correct letter in the form
attached hereto as Exhibit D identifying the specific basis for its accredited
investor status.

 

7.           CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

(a)          The obligation of each Buyer to purchase a Note at each Closing
such Buyer participates in hereunder is subject to the satisfaction, at or
before the First Closing Date, of each of the following conditions, provided
that these conditions are for each Buyer’s sole benefit and may be waived by
such Buyer at any time in its sole discretion by providing the Company with
prior written notice thereof:

 

(i)            Each of the Company and its Subsidiaries shall have duly executed
and delivered to such Buyer each of the Transaction Documents to which it is a
party, and the Company shall have duly executed and delivered to such Buyer, or
its Buyer Assignee at such Buyer’s request, a Note (in such original principal
amount as is set forth across from such Buyer’s name in column (3) of the
Schedule of Buyers) being purchased by such Buyer at the First Closing pursuant
to this Agreement.

 

(ii)           Such Buyer shall have received the opinion of Gordon Feinblatt
LLC, the Company’s counsel, dated as of the First Closing Date and each
Subsequent Closing Date, in the form reasonably acceptable to such Buyer.

 

(iii)          The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, in the form reasonably acceptable to
such Buyer, which instructions shall have been delivered to and acknowledged in
writing by the Company’s transfer agent.

 

(iv)          The Company shall have delivered to Mintz Levin, for the benefit
of such Buyer, a certificate evidencing the formation and good standing of each
of the Company and Holdings issued by the Secretary of State of Delaware as of a
date within ten (10) days of the First Closing Date.

 

24

 

 

(v)          The Company shall have delivered to Mintz Levin, for the benefit of
such Buyer, a certificate evidencing the Company’s and Holdings’ qualification
as a foreign corporation or limited liability company, respectively, and good
standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company and Holdings conducts business and is required
to so qualify, as of a date within ten (10) days of the First Closing Date.

 

(vi)         The Company shall have delivered to Mintz Levin, for the benefit of
such Buyer, a certified copy of the Charter as certified by the Delaware
Secretary of State within ten (10) days of the First Closing Date.

 

(vii)         Holdings shall have delivered to Mintz Levin, for the benefit of
such Buyer, a certified copy of its certificate of organization as certified by
the Secretary of State of Delaware within ten (10) days of the First Closing
Date.

 

(viii)        The Company and Holdings shall have delivered to Mintz Levin, for
the benefit of such Buyer, a certificate, in the form reasonably acceptable to
Mintz Levin, executed by the Secretary of the Company and Holdings and dated as
of the First Closing Date, as to (A) the resolutions consistent with Section
3(b) as adopted by the Company’s Board and Holdings’ Board of Managers in a form
reasonably acceptable to such Buyer, (B) the Certificate of Incorporation of the
Company and the certificate of organization of Holdings and (C) the Bylaws of
the Company and the limited liabiilty company agreement of Holdings, each as in
effect at the First Closing.

 

(ix)          Each of the Subsidiaries other than Holdings shall have delivered
to Mintz Levin, on behalf of such Buyer, a certificate, in the form reasonably
acceptable to Mintz Levin, executed by the Secretary of such Subsidiary and
dated as of the First Closing Date, as to the resolutions consistent with
Section 3(b) as adopted by such Subsidiary’s board of directors or other
governing body.

 

(x)           The representations and warranties of the Company made in this
Agreement shall be true and correct as of the date when made and as of the First
Closing Date as though originally made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct
as of such specific date) and the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
to be performed, satisfied or complied with by the Company at or prior to the
First Closing Date. Such Buyer shall have received a certificate, duly executed
by the Chief Executive Officer of the Company, dated as of the First Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form acceptable to such Buyer.

 

(xi)          The Company shall have delivered to such Buyer a report from the
Company’s transfer agent identifying the number of shares of Common Stock
outstanding on the First Closing Date immediately prior to the First Closing.

 

(xii)        The Common Stock (A) shall be designated for quotation or listed
(as applicable) on the Principal Market and (B) shall not have been suspended,
as of each Closing Date, by the SEC or the Principal Market from trading on the
Principal Market nor shall suspension by the SEC or the Principal Market have
been threatened (except as already disclosed in the SEC Documents), as of the
First Closing Date, either (1) in writing by the SEC or the Principal Market or
(2) by falling below the minimum maintenance requirements of the Principal
Market.

 

(xiii)        The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
Securities, including without limitation, those required by the Principal
Market.

 

(xiv)        No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority or other Governmental Entity of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.

 

25

 

 

(xv)       Since the date of execution of this Agreement, no event or series of
events shall have occurred that reasonably would have or result in a Material
Adverse Effect.

 

(xvi)      The Company shall have obtained approval of the Principal Market to
list or designate for quotation (as the case may be) the Conversion Shares and
the Interest Shares.

 

(xvii)     The Voting Agreement shall have been executed and delivered to such
Buyer by the Company and each of the Principal Stockholders.

 

(xviii)    The Company shall have duly executed and delivered to such Buyer, a
flow of funds letter in form and substance reasonably satisfactory to such Buyer
(the “Flow of Funds Letter”).

 

(xix)       The Company and its Subsidiaries shall have delivered to such Buyer
such other documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.

 

26

 

 

8.           TERMINATION.

 

In the event that the First Closing shall not have occurred with respect to a
Buyer within thirty (30) days of the date hereof, then each of the Company (with
respect to such Buyer) and such Buyer shall have the right to terminate its
obligations under this Agreement with respect to itself at any time on or after
the close of business on such date without liability of the Company or such
Buyer, as the case may be, to any other party by providing written notice
thereof to such Buyer or the Company, respectively; provided, however, (i) the
right to terminate its obligations under this Agreement pursuant to this Section
8 shall not be available to the Company or such Buyer if the failure of the
transactions contemplated by this Agreement to have been consummated by such
date is the result of the Company’s or such Buyer’s, respectively, breach of
this Agreement and (ii) the abandonment of the sale and purchase of the Notes
shall be applicable only to such Buyer, provided further that no such
termination shall affect any obligation of the Company under this Agreement to
reimburse such Buyer for the expenses described in Section 4(g) above. Nothing
contained in this Section 8 shall be deemed to release any party from any
liability for any breach by such party of the terms and provisions of this
Agreement or the other Transaction Documents or to impair the right of any party
to compel specific performance by any other party of its obligations under this
Agreement or the other Transaction Documents.

 

9.           MISCELLANEOUS.

 

(a)          Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b)          Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable
document format (.pdf) file of an executed signature page, such signature page
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
signature page were an original thereof.

 

(c)          Headings; Gender. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Unless the context clearly indicates
otherwise, each pronoun herein shall be deemed to include the masculine,
feminine, neuter, singular and plural forms thereof. The terms “including,”
“includes,” “include” and words of like import shall be construed broadly as if
followed by the words “without limitation.” The terms “herein,” “hereunder,”
“hereof” and words of like import refer to this entire Agreement instead of just
the provision in which they are found.

 

27

 

 

(d)          Severability; Maximum Payment Amounts. If any provision of this
Agreement is prohibited by law or otherwise determined to be invalid or
unenforceable by a court of competent jurisdiction, the provision that would
otherwise be prohibited, invalid or unenforceable shall be deemed amended to
apply to the broadest extent that it would be valid and enforceable, and the
invalidity or unenforceability of such provision shall not affect the validity
of the remaining provisions of this Agreement so long as this Agreement as so
modified continues to express, without material change, the original intentions
of the parties as to the subject matter hereof and the prohibited nature,
invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties. The parties will endeavor in good faith negotiations
to replace the prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the
prohibited, invalid or unenforceable provision(s). Notwithstanding anything to
the contrary contained in this Agreement or any other Transaction Document (and
without implication that the following is required or applicable), it is the
intention of the parties that in no event shall amounts and value paid by the
Company and/or its Subsidiaries (as the case may be), or payable to or received
by any of the Buyers, under the Transaction Documents (including without
limitation, any amounts that would be characterized as “interest” under
applicable law) exceed amounts permitted under any applicable law. Accordingly,
if any obligation to pay, payment made to any Buyer, or collection by any Buyer
pursuant the Transaction Documents is finally judicially determined to be
contrary to any such applicable law, such obligation to pay, payment or
collection shall be deemed to have been made by mutual mistake of such Buyer,
the Company and its Subsidiaries and such amount shall be deemed to have been
adjusted with retroactive effect to the maximum amount or rate of interest, as
the case may be, as would not be so prohibited by the applicable law. Such
adjustment shall be effected, to the extent necessary, by reducing or refunding,
at the option of such Buyer, the amount of interest or any other amounts which
would constitute unlawful amounts required to be paid or actually paid to such
Buyer under the Transaction Documents. For greater certainty, to the extent that
any interest, charges, fees, expenses or other amounts required to be paid to or
received by such Buyer under any of the Transaction Documents or related thereto
are held to be within the meaning of “interest” or another applicable term to
otherwise be violative of applicable law, such amounts shall be pro-rated over
the period of time to which they relate.

 

(e)          Entire Agreement; Amendments. This Agreement, the other Transaction
Documents and the schedules and exhibits attached hereto and thereto and the
instruments referenced herein and therein supersede all other prior oral or
written agreements between the Buyers, the Company, its Subsidiaries, their
affiliates and Persons acting on their behalf solely with respect to the matters
contained herein and therein, and this Agreement, the other Transaction
Documents, the schedules and exhibits attached hereto and thereto and the
instruments referenced herein and therein contain the entire understanding of
the parties solely with respect to the matters covered herein and therein;
provided, however, nothing contained in this Agreement or any other Transaction
Document shall (or shall be deemed to) (i) have any effect on any agreements any
Buyer has entered into with the Company or any of its Subsidiaries prior to the
date hereof with respect to any prior investment made by such Buyer in the
Company or (ii) waive, alter, modify or amend in any respect any obligations of
the Company or any of its Subsidiaries, or any rights of or benefits to any
Buyer or any other Person, in any agreement entered into prior to the date
hereof between or among the Company and/or any of its Subsidiaries and any Buyer
and all such agreements shall continue in full force and effect. Except as
specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. For clarification purposes, the Recitals are part of this Agreement. No
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Required Holders (as defined below), and
any amendment to any provision of this Agreement made in conformity with the
provisions of this Section 9(e) shall be binding on all Buyers and holders of
Securities, as applicable, provided that no such amendment shall be effective to
the extent that it (1) applies to less than all of the holders of the Securities
then outstanding or (2) imposes any obligation or liability on any Buyer without
such Buyer’s prior written consent (which may be granted or withheld in such
Buyer’s sole discretion). No waiver shall be effective unless it is in writing
and signed by an authorized representative of the waiving party, provided that
the Required Holders may waive any provision of this Agreement, and any waiver
of any provision of this Agreement made in conformity with the provisions of
this Section 9(e) shall be binding on all Buyers and holders of Securities, as
applicable, provided that no such waiver shall be effective to the extent that
it (1) applies to less than all of the holders of the Securities then
outstanding (unless a party gives a waiver as to itself only) or (2) imposes any
obligation or liability on any Buyer without such Buyer’s prior written consent
(which may be granted or withheld in such Buyer’s sole discretion). No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents or all holders of the Notes. The Company has not, directly
or indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents. Without limiting the foregoing, the
Company confirms that, except as set forth in this Agreement, no Buyer has made
any commitment or promise or has any other obligation to provide any financing
to the Company, any Subsidiary or otherwise. As a material inducement for each
Buyer to enter into this Agreement, the Company expressly acknowledges and
agrees that (i) no due diligence or other investigation or inquiry conducted by
a Buyer, any of its advisors or any of its representatives shall affect such
Buyer’s right to rely on, or shall modify or qualify in any manner or be an
exception to any of, the Company’s representations and warranties contained in
this Agreement or any other Transaction Document and (ii) unless a provision of
this Agreement or any other Transaction Document is expressly preceded by the
phrase “except as disclosed in the SEC Documents,” nothing contained in any of
the SEC Documents shall affect such Buyer’s right to rely on, or shall modify or
qualify in any manner or be an exception to any of, the Company’s
representations and warranties contained in this Agreement or any other
Transaction Document. “Required Holders” means holders of a majority of the
Registrable Securities (excluding any Registrable Securities held by the Company
or any of its Subsidiaries) issued or issuable hereunder or pursuant to the
Notes.

 

28

 

 

(f)          Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, if
delivered personally; (ii) when sent, if sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); (iii) when sent, if sent by e-mail (provided
that such sent e-mail is kept on file (whether electronically or otherwise) by
the sending party and the sending party does not receive an automatically
generated message from the recipient’s e-mail server that such e-mail could not
be delivered to such recipient) and (iv) if sent by overnight courier service,
one (1) Business Day after deposit with an overnight courier service with next
day delivery specified, in each case, properly addressed to the party to receive
the same. The addresses, facsimile numbers and e-mail addresses for such
communications shall be:

 

If to the Company:

 

110 West 40th Street

Suite 2100

New York, New York 10018

Telephone: 212-221-7105

Facsimile: 212-221-7107

Email Address: jgeiger@crumbs.com

Attn: Julian R. Geiger, President and CEO

 

With a copy (for informational purposes only) to:

 

Gordon Feinblatt LLC

233 E. Redwood Street

Baltimore, MD 21202

Telephone: 410-576-4280

Facsimile: 410-576-4196

E-mail Address: abulgin@gfrlaw.com

Attn: Andrew D. Bulgin, Esq.

 

If to the Transfer Agent:

 

Continental Stock Transfer & Trust Company

17 Battery Place

New York, New York 10004

Telephone: 212-845-3218

Facsimile: 212-616-7615

E-mail Address: jcomer@continentalstock.com

Attn: John W. Comer, Jr., Vice President & Senior Account Manager

 

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer’s representatives as set forth on the Schedule
of Buyers,

 

29

 

 

with a copy (for informational purposes only) to:

 

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

666 Third Avenue

New York, NY 10017

Telephone: (212) 935-3000

Facsimile: (212) 983-3115

Attn: Jeffrey P. Schultz, Esq.

 

or to such other address, facsimile number or e-mail address and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change, provided that Mintz Levin shall only be provided copies of notices
sent to the lead Buyer. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iv) above,
respectively. A copy of the e-mail transmission containing the time, date and
recipient e-mail address shall be rebuttable evidence of receipt by e-mail in
accordance with clause (iii) above.

 

(g)          Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of any of the Securities. The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Required Holders including, without limitation, by way of a
Fundamental Transaction (as defined in the Notes) (unless the Company is in
compliance with the applicable provisions governing Fundamental Transactions set
forth in the Notes). A Buyer (i) may assign some or all of its rights and
obligation to purchase Notes hereunder to a Buyer Assignee prior to a Closing
Date without the consent of the Company, as provided in Section 1(e) hereof, and
(ii) may assign some or all of its rights hereunder in connection with any
transfer of any of its Securities without the consent of the Company, in which
events such assignee shall be deemed to be a Buyer hereunder with respect to
such assigned rights.

 

(h)          No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, other than the Indemnitees referred to in Section 9(k).

 

(i)          Survival. The representations, warranties, agreements and covenants
shall survive each Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.

 

(j)          Further Assurances. Each party shall use its reasonable best
efforts to do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.

 

(k)          Indemnification. In consideration of each Buyer’s execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each holder of any Securities and all of their stockholders, partners,
members, officers, directors, employees and direct or indirect investors and any
of the foregoing Persons’ agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company or any Subsidiary in any of the
Transaction Documents, (b) any breach of any covenant, agreement or obligation
of the Company or any Subsidiary contained in any of the Transaction Documents
or (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company or any Subsidiary) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of any of
the Transaction Documents, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities, (iii) any disclosure properly made by such Buyer pursuant to
Section 4(i), or (iv) the status of such Buyer or holder of the Securities as an
investor in the Company pursuant to the transactions contemplated by the
Transaction Documents. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9(k) shall be the same as those set forth in
Section 6 of the Registration Rights Agreement.

 

30

 

 

(l)          Construction. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. No specific
representation or warranty shall limit the generality or applicability of a more
general representation or warranty. Each and every reference to share prices,
shares of Common Stock and any other numbers in this Agreement that relate to
the Common Stock shall be automatically adjusted for stock splits, stock
combinations and other similar transactions that occur with respect to the
Common Stock after the date of this Agreement.

 

(m)          Remedies. Each Buyer and each holder of any Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it or any Subsidiary fails to perform,
observe, or discharge any or all of its or such Subsidiary’s (as the case may
be) obligations under the Transaction Documents, any remedy at law may prove to
be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek specific performance and/or temporary, preliminary and
permanent injunctive or other equitable relief from any court of competent
jurisdiction in any such case without the necessity of proving actual damages
and without posting a bond or other security.

 

(n)          Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer exercises a right, election, demand or option
under a Transaction Document and the Company or any Subsidiary does not timely
perform its related obligations within the periods therein provided, then such
Buyer may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company or such Subsidiary (as the case may be), any
relevant notice, demand or election in whole or in part without prejudice to its
future actions and rights.

 

(o)          Payment Set Aside; Currency. To the extent that the Company makes a
payment or payments to any Buyer hereunder or pursuant to any of the other
Transaction Documents or any of the Buyers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred. Unless otherwise expressly
indicated, all dollar amounts referred to in this Agreement and the other
Transaction Documents are in United States Dollars (“U.S. Dollars”), and all
amounts owing under this Agreement and all other Transaction Documents shall be
paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall
be converted into the U.S. Dollar equivalent amount in accordance with the
Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to
any amount of currency to be converted into U.S. Dollars pursuant to this
Agreement, the U.S. Dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation.

 

(p)          [Intentionally Omitted].

 

31

 

 

(q)          Independent Nature of Buyers’ Obligations and Rights. The
obligations of each Buyer under the Transaction Documents are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of group or entity, or create a presumption that the Buyers are in
any way acting in concert or as a group or entity with respect to such
obligations or the transactions contemplated by the Transaction Documents or any
matters, and the Company acknowledges that the Buyers are not acting in concert
or as a group, and the Company shall not assert any such claim, with respect to
such obligations or the transactions contemplated by the Transaction Documents.
The decision of each Buyer to purchase Securities pursuant to the Transaction
Documents has been made by such Buyer independently of any other Buyer. Each
Buyer acknowledges that no other Buyer has acted as agent for such Buyer in
connection with such Buyer making its investment hereunder and that no other
Buyer will be acting as agent of such Buyer in connection with monitoring such
Buyer’s investment in the Securities or enforcing its rights under the
Transaction Documents. The Company and each Buyer confirms that each Buyer has
independently participated with the Company and its Subsidiaries in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose. The use of a single agreement to effectuate the
purchase and sale of the Securities contemplated hereby was solely in the
control of the Company, not the action or decision of any Buyer, and was done
solely for the convenience of the Company and its Subsidiaries and not because
it was required or requested to do so by any Buyer. It is expressly understood
and agreed that each provision contained in this Agreement and in each other
Transaction Document is between the Company, each Subsidiary and a Buyer,
solely, and not between the Company, its Subsidiaries and the Buyers
collectively and not between and among the Buyers.

 

[signature pages follow]

 

32

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.

 

  COMPANY:       CRUMBS BAKE SHOP, INC.       By: /s/ John D. Ireland   Name:
John D. Ireland   Title: Senior Vice President and CEO

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.

 

  BUYER:   /s/ Michael Serruya       By:     Name:   Title:

 

 

 

 

SCHEDULE OF Buyers

 

(1)   (2)     (3)   (4)                 Buyer   Address
and
Facsimile
Number     Aggregate
Original
Principal
Amount of
Notes   Legal Representative’s
Address and Facsimile Number Michael Serruya       $ 10,000,000  

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,

666 Third Avenue, New York, NY 10017

212-983-3115

TOTAL       $ 10,000,000    

  

 

 

 

SCHEDULE OF Buyer assignees

 

(1)   (2)   (3)   (4)   (5)   (6)   (7)   (8)                                 
    Buyer   Address and
Facsimile
Number    Aggregate
Original
Principal
Amount of
Notes    First Closing
Date Original
Principal
Amount of
Notes
Purchased    First Closing
Date
Purchase
Price    [Subsequent
Closing
Date]  
Original
Principal
Amount of
Notes
Purchased    [Subsequent
Closing
Date]
Purchase
Price    Legal
Representative’s
Address and
Facsimile Number  Front Street Investment Management Inc.      $2,000,000  
$2,000,000   $2,000,000   $[               ]   $[               ]  
 [               ]                                       Aston Hill Asset
Management Inc.        3,000,000    3,000,000    3,000,000  
 [               ]    [               ]    [               ]  Personal Capital
Management Corp.        1,000,000    1,000,000    1,000,000                
[Dynamic]        2,500,000    2,500,000    2,500,000                 TOTAL      
$8,500,000        $8,500,000                

 

 

 

 

EXHIBIT A

FORM OF SENIOR UNSECURED CONVERTIBLE PROMISSORY NOTE

 

[FORM OF SENIOR CONVERTIBLE NOTE]

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS NOTE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO
THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF
THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 17(a) HEREOF. THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

 

CRUMBS BAKE SHOP, INC.

 

Senior Convertible Note

 

Issuance Date:  _____________, 2013 Original Principal Amount: U.S. $[         ]

 

FOR VALUE RECEIVED, Crumbs Bake Shop, Inc., a Delaware corporation (the
“Company”), hereby promises to pay to the order of [NAME OF BUYER] or its
registered assigns (“Holder”) the amount set out above as the Original Principal
Amount (as reduced pursuant to the terms hereof pursuant to redemption,
conversion or otherwise, the “Principal”) when due, whether upon the Maturity
Date (as defined below), acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest (“Interest”) on any
outstanding Principal (as defined below) at the applicable Interest Rate (as
defined below) from the date set out above as the Issuance Date (the “Issuance
Date”) until the same becomes due and payable, whether upon an Interest Date (as
defined below), the Maturity Date or acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof). This Senior
Convertible Note (including all Senior Convertible Notes issued in exchange,
transfer or replacement hereof, this “Note”) is one of an issue of Senior
Convertible Notes issued pursuant to the Securities Purchase Agreement (as
defined below) on the Closing Date (as defined below) (collectively, the “Notes”
and such other Senior Convertible Notes, the “Other Notes”). Certain capitalized
terms used herein are defined in Section 30.

 

 

1.           PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay
to the Holder an amount in cash representing all outstanding Principal, accrued
and unpaid Interest and accrued and unpaid Late Charges on such Principal and
Interest. Other than as specifically permitted by this Note, the Company may not
prepay any portion of the outstanding Principal, accrued and unpaid Interest or
accrued and unpaid Late Charges on Principal and Interest, if any.

 

2.           INTEREST; INTEREST RATE.

 

(a)          Interest on this Note shall commence accruing at the Interest Rate
on the Issuance Date and shall be computed on the basis of a 360-day year and
twelve 30-day months, shall be payable in arrears for each Quarter on January 1,
April 1, July 1 and October 1 of each year (each, an “Interest Date”) with the
first Interest Date being [             ], 2013, and shall compound on each
Interest Date. Interest shall be payable on each Interest Date, to the record
Holder of this Note on the applicable Interest Date, in shares of Common Stock
(“Interest Shares”) so long as there has been no Equity Conditions Failure;
provided however, that the Company may, at its option following written notice
to the Holder, pay Interest on any Interest Date in cash (“Cash Interest”), or a
combination thereof. The Company shall deliver a written notice (each, an
“Interest Election Notice”) to each Holder of the Notes on or prior to the
applicable Interest Due Date (the date such notice is delivered to all of the
Holders, the “Interest Notice Date”) which notice (i) either (A) confirms that
Interest to be paid on such Interest Date shall be paid entirely in Interest
Shares, or (B) elects to pay Interest as Cash Interest or a combination of Cash
Interest and Interest Shares and specifies the amount of Interest that shall be
paid as Cash Interest and the amount of Interest, if any, to be paid in Interest
Shares and (ii) if any Interest is to be paid in Interest Shares, certifies that
there has been no Equity Conditions Failure (in the case of Interest Shares). If
an Equity Conditions Failure has occurred as of the Interest Notice Date, then
unless the Company has elected to pay such Interest entirely as Cash Interest,
the Interest Notice shall indicate that unless the Holder waives the Equity
Conditions Failure, the Interest shall be paid as Cash Interest. Notwithstanding
anything herein to the contrary, if no Equity Conditions Failure has occurred as
of the Interest Notice Date but an Equity Conditions Failure occurs at any time
prior to the Interest Date, (A) the Company shall provide the Holder a
subsequent notice to that effect and (B) unless the Holder waives the Equity
Conditions Failure, the Interest shall be paid in cash. Interest to be paid on
an Interest Date in Interest Shares shall be paid in a number of fully paid and
nonassessable shares (rounded to the nearest whole share) of Common Stock equal
to the quotient of (1) the amount of Interest payable on such Interest Date less
any Cash Interest and (2) the applicable Conversion Price in effect on the
applicable Interest Date.

 

 

 

 

(b)          When any Interest Shares are to be paid on an Interest Date, the
Company shall (i) (A) provided that the Company’s transfer agent (the “Transfer
Agent”) is participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, credit such aggregate number of Interest Shares to
which the Holder shall be entitled to the Holder’s or its designee’s balance
account with DTC through its Deposit/Withdrawal at Custodian system, or (B) if
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver on the applicable Interest Date, to the
address set forth in the register maintained by the Company for such purpose
pursuant to the Securities Purchase Agreement or to such address as specified by
the Holder in writing to the Company at least two (2) Business Days prior to the
applicable Interest Date, a certificate, registered in the name of the Holder or
its designee, for the number of Interest Shares to which the Holder shall be
entitled and (ii) with respect to each Interest Date, pay to the Holder, in cash
by wire transfer of immediately available funds, the amount of any Cash
Interest.

 

(c)          Prior to the payment of Interest on an Interest Date, Interest on
this Note shall accrue at the Interest Rate and be payable by way of inclusion
of the Interest in the Conversion Amount on each Conversion Date in accordance
with Section 3(b)(i) or upon any redemption in accordance with Section 11. From
and after the occurrence and during the continuance of any Event of Default (as
defined in the Notes), the Interest Rate shall automatically be increased to
eighteen percent (18.0%) (“Default Interest”). In the event that such Event of
Default is subsequently cured, the adjustment referred to in the preceding
sentence shall cease to be effective as of the calendar day immediately
following the date of such cure; provided that the Interest as calculated and
unpaid at such increased rate during the continuance of such Event of Default
shall continue to apply to the extent relating to the days after the occurrence
of such Event of Default through and including the date of such cure of such
Event of Default. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of Interest Shares.

 

3.           CONVERSION OF NOTES. This Note shall be convertible into validly
issued, fully paid and non-assessable shares of the Company’s common stock, par
value $0.0001 per share (the “Common Stock”), on the terms and conditions set
forth in this Section 3.

 

(a)          Conversion Right. Subject to the provisions of Section 3(d), at any
time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into validly issued, fully paid and non-assessable shares of Common Stock
in accordance with Section 3(c), at the Conversion Rate (as defined below). The
Company shall not issue any fraction of a share of Common Stock upon any
conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
transfer, stamp, issuance and similar taxes that may be payable with respect to
the issuance and delivery of Common Stock upon conversion of any Conversion
Amount.         

 

(b)          Conversion Rate. The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (the
“Conversion Rate”).

 

2

 

  

(i)          “Conversion Amount” means the portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made, plus all accrued and unpaid Interest with respect to such portion of
the Principal amount and accrued and unpaid Late Charges with respect to such
portion of such Principal and such Interest.

 

(ii)         “Conversion Price” means, as of any Conversion Date (as defined
below) or other date of determination, $1.55, subject to adjustment as provided
herein.

 

(c)          Mechanics of Conversion.

 

(i)          Optional Conversion. To convert any Conversion Amount into shares
of Common Stock on any date (a “Conversion Date”), the Holder shall deliver
(whether via facsimile or otherwise), for receipt on or prior to 11:59 p.m., New
York time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit I (the “Conversion Notice”) to the Company. If
required by Section 3(c)(iii), within three (3) Trading Days following a
conversion of this Note as aforesaid, the Holder shall surrender this Note to a
nationally recognized overnight delivery service for delivery to the Company (or
an indemnification undertaking with respect to this Note in the case of its
loss, theft or destruction as contemplated by Section 17(b)). On or before the
third (3rd) Trading Day following the date of receipt of a Conversion Notice,
the Company shall transmit by facsimile an acknowledgment of confirmation, in
the form attached hereto as Exhibit II, of receipt of such Conversion Notice to
the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before
the third (3rd) Trading Day following the date of receipt of a Conversion
Notice, the Company shall (1) provided that the Transfer Agent is participating
in The DTC Fast Automated Securities Transfer Program, credit such aggregate
number of shares of Common Stock to which the Holder shall be entitled to the
Holder’s or its designee’s balance account with DTC through its
Deposit/Withdrawal at Custodian system or (2) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver (via reputable overnight courier) to the address as specified in the
Conversion Notice, a certificate, registered in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder shall be
entitled. If this Note is physically surrendered for conversion pursuant to
Section 3(c)(iii) and the outstanding Principal of this Note is greater than the
Principal portion of the Conversion Amount being converted, then the Company
shall as soon as practicable and in no event later than three (3) Business Days
after receipt of this Note and at its own expense, issue and deliver to the
Holder (or its designee) a new Note (in accordance with Section 17(d))
representing the outstanding Principal not converted. The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.

 

(ii)         Company’s Failure to Timely Convert. If the Company shall fail, for
any reason or for no reason, to issue to the Holder within three (3) Trading
Days after the Company’s receipt of a Conversion Notice (whether via facsimile
or otherwise), a certificate for the number of shares of Common Stock to which
the Holder is entitled pursuant to such Conversion Notice and register such
shares of Common Stock on the Company’s share register or to credit the Holder’s
or its designee’s balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder’s conversion of any
Conversion Amount (as the case may be) (a “Conversion Failure”), then, in
addition to all other remedies available to the Holder, (1) the Company shall
pay in cash damages to the Holder on each day after such third (3rd) Trading Day
that the issuance of such shares of Common Stock is not timely effected an
amount equal to 1.0% of the product of (A) the sum of the number of shares of
Common Stock not issued to the Holder on a timely basis and to which the Holder
is entitled multiplied by (B) the Closing Sale Price of the Common Stock on the
Trading Day immediately preceding the last possible date which the Company could
have issued such shares of Common Stock to the Holder without violating Section
3(d) and (2) the Holder, upon written notice to the Company, may void its
Conversion Notice with respect to, and retain or have returned (as the case may
be) any portion of this Note that has not been converted pursuant to such
Conversion Notice, provided that the voiding of a Conversion Notice shall not
affect the Company’s obligations to make any payments which have accrued prior
to the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In
addition to the foregoing, if within third (3) Trading Days after the Company’s
receipt of a Conversion Notice (whether via facsimile or otherwise), the Company
shall fail to issue and deliver a certificate to the Holder and register such
shares of Common Stock on the Company’s share register or credit the Holder’s or
its designee’s balance account with DTC for the number of shares of Common Stock
to which the Holder is entitled upon the Holder’s conversion hereunder (as the
case may be), and if on or after such third (3rd) Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such conversion that the Holder anticipated receiving from the
Company, then, in addition to all other remedies available to the Holder, the
Company shall, within three (3) Business Days after the Holder’s request and in
the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to
the Holder’s total purchase price (including brokerage commissions and other
out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the
“Buy-In Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s conversion hereunder (as the case may be)
and pay cash to the Holder in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common Stock
multiplied by (B) the Closing Bid Price of the Common Stock on the Trading Day
immediately preceding the Conversion Date.

 

3

 

 

(iii)        Registration; Book-Entry. The Company shall maintain a register
(the “Register”) for the recordation of the names and addresses of the Holders
of each Note and the principal amount of the Notes held by such Holders (the
“Registered Notes”). The entries in the Register shall be conclusive and binding
for all purposes absent manifest error. The Company and the Holders of the Notes
shall treat each Person whose name is recorded in the Register as the owner of a
Note for all purposes, including, without limitation, the right to receive
payments of Principal and Interest hereunder, notwithstanding notice to the
contrary. A Registered Note may be assigned or sold in whole or in part only by
registration of such assignment or sale on the Register. Upon its receipt of a
request to assign or sell all or part of any Registered Note by a Holder, the
Company shall record the information contained therein in the Register and issue
one or more new Registered Notes in the same aggregate principal amount as the
principal amount of the surrendered Registered Note to the designated assignee
or transferee pursuant to Section 17. Notwithstanding anything to the contrary
set forth in this Section 3, upon conversion of any portion of this Note in
accordance with the terms hereof, the Holder shall not be required to physically
surrender this Note to the Company unless (A) the full Conversion Amount
represented by this Note is being converted (in which event this Note shall be
delivered to the Company as contemplated by Section 3(c)(i)) or (B) the Holder
has provided the Company with prior written notice (which notice may be included
in a Conversion Notice) requesting reissuance of this Note upon physical
surrender of this Note. The Company shall update the Register to reflect the
Principal, Interest and Late Charges converted and/or paid (as the case may be)
and the dates of such conversions and/or payments (as the case may be) or shall
use such other method, reasonably satisfactory to the Holder and the Company, so
as not to require physical surrender of this Note upon conversion.

 

(iv)        Pro Rata Conversion; Disputes. In the event that the Company
receives a Conversion Notice from more than one holder of Notes for the same
Conversion Date and the Company can convert some, but not all, of such portions
of the Notes submitted for conversion, the Company, subject to Section 3(d),
shall convert from each holder of Notes electing to have Notes converted on such
date a pro rata amount of such holder’s portion of its Notes submitted for
conversion based on the principal amount of Notes submitted for conversion on
such date by such holder relative to the aggregate principal amount of all Notes
submitted for conversion on such date. In the event of a dispute as to the
number of shares of Common Stock issuable to the Holder in connection with a
conversion of this Note, the Company shall issue to the Holder the number of
shares of Common Stock not in dispute and resolve such dispute in accordance
with Section 22.

 

4

 

 

(v)         Mandatory Conversion. If at any time after the one-year anniversary
of the Issuance Date, (i) the VWAP of the Common Stock listed on the Principal
Market exceeds 200% of the Conversion Price for thirty (30) consecutive Trading
Days (the “Mandatory Conversion Measuring Period”), and (ii) no Equity
Conditions Failure then exists, the Company shall have the right to require the
Holder to convert all or a portion of the Conversion Amount of this Note, as
designated in the Mandatory Conversion Notice (as defined below) into fully
paid, validly issued and nonassessable shares of Common Stock subject to
compliance with Section 3(d) hereof at the Conversion Rate as of the Mandatory
Conversion Date (as defined below) (a “Mandatory Conversion”). The Company may
exercise its right to require conversion under this Section 3(c)(v) by
delivering within not more than twenty (20) Trading Days following the end of
such Mandatory Conversion Measuring Period a written notice thereof by facsimile
and overnight courier to all, but not less than all, of the holders of Notes and
the Transfer Agent (the “Mandatory Conversion Notice” and the date all of the
holders received such notice by facsimile is referred to as the “Mandatory
Conversion Notice Date”). The Mandatory Conversion Notice shall be irrevocable.
The Mandatory Conversion Notice shall state (i) the Trading Day selected for the
Mandatory Conversion in accordance with this Section 3(c)(v), which Trading Day
shall be no less than thirty (30) calendar days and no more than forty (40)
calendar days following the Mandatory Conversion Notice Date (the “Mandatory
Conversion Date”), (ii) the aggregate Conversion Amount of the Notes subject to
mandatory conversion from the Holder (the “Mandatory Conversion Amount”) and all
of the holders of the Notes pursuant to this Section 3(c)(v) (and analogous
provisions under the Other Notes), (iii) the number of shares of Common Stock to
be issued to such Holder on the Mandatory Conversion Date and (iv) that there
has been no Equity Conditions Failure; provided, however, that to the extent
that such Mandatory Conversion would result in the Holder exceeding the Maximum
Percentage (as defined below), then such Mandatory Conversion may be effected
only to the extent so that such Holder does not exceed the Maximum Percentage.
Notwithstanding the foregoing, the Company may effect only one (1) Mandatory
Conversion during any twenty (20) consecutive Trading Days. Any shares of Common
Stock delivered in connection with a Mandatory Conversion hereunder shall be
accompanied by a payment in cash (the “Mandatory Conversion Interest”) equal to
the amount of any accrued and unpaid Interest with respect to such Conversion
Amount subject to such Mandatory Conversion and accrued and unpaid Late Charges,
if any, with respect to such Conversion Amount and Interest. Notwithstanding
anything herein to the contrary, (i) if the Closing Bid Price of the Common
Stock listed on the Principal Market fails to exceed 200% of the Conversion
Price for each Trading Day commencing on the Mandatory Conversion Notice Date
and ending and including the Trading Day immediately prior to the applicable
Mandatory Conversion Date (a “Mandatory Conversion Price Failure”) or an Equity
Conditions Failure occurs at any time prior to the Mandatory Conversion Date,
(A) the Company shall provide the Holder a subsequent notice to that effect and
(B) unless the Holder waives the applicable Equity Conditions Failure and/or
Mandatory Conversion Price Failure, as applicable, the Mandatory Conversion
shall be cancelled and the applicable Mandatory Conversion Notice shall be null
and void and (ii) at any time prior to the date the Mandatory Conversion Amount
is paid, in full, the Mandatory Conversion Amount may be converted, in whole or
in part, by the Holders into shares of Common Stock pursuant to Section 3. All
Conversion Amounts converted by the Holder after the Mandatory Conversion Notice
Date shall reduce the Mandatory Conversion Amount of this Note required to be
redeemed on the Mandatory Conversion Date. Redemptions made pursuant to this
Section 3(c)(v) shall be made in accordance with Section 11. Notwithstanding
anything in this Section 3(c)(v) to the contrary, the Holder may, at its sole
option, at any time on prior to the third (3rd) Trading Day prior to the
Mandatory Conversion Date, by written notice to the Company, elect to receive
the Mandatory Conversion Interest in the form of Interest Shares, which Interest
Shares shall be delivered by the Company to the Holder in the manner provided in
Section 2 as if the Mandatory Conversion Date was an “Interest Date” for all
purposes hereunder; provided, that nothing in this Section 3(c)(v) shall be
deemed to amend or waive the Company’s obligation to pay Interest hereunder on
each Interest Date pursuant to Section 2 and the Mandatory Conversion Amount and
Mandatory Conversion Interest, as applicable, shall be adjusted for any Interest
paid to the Holder prior to the Mandatory Conversion Date in accordance with
Section 2.

 

(d)          Limitations on Conversions.

 

(i)          Beneficial Ownership. Notwithstanding anything to the contrary
contained in this Note, this Note shall not be convertible by the Holder hereof,
and the Company shall not effect any conversion of this Note or otherwise issue
any shares of Common Stock pursuant hereto, to the extent (but only to the
extent) that after giving effect to such conversion or other share issuance
hereunder the Holder (together with its affiliates) would beneficially own in
excess of 9.99% (the “Maximum Percentage”) of the Common Stock. To the extent
the above limitation applies, the determination of whether this Note shall be
convertible (vis-à-vis other convertible, exercisable or exchangeable securities
owned by the Holder or any of its affiliates) shall, subject to such Maximum
Percentage limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). No prior
inability to convert this Note, or to issue shares of Common Stock, pursuant to
this paragraph shall have any effect on the applicability of the provisions of
this paragraph with respect to any subsequent determination of convertibility.
For purposes of this paragraph, beneficial ownership and all determinations and
calculations (including, without limitation, with respect to calculations of
percentage ownership) shall be determined in accordance with Section 13(d) of
the 1934 Act (as defined in the Securities Purchase Agreement) and the rules and
regulations promulgated thereunder. The provisions of this paragraph shall be
implemented in a manner otherwise than in strict conformity with the terms of
this paragraph to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Maximum Percentage beneficial
ownership limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such Maximum Percentage
limitation. The limitations contained in this paragraph shall apply to a
successor Holder of this Note. The holders of Common Stock shall be third party
beneficiaries of this paragraph and the Company may not waive this paragraph
without the consent of holders of a majority of its Common Stock. For any reason
at any time, upon the written or oral request of the Holder, the Company shall
within one (1) Business Day confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding, including by virtue of any
prior conversion or exercise of convertible or exercisable securities into
Common Stock, including, without limitation, pursuant to this Note or securities
issued pursuant to the Securities Purchase Agreement

 

5

 

  

(ii)         Principal Market Regulation. The Company shall not be obligated to
issue any shares of Common Stock upon conversion of this Note, and the Holder of
this Note shall not have the right to receive upon conversion of this Note any
shares of Common Stock, if the issuance of such shares of Common Stock would
exceed the aggregate number of shares of Common Stock which the Company may
issue upon conversion of the Notes or as Interest Shares without breaching the
Company's obligations under the rules or regulations of the Principal Market
(the “Exchange Cap”), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its stockholders as required by the
applicable rules of the Principal Market for issuances of Common Stock in excess
of such amount or (B) obtains a written opinion from outside counsel to the
Company that such approval is not required, which opinion shall be reasonably
satisfactory to the Holders of a majority in aggregate principal amount of the
Notes then outstanding (“Majority of Holders”). Until such approval or written
opinion is obtained, no Holder shall be issued in the aggregate, upon conversion
of Notes, or as Interest Shares, shares of Common Stock in an amount greater
than the product of the Exchange Cap multiplied by a fraction, the numerator of
which is the Principal amount of Notes issued to such Holder pursuant to the
Securities Purchase Agreement on the Closing Date and the denominator of which
is the aggregate principal amount of all Notes issued to the Holders pursuant to
the Securities Purchase Agreement on the Closing Date (with respect to each
Holder, the “Exchange Cap Allocation”). In the event that any Holder shall sell
or otherwise transfer any of such Holder's Notes, the transferee shall be
allocated a pro rata portion of such Holder's Exchange Cap Allocation, and the
restrictions of the prior sentence shall apply to such transferee with respect
to the portion of the Exchange Cap Allocation allocated to such transferee. In
the event that any holder of Notes shall convert all of such holder's Notes into
a number of shares of Common Stock which, in the aggregate, is less than such
holder's Exchange Cap Allocation, then the difference between such holder's
Exchange Cap Allocation and the number of shares of Common Stock actually issued
to such holder shall be allocated to the respective Exchange Cap Allocations of
the remaining holders of Notes on a pro rata basis in proportion to the
aggregate principal amount of the Notes then held by each such holder.
Additionally, pursuant to the Principal Market rules, the Buyers acknowledge
that the Interest Shares and/or the Conversion Shares acquired prior to
Stockholder Approval may not be voted for the Resolutions at the Stockholder
Meeting (each as defined in the Securities Purchase Agreement).

 

4.           RIGHTS UPON EVENT OF DEFAULT.

 

(a)          Event of Default. Each of the following events shall constitute an
“Event of Default”:

 

(i)          the suspension from trading or the failure of the Common Stock to
be trading or listed (as applicable) on an Eligible Market for a period of five
(5) consecutive days or for more than an aggregate of ten (10) days in any
365-day period;

 

(ii)         the Company’s (A) failure to cure a Conversion Failure by delivery
of the required number of shares of Common Stock within ten (10) Trading Days
after the applicable Conversion Date or (B) notice, written or oral, to any
holder of the Notes, including, without limitation, by way of public
announcement or through any of its agents, at any time, of its intention not to
comply, as required, with a request for conversion of any Notes into shares of
Common Stock that is requested in accordance with the provisions of the Notes,
other than pursuant to Section 3(d);

 

(iii)        at any time following the tenth (10th) consecutive day that the
Holder’s Authorized Share Allocation (as defined herein) is less than the number
of shares of Common Stock that the Holder would be entitled to receive upon a
conversion of the full Conversion Amount of this Note (without regard to any
limitations on conversion set forth in Section 3(d) or otherwise);

 

(iv)        the Company’s failure to pay to the Holder any amount of Principal,
Interest, Late Charges or other amounts when and as due under this Note
(including, without limitation, the Company’s failure to pay any redemption
payments or amounts hereunder) or any other Transaction Document (as defined in
the Securities Purchase Agreement) or any other agreement, document, certificate
or other instrument delivered in connection with the transactions contemplated
hereby and thereby, except, in the case of a failure to pay Interest and Late
Charges when and as due, in which case only if such failure remains uncured for
a period of at least five (5) days;

 

6

 

 

(v)         the Company fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the Holder upon conversion
or exercise (as the case may be) of any Securities acquired by the Holder under
the Securities Purchase Agreement (including this Note) as and when required by
such Securities or the Securities Purchase Agreement, unless otherwise then
prohibited by applicable state or federal securities laws, and any such failure
remains uncured for at least five (5) days;

 

(vi)        the occurrence of any default under, redemption of or acceleration
prior to maturity of any Indebtedness of the Company, other than with respect to
(A) any Other Notes, (B) with respect to unsecured Indebtedness only, payments
contested by the Company in good faith by proper proceedings and with respect to
which adequate reserves have been set aside for the payment thereof in
accordance with GAAP, and/or (C) any amounts not in excess of an aggregate of
$200,000;

 

(vii)       bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings for the relief of debtors shall be instituted by or against
the Company or any Subsidiary (each, a “Bankruptcy Proceeding”) and, if
instituted against the Company or a Subsidiary by a third party, shall not be
dismissed within thirty (30) days of their institution; provided, however, that
the institution of a Bankruptcy Proceeding by or against a Subsidiary other than
Crumbs Holdings LLC (“Holdings”) shall not constitute an Event of Default so
long as Bankrtupcy Proceedings have not theretofore been instituted by or
against five (5) or more other Subsidiaries other than Holdings (or such greater
number of Subsidiaries as the Majority of Holders may approve in writing after
consultation with the Company with respect thereto); provided further that, for
purposes of determining whether Bankruptcy Proceedings have been instituted by
or against five (5) or more Subsidiaries, any Subsidiary other than Holdings
that is the subject of an Insolvency Proceeding (as defined below) or an
Insolvency Order (as defined below) shall be included in that determination;

 

(viii)      the commencement by the Company or any Subsidiary of a voluntary
case or proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a UCC foreclosure sale or any other similar action under federal, state
or foreign law (each, an “Insolvency Proceeding”); provided, however, that an
Insolvency Proceeding with respect to a Subsidiary other than Holdings shall not
constitute an Event of Default so long as Insolvency Proceedings have not
theretofore been instituted by or against five (5) or more other Subsidiaries
other than Holdings (or such greater number of Subsidiaries as the Majority of
Holders may approve in writing after consultation with the Company with respect
thereto); provided further that, for purposes of determining whether Insolvency
Proceedings have been instituted with respect to five (5) or more Subsidiaries,
any Subsidiary other than Holdings that is the subject of a Bankruptcy
Proceeding or with respect to which an Insolvency Order has been entered shall
be included in that determination;

 

7

 

  

(ix)         the entry by a court of (i) a decree, order, judgment or other
similar document in respect of the Company or any Subsidiary of a voluntary or
involuntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or (ii) a decree,
order, judgment or other similar document adjudging the Company or any
Subsidiary as bankrupt or insolvent, or approving as properly filed a petition
seeking liquidation, reorganization, arrangement, adjustment or composition of
or in respect of the Company or any Subsidiary under any applicable federal,
state or foreign law or (iii) a decree, order, judgment or other similar
document appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree, order, judgment or other
similar document or any such other decree, order, judgment or other similar
document (each, an “Insolvency Order”) unstayed and in effect for a period of
sixty (60) consecutive days; provided, however, that the entry of an Insolvency
Order with respect to a Subsidiary other than Holdings shall not constitute an
Event of Default so long as Insolvency Orders have not theretofore been entered
with respect to five (5) or more other Subsidiaries other than Holdings (or such
greater number of Subsidiaries as the Majority of Holders may approve in writing
after consultation with the Company with respect thereto); provided further
that, for purposes of determining whether an Insolvency Order has been entered
against five (5) or more Subsidiaries, any Subsidiary other than Holdings that
is the subject of a Bankruptcy Proceeding or an Insolvency Proceeding shall be
included in that determination;

 

(x)          a final judgment or judgments for the payment of money aggregating
in excess of $200,000 are rendered against the Company and/or any of its
Subsidiaries and which judgments are not, within forty-five (45) days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within thirty (30) days after the expiration of such stay; provided,
however, that any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $200,000 amount set
forth above so long as the Company provides the Holder with a written statement
from such insurer or indemnity provider (which written statement shall be
reasonably satisfactory to the Holder) to the effect that such judgment is
covered by insurance or an indemnity and the Company and/or such Subsidiary (as
the case may be) will receive the proceeds of such insurance or indemnity within
forty-five (45) days of the issuance of such judgment;

 

(xi)         the Company or Holdings, individually or in the aggregate, either
(i) fails to pay, when due, or within any applicable grace period, any payment
with respect to any of its Indebtedness in excess of $200,000 due to any third
party (other than, with respect to unsecured Indebtedness only, payments
contested by the Company or Holdings in good faith by proper proceedings and
with respect to which adequate reserves have been set aside for the payment
thereof in accordance with GAAP), or is otherwise in breach or violation of any
agreement for monies owed or owing in an amount in excess of $200,000, which
breach or violation permits the other party thereto to declare a default or
otherwise accelerate amounts due thereunder, or (ii) suffers to exist any other
circumstance or event that would, with or without the passage of time or the
giving of notice, result in a default or event of default under any agreement
binding on the Company or Holdings, which default or event of default would, or
is likely to, have a Material Adverse Effect on the Company or Holdings;

 

(xii)        any Subsidiary other than Holdings, individually or in the
aggregate with any other Subsidiaries other than Holdings, either (i) fails to
pay, when due, or within any applicable grace period, any payment with respect
to any Indebtedness in excess of $200,000 due to any third party (other than,
with respect to unsecured Indebtedness only, payments contested by the
Subsidiary in good faith by proper proceedings and with respect to which
adequate reserves have been set aside for the payment thereof in accordance with
GAAP) or is otherwise in breach or violation of any agreement for monies owed or
owing in an amount in excess of $200,000, which breach or violation permits the
other party thereto to declare a default or otherwise accelerate amounts due
thereunder, or (ii) suffers to exist any other circumstance or event that would,
with or without the passage of time or the giving of notice, result in a default
or event of default under any agreement binding on such Subsidiary that,
individually or in the aggregate, would, or is likely to, have a Material
Adverse Effect on the Company or Holdings;

 

(xiii)       other than as specifically set forth in another clause of this
Section 4(a), (i) the Company or any Subsidiary breaches any covenant or other
term or condition of any Transaction Document, except, in the case of a breach
of a covenant or other term or condition that is curable, only if such breach
remains uncured for a period of five (5) consecutive Business Days, or (ii) any
representation or warranty made by the Company in any Transaction Document, when
made, contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements contained in such representation
or warranty, in light of the circumstances under which it was made, not
misleading;

 

(xiv)      a false or inaccurate certification (including a false or inaccurate
deemed certification) by the Company that the Equity Conditions are satisfied,
that there has been no Equity Conditions Failure or as to whether any Event of
Default has occurred;

 

8

 

  

(xv)       any breach or failure in any respect by the Company or any Subsidiary
to comply with any provision of Section 13 of this Note, except, in the case of
a breach of Section 13 that is curable, only if such breach remains uncured for
a period of five (5) consecutive Business Days;

 

(xvi)      any Material Adverse Effect occurs;

 

(xvii)     any provision of any Transaction Document (including, without
limitation, the Guaranties) shall at any time for any reason (other than
pursuant to the express terms thereof) cease to be valid and binding on or
enforceable against the parties thereto, or the validity or enforceability
thereof shall be contested by any party thereto, or a proceeding shall be
commenced by the Company or any Subsidiary or any governmental authority having
jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or the Company or any Subsidiary shall deny in writing
that it has any liability or obligation purported to be created under any
Transaction Document (including, without limitation, the Guaranties), if, in
either case, the invalidity or unenforceability of such provision materially
impairs, or will materially impair, the rights of any Holder under any of the
Transaction Documents;

 

(xviii)    any Event of Default (as defined in the Other Notes) occurs with
respect to any Other Notes; and

 

(xix)       A failure by the Nominating Committee (as defined in the Securities
Purchase Agreement) or the Company’s Board to satisfy their respective
Nomination Obligations (as defined in the Securities Purchase Agreement), unless
such failure results from (i) the Designated Nominee’s inability to satisfy all
legal and governance requirements regarding service as a director of the Company
or (ii) a good faith determination by the Nominating Committee or the Board,
respectively, after receipt of written advice of counsel, that compliance with
the Nomination Obligations would constitute a breach of fiduciary duty of the
Nominating Committee or the Board, respectively, under the laws of the State of
Delaware.

 

(b)          Notice of an Event of Default; Redemption Right. Upon the
occurrence of an Event of Default with respect to this Note or any Other Note,
the Company shall within one (1) Business Day deliver written notice thereof via
facsimile and overnight courier (with next day delivery specified) (an “Event of
Default Notice”) to the Holder. At any time after the earlier of the Holder’s
receipt of an Event of Default Notice and the Holder becoming aware of an Event
of Default, the Holder may require the Company to redeem (regardless of whether
such Event of Default has been cured) all or any portion of this Note by
delivering written notice thereof (the “Event of Default Redemption Notice”) to
the Company, which Event of Default Redemption Notice shall indicate the portion
of this Note the Holder is electing to require the Company to redeem. Each
portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company in cash at a price equal to the
Conversion Amount of the Notes to be redeemed (including any Default Interest)
(the “Event of Default Redemption Price”). Redemptions required by this Section
4(b) shall be made in accordance with the provisions of Section 11. To the
extent redemptions required by this Section 4(b) are deemed or determined by a
court of competent jurisdiction to be prepayments of the Note by the Company,
such redemptions shall be deemed to be voluntary prepayments.

 

5.           RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

 

(a)          Assumption. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Note and the other Transaction
Documents in accordance with the provisions of this Section 5(a) pursuant to
written agreements in form and substance satisfactory to the Holder and approved
by the Holder prior to such Fundamental Transaction, including agreements to
deliver to each holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts then outstanding and the
interest rates of the Notes held by such holder, having similar conversion
rights as the Notes and having similar ranking to the Notes, and satisfactory to
the Holder and (ii) the Successor Entity (including its Parent Entity) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market. Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Note and the other Transaction Documents referring to the “Company” shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under this
Note and the other Transaction Documents with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of a
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon conversion or redemption of this
Note at any time after the consummation of such Fundamental Transaction, in lieu
of the shares of the Company’s Common Stock (or other securities, cash, assets
or other property (except such items still issuable under Sections 6 and 15,
which shall continue to be receivable thereafter) issuable upon the conversion
or redemption of the Notes prior to such Fundamental Transaction, such shares of
the publicly traded common stock (or their equivalent) of the Successor Entity
(including its Parent Entity) which the Holder would have been entitled to
receive upon the happening of such Fundamental Transaction had this Note been
converted immediately prior to such Fundamental Transaction (without regard to
any limitations on the conversion of this Note), as adjusted in accordance with
the provisions of this Note. Notwithstanding the foregoing, the Holder may
elect, at its sole option, by delivery of written notice to the Company to waive
this Section 5(a) to permit the Fundamental Transaction without the assumption
of this Note. The provisions of this Section 5 shall apply similarly and equally
to successive Fundamental Transactions and shall be applied without regard to
any limitations on the conversion or redemption of this Note.

 

9

 

 

(b)          Notice of a Change of Control; Redemption Right. No sooner than
fifteen (15) days nor later than ten (10) days prior to the consummation of a
Change of Control, but not prior to the public announcement of such Change of
Control, the Company shall deliver written notice thereof via facsimile and
overnight courier to the Holder (a “Change of Control Notice”). At any time
during the period beginning on the earlier to occur of (x) any oral or written
agreement by the Company or any of its Subsidiaries, which upon consummation of
the transaction contemplated thereby would reasonably be expected to result in a
Change of Control and (y) the Holder’s receipt of a Change of Control Notice and
ending twenty (20) Trading Days after the date of the consummation of such
Change of Control, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (“Change of Control
Redemption Notice”) to the Company, which Change of Control Redemption Notice
shall indicate the Conversion Amount the Holder is electing to require the
Company to redeem. The portion of this Note subject to redemption pursuant to
this Section 5(b) shall be redeemed by the Company in cash at a price equal to
(A) the product of (x) the Change of Control Redemption Premium multiplied by
(y) the aggregate Principal amount then outstanding that is being redeemed, plus
(B) all accrued and unpaid Interest with respect to such portion of the
Principal amount and all accrued and unpaid Late Charges with respect to such
portion of the Principal amount (the “Change of Control Redemption Price”).
Redemptions required by this Section 5 shall be made in accordance with the
provisions of Section 11 and shall have priority to payments to stockholders in
connection with a Change of Control. To the extent redemptions required by this
Section 5(b) are deemed or determined by a court of competent jurisdiction to be
prepayments of the Note by the Company, such redemptions shall be deemed to be
voluntary prepayments. Notwithstanding anything to the contrary in this Section
5, but subject to Section 3(d), until the Change of Control Redemption Price
(together with any Late Charges thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 5(b) (together with any Late Charges
thereon) may be converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3. The parties hereto agree that in the event of the
Company’s redemption of any portion of the Note under this Section 5(b), the
Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any Change of Control Redemption Premium due under this Section
5(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment opportunity and not as a
penalty.

 

6.           RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS
MANDATORY CONVERSION.

 

(a)          Distribution of Assets. If the Company shall declare or make any
dividend or other distributions of its assets (or rights to acquire its assets)
on the outstanding shares of Common Stock to the holders thereof, by way of
return of capital or otherwise (including without limitation, any distribution
of cash, stock or other securities, property or options by way of a dividend,
spin off, reclassification, corporate rearrangement, scheme of arrangement or
other similar transaction) (the “Distributions”), then the Holder will be
entitled, concurrently with the Distribution to the holders of Common Stock, to
such Distributions as if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without taking into
account any limitations or restrictions on the convertibility of this Note)
immediately prior to the date on which a record is taken for such Distribution
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for such Distributions; provided, however,
that to the extent that the Holder’s right to participate in any such
Distribution would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Distribution to such
extent (or beneficial ownership of such shares of Common Stock as a result of
such Distribution to such extent) and the portion of such Distribution shall be
held in abeyance for the Holder until such time, if ever, as its right thereto
would not result in the Holder exceeding the Maximum Percentage.

 

10

 

  

(b)          Purchase Rights. If at any time the Company grants, issues or sells
any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete conversion of this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note) immediately prior to the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, that to the extent that the Holder’s right to participate in
any such Purchase Right would result in the Holder exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to such extent (or beneficial ownership of such shares of Common
Stock as a result of such Purchase Right to such extent) and such Purchase Right
to such extent shall be held in abeyance for the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Maximum
Percentage, at which time the Holder shall be granted such right to the same
extent as if there had been no such limitation).

 

(c)          Other Corporate Events. In addition to and not in substitution for
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a “Corporate Event”), the Company shall make appropriate provision
to insure that the Holder will thereafter have the right to receive upon a
conversion of this Note, at the Holder’s option, (i) in addition to the shares
of Common Stock receivable upon such conversion, such securities or other assets
to which the Holder would have been entitled with respect to such shares of
Common Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate. Provision made pursuant to the preceding sentence shall be
in a form and substance satisfactory to the Majority of Holders. The provisions
of this Section shall apply similarly and equally to successive Corporate Events
and shall be applied without regard to any limitations on the conversion or
redemption of this Note.

 

7.           RIGHTS UPON ISSUANCE OF OTHER SECURITIES

 

(a)          Adjustment of Conversion Price upon Subdivision or Combination of
Common Stock. If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time on or
after the Subscription Date combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased.

 

(b)          Other Events. If any event occurs of the type contemplated by the
provisions of this Section 7 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 7.

 

11

 

  

(c)          Voluntary Adjustment By Company. Subject to any approval
requirements of the Principal Market, the Company may at any time during the
term of this Note reduce the then current Conversion Price to any amount and for
any period of time deemed appropriate by the Board of Directors of the Company.

 

8.           NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Charter (as defined in the Securities
Purchase Agreement), Bylaws (as defined in the Securities Purchase Agreement) or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon conversion of this Note above the Conversion Price
then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the conversion of this Note, and
(iii) shall, so long as any of the Notes are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Notes, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the conversion of the Notes then outstanding
(without regard to any limitations on conversion).

 

9.           RESERVATION OF AUTHORIZED SHARES.

 

(a)          Reservation. The Company shall initially reserve out of its
authorized and unissued Common Stock a number of shares of Common Stock for each
of the Notes equal to 125% of the entire Conversion Rate with respect to the
entire Conversion Amount of each such Note as of the Issuance Date. So long as
any of the Notes are outstanding, the Company shall take all action reasonably
necessary to reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the Notes,
of the number of shares of Common Stock as shall from time to time be necessary
to effect the conversion of all of the Notes then outstanding, provided that at
no time shall the number of shares of Common Stock so reserved be less than the
number of shares required to be reserved by the previous sentence (without
regard to any limitations on conversions) (the “Required Reserve Amount”). The
initial number of shares of Common Stock reserved for conversions of the Notes
and each increase in the number of shares so reserved shall be allocated pro
rata among the holders of the Notes based on the original principal amount of
the Notes held by each holder on the Closing Date or increase in the number of
reserved shares (as the case may be) (the “Authorized Share Allocation”). In the
event that a holder shall sell or otherwise transfer any of such holder’s Notes,
each transferee shall be allocated a pro rata portion of such holder’s
Authorized Share Allocation. Any shares of Common Stock reserved and allocated
to any Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

 

(b)          Insufficient Authorized Shares. If, notwithstanding Section 9(a),
and not in limitation thereof, at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then
the Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Notes then outstanding.
Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure, but
in no event later than sixty (60) days after the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its stockholders for the
approval of an increase in the number of authorized shares of Common Stock. In
connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its reasonable best efforts to solicit its
stockholders’ approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the stockholders that they
approve such proposal. In the event that the Company is prohibited from issuing
shares of Common Stock upon any conversion due to the failure by the Company to
have sufficient shares of Common Stock available out of the authorized but
unissued shares of Common Stock (such unavailable number of shares of Common
Stock, the “Authorization Failure Shares”), in lieu of delivering such
Authorization Failure Shares to the Holder, the Company shall pay cash in
exchange for the redemption of such portion of the Conversion Amount convertible
into such Authorized Failure Shares at a price equal to the sum of (i) the
product of (x) such number of Authorization Failure Shares and (y) the Closing
Sale Price on the Trading Day immediately preceding the date the Holder delivers
the applicable Conversion Notice with respect to such Authorization Failure
Shares to the Company and (ii) to the extent the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of Authorization Failure Shares, any
brokerage commissions and other out-of-pocket expenses, if any, of the Holder
incurred in connection therewith.

 

12

 

 

10.         COMPANY OPTIONAL REDEMPTION. If at any time after the first
anniversary of the Issuance Date (the “Company Redemption Eligibility Date”), no
Equity Conditions Failure exists, the Company shall have the right to redeem all
(except in accordance with a Company Optional Redemption Blocker Notice (as
defined below)) or a portion, of the Conversion Amount then remaining under this
Note (the “Company Optional Redemption Amount”) on the Company Optional
Redemption Date (each as defined below) (a “Company Optional Redemption”);
provided that, notwithstanding the foregoing, if the Company Optional Redemption
Amount for such Company Optional Redemption exceeds such portion of the
Conversion Amount remaining under this Note that the Holder would be permitted
to convert into Common Stock pursuant to Section 3 on the Company Optional
Redemption Notice Date (as defined below) without violating Section 3(d) (the
“Permitted Company Optional Redemption Amount”), the Holder, at its sole option,
may deliver a written notice to the Company (a “Company Optional Redemption
Blocker Notice”) stating that such Company Optional Redemption Amount set forth
in the applicable Company Optional Redemption Notice (as defined below) exceeds
the Permitted Company Optional Redemption Amount and, thereafter, the applicable
Company Optional Redemption Amount shall be automatically reduced to the
Permitted Company Optional Redemption Amount set forth in the applicable Company
Optional Redemption Blocker Notice. The portion of this Note subject to
redemption pursuant to this Section 10 shall be redeemed by the Company in cash
at a price (the “Company Optional Redemption Price”) equal to (i) 100% of the
Principal amount being redeemed, plus (ii) a premium equal to 25% of the
Principal amount being redeemed, plus (iii) all accrued and unpaid Interest with
respect to such portion of the Principal amount and accrued and unpaid Late
Charges with respect to such portion of such Principal and such Interest. The
Company may exercise its right to require redemption under this Section 10 by
delivering an irrevocable written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Notes (the “Company
Optional Redemption Notice” and the date all of the holders of Notes received
such notice is referred to as the “Company Optional Redemption Notice Date”).
The Company may deliver only one Company Optional Redemption Notice during any
thirty day period hereunder. The Company Optional Redemption Notice shall (x)
state the date on which the Company Optional Redemption shall occur (the
“Company Optional Redemption Date”) which date shall not be less than twenty
(20) days nor more than thirty (30) days following the Company Optional
Redemption Notice Date, (y) certify that no Equity Conditions Failure exists as
of the date of the Company Optional Redemption Notice, and (z) state the
aggregate Conversion Amount of the Notes which is being redeemed in such Company
Optional Redemption from the Holder and all of the other holders of the Notes
pursuant to this Section 10 (and analogous provisions under the Other Notes) on
the Company Optional Redemption Date. Notwithstanding anything herein to the
contrary, (i) if an Equity Conditions Failure occurs at any time prior to the
Company Optional Redemption Date, (A) the Company shall provide the Holder a
subsequent notice to that effect and (B) unless the Holder waives the applicable
Equity Conditions Failure occurrence, as applicable, the Company Optional
Redemption shall be cancelled and the applicable Company Optional Redemption
Notice shall be null and void and (ii) at any time prior to the date the Company
Optional Redemption Price is paid, in full, the Company Optional Redemption
Amount may be converted, in whole or in part, by the Holders into Common Shares
pursuant to Section 3. All Conversion Amounts converted by the Holder after the
Company Optional Redemption Notice Date shall reduce the Company Optional
Redemption Amount of this Note required to be redeemed on the Company Optional
Redemption Date. Redemptions made pursuant to this Section 10 shall be made in
accordance with Section 11.

 

11.         REDEMPTIONS.

 

(a)          Mechanics. The Company shall deliver the applicable Event of
Default Redemption Price to the Holder in cash within five (5) Business Days
after the Company’s receipt of the Holder’s Event of Default Redemption Notice.
If the Holder has submitted a Change of Control Redemption Notice in accordance
with Section 5(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder in cash concurrently with the consummation of
such Change of Control if such notice is received prior to the consummation of
such Change of Control and within five (5) Business Days after the Company’s
receipt of such notice otherwise. The Company shall deliver the applicable
Company Optional Redemption Price to the Holder in cash on the applicable
Company Optional Redemption Date. In the event of a redemption of less than all
of the Conversion Amount of this Note, the Company shall promptly cause to be
issued and delivered to the Holder a new Note (in accordance with Section 17(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the applicable Redemption Price to the Holder
within the time period required, at any time thereafter and until the Company
pays such unpaid Redemption Price in full, the Holder shall have the option, in
lieu of redemption, to require the Company to promptly return to the Holder all
or any portion of this Note representing the Conversion Amount that was
submitted for redemption and for which the applicable Redemption Price (together
with any Late Charges thereon) has not been paid. Upon the Company’s receipt of
such notice, (x) the applicable Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 17(d)), to the Holder, and
in each case the principal amount of this Note or such new Note (as the case may
be) shall be increased by an amount equal to the difference between (1) the
applicable Event of Default Redemption Price or Change of Control Redemption
Price (as the case may be) minus (2) the Principal portion of the Conversion
Amount submitted for redemption and (z) the Conversion Price of this Note or
such new Notes (as the case may be) shall be automatically adjusted with respect
to each conversion effected thereafter by the Holder to the the Conversion Price
as in effect on the date on which the applicable Redemption Notice is voided.
The Holder’s delivery of a notice voiding a Redemption Notice and exercise of
its rights following such notice shall not affect the Company’s obligations to
make any payments of Late Charges which have accrued prior to the date of such
notice with respect to the Conversion Amount subject to such notice.

 

13

 

 

(b)          Redemption by Other Holders. Upon the Company’s receipt of notice
from any of the holders of the Other Notes for redemption or repayment as a
result of an event or occurrence substantially similar to the events or
occurrences described in Section 4(b), Section 5(b) or Section 10 (each, an
“Other Redemption Notice”), the Company shall immediately, but no later than one
(1) Business Day of its receipt thereof, forward to the Holder by facsimile a
copy of such notice. If the Company receives a Redemption Notice and one or more
Other Redemption Notices, during the seven (7) Business Day period beginning on
and including the date which is three (3) Business Days prior to the Company’s
receipt of the Holder’s applicable Redemption Notice and ending on and including
the date which is three (3) Business Days after the Company’s receipt of the
Holder’s applicable Redemption Notice and the Company is unable to redeem all
principal, interest and other amounts designated in such Redemption Notice and
such Other Redemption Notices received during such seven (7) Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven (7) Business Day
period.

 

12.         VOTING RIGHTS. The Holder shall have no voting rights as the holder
of this Note, except as required by law (including, without limitation, the
Delaware General Corporation Law) and as expressly provided in this Note.

 

13.         COVENANTS. Until all of the Notes have been converted, redeemed or
otherwise satisfied in accordance with their terms:

 

(a)          Rank. All payments due under this Note (i) shall rank pari passu
with all Other Notes and (ii) shall be senior to all other Indebtedness of the
Company and its Subsidiaries except for Indebtedness described in Section
28(bb)(iv) of this Note.

 

(b)          Incurrence of Indebtedness. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, incur or
guarantee, assume or suffer to exist any Indebtedness other than (i) the
Indebtedness evidenced by this Note and the Other Notes and (ii) other Permitted
Indebtedness.

 

(c)          Existence of Liens. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, allow or suffer
to exist any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”)
other than Permitted Liens.

 

(d)          Restricted Payments. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Indebtedness (other than the Notes), whether by way of payment in respect of
principal of (or premium, if any) or interest on, such Indebtedness if at the
time such payment is due or is otherwise made or, after giving effect to such
payment, (i) an event constituting an Event of Default has occurred and is
continuing or (ii) an event that with the passage of time and without being
cured would constitute an Event of Default has occurred and is continuing.

 

14

 

 

(e)          Restriction on Redemption and Cash Dividends. The Company shall
not, and the Company shall cause each of its Subsidiaries to not, directly or
indirectly, redeem, repurchase or declare or pay any cash dividend or
distribution on any of its capital stock (other than dividends and distributions
by direct or indirect wholly-owned Subsidiaries of the Company made to the
Company or any other direct or indirect wholly-owned Subsidiary of the Company)
without the prior express written consent of the Majority of Holders; provided,
however, that the foregoing restrictions shall not apply to or impair the
Company’s or any Subsidiary’s rights or obligations with respect to (i)
redemptions, repurchases, dividends or distributions made under or pursuant to
any Approved Stock Plan, (ii) the Company’s redemption, at par value, of up to
674,000 shares (subject to the anti-dilution and other adjustment provisions
thereof) of its Series A Voting Preferred Stock, par value $.0001 per share,
upon the exchange of New Crumbs Class B Exchangeable Units of Holdings for
shares of Common Stock pursuant to the LLC Agreement, the Certificate of
Designation and the Exchange and Support Agreement, (iii) to the extent such
distribution is deemed to constitute a direct or indirect redemption, dividend
or other distribution of or with respect to any capital stock, a distribution
pursuant to the Tax Receivable Agreement or (iv) “Tax Distributions” as that
term is defined in the LLC Agreement that Holdings is required to make pursuant
to Section 4.4 of the LLC Agreement, so long as Holdings (A) does not admit any
new Members (as defined in the LLC Agreement) after the date hereof or (B)
effect any additional issuances of Units (as defined in the LLC Agreement) after
the date hereof pursuant to Section 3.2(b) of the LLC Agreement; and provided
further that the foregoing restrictions shall apply to any and all amendments or
modifications of any Approved Stock Plan, the LLC Agreement, the Certificate of
Designation, the Exchange and Support Agreement and/or the Tax Receivable
Agreement made after the date hereof.

 

(f)          Restriction on Transfer of Assets. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
sell, lease, license, assign, transfer, spin-off, split-off, close, convey or
otherwise dispose of any material assets or rights of the Company or any
Subsidiary owned or hereafter acquired whether in a single transaction or a
series of related transactions, other than (i) sales, leases, licenses,
assignments, transfers, conveyances and other dispositions of such assets or
rights by the Company and its Subsidiaries in the ordinary course of business,
(ii) sales of inventory in the ordinary course of business and (iii)
certificates of deposit that are pledged, consistent with the past practices of
the Company and the Subsidiaries, to secure letters of credit and related
obligations in respect of real property operating leases of the Company and its
Subsidiaries.

 

(g)          Maturity of Indebtedness. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, permit any
Indebtedness of the Company or any of the Subsidiaries to mature or accelerate
prior to the Maturity Date other than Indebtedness described in clauses (iv) and
(v) of Section 28(bb).

 

(h)          Change in Nature of Business. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
engage in any material line of business substantially different from those lines
of business conducted by the Company and each of its Subsidiaries on the
Issuance Date or any business substantially related or incidental thereto. The
Company shall not, and the Company shall cause each of its Subsidiaries to not,
directly or indirectly, modify its or their corporate structure or purpose.

 

(i)          Preservation of Existence, Etc. The Company shall maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve, its
existence, rights and privileges, and become or remain, and cause each of its
Subsidiaries to become or remain, duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary.

 

(j)          Maintenance of Properties, Etc. The Company shall maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve, all of
its properties which are necessary or useful in the proper conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and comply, and cause each of its Subsidiaries to comply, at all times with the
provisions of all leases to which it is a party as lessee or under which it
occupies property, so as to prevent any loss or forfeiture thereof or
thereunder.

 

15

 

 

(k)          Maintenance of Intellectual Property. The Company will, and will
cause each of its Subsidiaries to, take all action reasonably necessary or
advisable to maintain all of the Intellectual Property Rights (as defined in the
Securities Purchase Agreement) of the Company and/or any of its Subsidiaries
that are necessary or material to the conduct of its business in full force and
effect.

 

(l)          Maintenance of Insurance. The Company shall maintain, and cause
each of its Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations (including, without limitation,
comprehensive general liability, hazard, rent and business interruption
insurance) with respect to its properties (including all real properties leased
or owned by it) and business, in such amounts and covering such risks as is
required by any governmental authority having jurisdiction with respect thereto
or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated.

 

(m)          Transactions with Affiliates. The Company shall not, nor shall it
permit any of its Subsidiaries to, enter into, renew, extend or be a party to,
any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease, transfer or exchange of property or
assets of any kind or the rendering of services of any kind) with any affiliate,
except in the ordinary course of business in a manner and to an extent
consistent with past practice and necessary or desirable for the prudent
operation of its business, for fair consideration and on terms no less favorable
to it or its Subsidiaries than would be obtainable in a comparable arm’s length
transaction with a Person that is not an affiliate thereof.

 

(n)          Restricted Issuances. The Company shall not, directly or
indirectly, without the prior written consent of the Majority of Holders, (i)
issue any Notes (other than as contemplated by the Securities Purchase Agreement
and the Notes) or (ii) issue any other securities that would cause a breach or
default under the Notes.

 

14.         [Intentionally Omitted]

 

15.         GUARANTIES. Each existing and future Subsidiary shall jointly and
severally unconditionally guarantee all obligations under the Notes on a senior
basis pursuant to the Guaranties.

 

16.         AMENDING THE TERMS OF THIS NOTE. The prior written consent of the
Holder shall be required for any change or amendment to this Note. No
consideration shall be offered or paid to the Holder to amend or consent to a
waiver or modification of any provision of this Note unless the same
consideration is also offered to all of the holders of the Other Notes. The
Holder shall be entitled, at its option, to the benefit of any amendment to any
of the Other Notes.

 

17.         TRANSFER. This Note and any shares of Common Stock issued upon
conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of
Section 2(g) of the Securities Purchase Agreement.

 

18.         REISSUANCE OF THIS NOTE.

 

(a)          Transfer. If this Note is to be transferred, the Holder shall
surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section
17(d)), registered as the Holder may request, representing the outstanding
Principal being transferred by the Holder and, if less than the entire
outstanding Principal is being transferred, a new Note (in accordance with
Section 17(d)) to the Holder representing the outstanding Principal not being
transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii)
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.

 

(b)          Lost, Stolen or Mutilated Note. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Note, the Company shall
execute and deliver to the Holder a new Note (in accordance with Section 17(d))
representing the outstanding Principal.

 

16

 

  

(c)          Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 17(d) and in
principal amounts of at least $1,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

 

(d)          Issuance of New Notes. Whenever the Company is required to issue a
new Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such new
Note, the Principal remaining outstanding (or in the case of a new Note being
issued pursuant to Section 17(a) or Section 17(c), the Principal designated by
the Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges on the Principal and Interest of this Note, from the
Issuance Date.

 

17

 

 

19.         REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder’s right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. The Company covenants to the
Holder that there shall be no characterization concerning this instrument other
than as expressly provided herein. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any such breach or any such threatened breach, without the necessity
of showing economic loss and without any bond or other security being required.
The Company shall provide all information and documentation to the Holder that
is requested by the Holder to enable the Holder to confirm the Company’s
compliance with the terms and conditions of this Note (including, without
limitation, compliance with Section 7).

 

20.         PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors’ rights and
involving a claim under this Note, then the Company shall pay the reasonable
costs incurred by the Holder for such collection, enforcement or action or in
connection with such bankruptcy, reorganization, receivership or other
proceeding, including, without limitation, reasonable attorneys’ fees and
disbursements. The Company expressly acknowledges and agrees that no amounts due
under this Note shall be affected, or limited, by the fact that the purchase
price paid for this Note was less than the original Principal amount hereof.

 

21.         CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and the Holder and shall not be construed against any
Person as the drafter hereof. The headings of this Note are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Note. Terms used in this Note but defined in the other Transaction Documents
shall have the meanings ascribed to such terms on the Closing Date in such other
Transaction Documents unless otherwise consented to in writing by the Holder.

 

22.         FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. No waiver shall be effective unless it is
in writing and signed by an authorized representative of the waiving party.

 

23.         DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Conversion Price, any Redemption Price, the Closing Bid Price, the
Closing Sale Price or fair market value (as the case may be) or the arithmetic
calculation of the Conversion Rate or the applicable Redemption Price (as the
case may be), the Company or the Holder (as the case may be) shall submit the
disputed determinations or arithmetic calculations (as the case may be) via
facsimile (i) within two (2) Business Days after receipt of the applicable
notice giving rise to such dispute to the Company or the Holder (as the case may
be) or (ii) if no notice gave rise to such dispute, at any time after the Holder
learned of the circumstances giving rise to such dispute. If the Holder and the
Company are unable to agree upon such determination or calculation within two
(2) Business Days of such disputed determination or arithmetic calculation (as
the case may be) being submitted to the Company or the Holder (as the case may
be), then the Company shall, within two (2) Business Days, submit via facsimile
(a) the disputed determination of the Conversion Price, any Redemption Price,
the Closing Bid Price, the Closing Sale Price or fair market value (as the case
may be) to an independent, reputable investment bank selected by the Company and
approved by the Holder or (b) the disputed arithmetic calculation of the
Conversion Rate or any Redemption Price (as the case may be) to the Company’s
independent, outside accountant. The Company shall cause at its expense the
investment bank or the accountant (as the case may be) to perform the
determinations or calculations (as the case may be) and notify the Company and
the Holder of the results no later than ten (10) Business Days from the time it
receives such disputed determinations or calculations (as the case may be). Such
investment bank’s or accountant’s determination or calculation (as the case may
be) shall be binding upon all parties absent demonstrable error.

 

18

 

  

24.         NOTICES; CURRENCY; PAYMENTS.

 

(a)          Notices. Whenever notice is required to be given under this Note,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common Stock, (B) with respect to any
grant, issuances, or sales of any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property to holders of shares of
Common Stock or (C) for determining rights to vote with respect to any Change of
Control, dissolution or liquidation, provided in each case that such information
shall be made known to the public prior to or in conjunction with such notice
being provided to the Holder.

 

(b)          Currency. All dollar amounts referred to in this Note are in United
States Dollars (“U.S. Dollars”), and all amounts owing under this Note shall be
paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall
be converted in the U.S. Dollar equivalent amount in accordance with the
Exchange Rate on the date of calculation (each, a “US Dollar Equivalent”).
“Exchange Rate” means, in relation to any amount of currency to be converted
into U.S. Dollars pursuant to this Note, the U.S. Dollar exchange rate as
published in the Wall Street Journal on the relevant date of calculation (it
being understood and agreed that where an amount is calculated with reference
to, or over, a period of time, the date of calculation shall be the final date
of such period of time).

 

(c)          Payments. Whenever any payment of cash is to be made by the Company
to any Person pursuant to this Note, unless otherwise expressly set forth
herein, such payment shall be made in lawful money of the United States of
America by a certified check drawn on the account of the Company and sent via
overnight courier service to such Person at such address as previously provided
to the Company in writing (which address, in the case of each of the initial
Holders, shall initially be as set forth on the Schedule of Buyers attached to
the Securities Purchase Agreement), provided that the Holder may elect to
receive a payment of cash via wire transfer of immediately available funds by
providing the Company with prior written notice setting out such request and the
Holder’s wire transfer instructions. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day. Any
amount of Principal or other amounts due under the Transaction Documents which
is not paid when due shall result in a late charge being incurred and payable by
the Company in an amount equal to interest on such amount at the rate of
eighteen percent (18%) per annum from the date such amount was due until the
same is paid in full (“Late Charge”).

 

25.         CANCELLATION. After all Principal, accrued Interest, Late Charges
and other amounts at any time owed on this Note have been paid in full, this
Note shall automatically be deemed canceled, shall be surrendered to the Company
for cancellation and shall not be reissued.

 

26.         WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
irrevocably waives demand, notice, presentment, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Securities Purchase Agreement.

 

19

 

 

27.         GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. In the event that any provision
of this Note is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Company
in any other jurisdiction to collect on the Company’s obligations to the Holder,
to realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court ruling in favor of the Holder. THE COMPANY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

28.         MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Holder and thus refunded to the
Company.

 

29.         CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:

 

(a)          “Approved Stock Plan” means any employee benefit plan or employment
agreement which has been approved by the board of directors of the Company prior
to or subsequent to the date hereof pursuant to which shares of Common Stock and
standard options to purchase Common Stock may be issued to any employee, officer
or director for services provided to the Company in their capacity as such.

 

(b)          “Bankruptcy Proceeding” means, with respect to any Person, (i) the
occurrence of a voluntary case or proceeding under any applicable federal, state
or foreign bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree, order, judgment or other similar
document in respect of such Person in an involuntary case or proceeding under
any applicable federal, state or foreign bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or insolvency case
or proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of such Person or of any substantial part
of its property, or the making by it of an assignment for the benefit of
creditors, or the execution of a composition of debts, or the occurrence of any
other similar federal, state or foreign proceeding, or the admission by it in
writing of its inability to pay its debts generally as they become due, the
taking of corporate action by such Person in furtherance of any such action or
the taking of any action by any Person to commence a UCC foreclosure sale or any
other similar action under federal, state or foreign law or (ii) the entry by a
court of (A) a decree, order, judgment or other similar document in respect of
such Person of a voluntary or involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or (B) a decree, order, judgment or other similar document
adjudging such Person as bankrupt or insolvent, or approving as properly filed a
petition seeking liquidation, reorganization, arrangement, adjustment or
composition of or in respect of such Person under any applicable federal, state
or foreign law or (C) a decree, order, judgment or other similar document
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of such Person or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree, order, judgment or other similar document or any
such other decree, order, judgment or other similar document unstayed and in
effect for a period of thirty (30) consecutive days.

 

(c)          “Bloomberg” means Bloomberg, L.P.

 

(d)          “Business Day” means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.

 

20

 

  

(e)          “Certificate of Designation” means the Amended and Restated
Certificate of Designation in respect of the Company’s Series A Voting Preferred
Stock, par value $.0001 per share.

 

(f)          “Change of Control” means any Fundamental Transaction other than
(i) any reorganization, recapitalization or reclassification of the Common Stock
in which holders of the Company’s voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, are, in all material respect, the
holders of the voting power of the surviving entity (or entities with the
authority or voting power to elect the members of the board of directors (or
their equivalent if other than a corporation) of such entity or entities) after
such reorganization, recapitalization or reclassification or (ii) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

 

(g)          “Change of Control Redemption Premium” means: (i) 115% of the
aggregate principal amount then outstanding under the Notes on the occurrence of
a Change of Control between the Closing Date and the one-year anniversary of the
Closing Date; (ii) 110% of the aggregate principal amount then outstanding under
the Notes on the occurrence of a Change of Control between the one-year
anniversary of the Closing Date and the two-year anniversary of the Closing
Date; (iii) 105% of the aggregate principal amount then outstanding under the
Notes on the occurrence of a Change of Control between the two-year anniversary
of the Closing Date and the three-year anniversary of the Closing Date; and (iv)
100% of the aggregate principal amount then outstanding under the Notes on the
occurrence of a Change of Control between the three-year anniversary of the
Closing Date and the Maturity Date.

 

(h)          “Closing Bid Price” and “Closing Sale Price” means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price
(as the case may be) then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the “pink sheets” by OTC
Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as
the case may be) of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved in accordance with the procedures in Section 22. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such period.

 

(i)          “Closing Date” shall have the meaning set forth in the Securities
Purchase Agreement, which date is the date the Company initially issued Notes
pursuant to the terms of the Securities Purchase Agreement.

 

(j)          “Code” means the Uniform Commercial Code as in effect from time to
time in the State of New York.

 

(k)          “Common Stock” means (i) the Company’s shares of common stock,
$0.0001 par value per share, and (ii) any capital stock into which such common
stock shall have been changed or any share capital resulting from a
reclassification of such common stock.

 

(l)          “Contingent Obligation” means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

21

 

 

(m)          “Convertible Securities” means any stock or other security (other
than Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.

 

(n)          “Eligible Market” means The New York Stock Exchange, The New York
Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global
Market or the Principal Market.

 

(o)          “Equity Conditions” means: (i) on each day during the period
beginning one month prior to the applicable date of determination and ending on
and including the applicable date of determination either (x) one or more
Registration Statements filed pursuant to the Registration Rights Agreement
shall be effective and the prospectus contained therein shall be available for
the resale by the Holder of all of the Registrable Securities (which, solely for
clarification purposes, includes all shares of Common Stock issuable upon
conversion of this Note) in accordance with the terms of the Registration Rights
Agreement and there shall not have been during such period any Grace Periods (as
defined in the Registration Rights Agreement) or (y) all Registrable Securities
shall be eligible for sale without restriction under Rule 144 (as defined in the
Securities Purchase Agreement) (including, without limitation, volume
restrictions) and without the need for current public information required by
Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and without the need for
registration under any applicable federal or state securities laws (in each
case, disregarding any limitation on conversion of the Notes); (ii) on each day
during the period beginning three months prior to the applicable date of
determination and ending on and including the applicable date of determination
(the “Equity Conditions Measuring Period”), the Common Stock (including all
Registrable Securities) is listed or designated for quotation (as applicable) on
an Eligible Market and shall not have been suspended from trading on an Eligible
Market (other than suspensions of not more than two (2) days and occurring prior
to the applicable date of determination due to business announcements by the
Company) nor shall delisting or suspension by an Eligible Market have been
threatened (with a reasonable prospect of delisting occurring) or pending either
(A) in writing by such Eligible Market or (B) by falling below the minimum
listing maintenance requirements of the Eligible Market on which the Common
Stock is then listed or designated for quotation (as applicable); (iii) on the
date of determination , the Company shall have delivered all shares of Common
Stock issuable upon conversion of this Note as set forth in Section 3 hereof and
all other shares of capital stock required to be delivered by the Company on a
timely basis as set forth in the other Transaction Documents; (iv) any shares of
Common Stock to be issued in connection with the event requiring determination
may be issued in full within the limits of Section 3(d) hereof; (v) any shares
of Common Stock to be issued in connection with the event requiring
determination may be issued in full without violating the rules or regulations
of the Eligible Market on which the Common Stock is then listed or designated
for quotation (as applicable); (vi) on each day during the Equity Conditions
Measuring Period, no public announcement of a pending, proposed or intended
Fundamental Transaction shall have occurred which has not been abandoned,
terminated or consummated; (vii) the Company shall have no knowledge of any fact
that would reasonably be expected to cause (1) any Registration Statement
required to be filed pursuant to the Registration Rights Agreement to not be
effective or any prospectus contained therein to not be available for the resale
of all of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (2) any Registrable Securities to not be
eligible for sale without restriction pursuant to Rule 144 (including, without
limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or any
applicable state securities laws (in each case, disregarding any limitation on
conversion of the Notes); (viii) the Holder shall not be in (and no other Holder
shall be in) possession of any material, non-public information provided to any
of them by the Company, any of its affiliates or any of their respective
employees, officers, representatives, agents or the like; (ix) if required, the
Stockholder Approval shall have occurred on or prior to the Stockholder Approval
Deadline; (x) on the date of determination, the Company otherwise shall be in
compliance with each Transaction Document; and (xi) on each day during the
Equity Conditions Measuring Period, there shall not have occurred an Event of
Default that has not been waived or an event that with the passage of time or
giving of notice would constitute an Event of Default.

 

(p)          “Equity Conditions Failure” means, with respect to a particular
date of determination, that on any day during the period commencing twenty (20)
Trading Days immediately prior to such date of determination, the Equity
Conditions have not been satisfied (or waived in writing by the Holder).

 

(q)          “Exchange and Support Agreement” means that certain Exchange and
Support Agreement, dated as of May 5, 2011, by and among the Company, Holdings,
and the members of Holdings named therein, as modified by that certain Accession
Agreement, dated as of November 14, 2011, by and among the Company, Holdings and
Julian R. Geiger.

 

22

 

 

(r)          “Fundamental Transaction” means that (i) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (4)
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with any other Person whereby such other Person acquires
more than 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination), or (5) reorganize, recapitalize or reclassify the Common
Stock, or (ii) any “person” or “group” (as these terms are used for purposes of
Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations
promulgated thereunder) is or shall become the “beneficial owner” (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Voting Stock of the
Company.

 

(s)          “GAAP” means United States generally accepted accounting
principles, consistently applied.

 

(t)          [Intentionally Omitted]

 

(u)          “Indebtedness” of any Person means, without duplication (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including
(without limitation) “capital leases” in accordance with GAAP (other than trade
payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (iv) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(v) 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), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) 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 the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above; provided, however, that the term
“Indebtedness” shall not include any unsecured obligation of the Company or any
Subsidiary owed under or with respect to real estate operating leases.

 

(v)         “Interest Rate” means six and one-half percent (6.5%) per annum.

 

(w)          “LLC Agreement” means Holdings’ Third Amended and Restated Limited
Liability Company Agreement, dated as of May 5, 2011.

 

(x)          “Material Adverse Effect” shall mean (i) with respect to the
Company, any material adverse effect on (i) the business, properties, assets,
liabilities, operations (including results thereof), condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, taken as a whole,
and (ii) with respect to Holdings, any material adverse effect on (i) the
business, properties, assets, liabilities, operations (including results
thereof), condition (financial or otherwise) or prospects of Holdings.

 

23

 

 

(y)          “Maturity Date” shall mean [           ]1; provided, however, the
Maturity Date may be extended at the option of the Holder (i) in the event that,
and for so long as, an Event of Default shall have occurred and be continuing or
any event shall have occurred and be continuing that with the passage of time
and the failure to cure would result in an Event of Default or (ii) through the
date that is twenty (20) Business Days after the consummation of a Fundamental
Transaction in the event that a Fundamental Transaction is publicly announced or
a Fundamental Transaction Notice is delivered prior to the Maturity Date,
provided further that if a Holder elects to convert some or all of this Note
pursuant to Section 3 hereof, and the Conversion Amount would be limited
pursuant to Section 3(d) hereunder, the Maturity Date shall automatically be
extended until such time as such provision shall not limit the conversion of
this Note.

 

(z)          “Options” means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.

 

(aa)         “Parent Entity” of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

 

(bb)         “Permitted Indebtedness” means (i) Indebtedness evidenced by this
Note and the Other Notes, (ii) Indebtedness secured by Permitted Liens described
in clauses (v) and (vi) of the definition of Permitted Liens, in an aggregate
amount not to exceed $200,000, (iii) Indebtedness outstanding as of the Issuance
Date and described on Schedule 3(s) to the Securities Purchase Agreement, (iv)
Indebtedness not to exceed $575,000 plus accrued interest and late charges from
time to time outstanding under that certain Commercial Loan Agreement, dated as
of May 5, 2011, by and between Holdings and Southeastern Bank evidencing a
$575,000 revolving line of credit (the “Commercial Loan Agreement”) and secured
by a $575,000 certificate of deposit, (v) Indebtedness of the Company from time
to time outstanding pursuant to the Tax Receivable Agreement, and (vi) unsecured
Indebtedness incurred by the Company that is made expressly subordinate in right
of payment to the Indebtedness evidenced by this Note, as reflected in a written
agreement acceptable to the Holder and approved by the Holder in writing, and
which Indebtedness does not provide at any time for (A) the payment, prepayment,
repayment, repurchase or defeasance, directly or indirectly, of any principal or
premium, if any, thereon until ninety-one (91) days after the Maturity Date or
later and (B) total Interest and fees at a rate in excess of 6.00% per annum.

 

(cc)         “Permitted Liens” means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iii) any Lien
created by operation of law, such as materialmen’s liens, mechanics’ liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens securing obligations from time
to time outstanding under the Commercial Loan Agreement, (v) Liens (A) upon or
in any equipment acquired or held by the Company or any of its Subsidiaries to
secure the purchase price of such equipment or indebtedness incurred solely for
the purpose of financing the acquisition or lease of such equipment, or (B)
existing on such equipment at the time of its acquisition, provided that the
Lien is confined solely to the property so acquired and improvements thereon,
and the proceeds of such equipment, and (vi) Liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by Liens of
the type described in clause (v) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase.

 

(dd)         “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or agency
thereof.

 

(ee)         “Principal Market” means the NASDAQ Capital Market.

 

(ff)         “Quarter” means each of: (i) the period beginning on and including
January 1 and ending on and including March 31; (ii) the period beginning on and
including April 1 and ending on and including June 30; (iii) the period
beginning on and including July 1 and ending on and including September 30; and
(iv) the period beginning on and including October 1 and ending on and including
December 31.

 

--------------------------------------------------------------------------------

1Insert five year anniversary of the Issuance Date.

 

24

 

 

(gg)         “Redemption Notices” means, collectively, Event of Default
Redemption Notices, the Company Optional Redemption Notices and the Change of
Control Redemption Notices, and each of the foregoing, individually, a
“Redemption Notice.”

 

(hh)         [Intentionally Omitted]

 

(ii)         “Redemption Prices” means, collectively, Event of Default
Redemption Prices, the Change of Control Redemption Prices and the Company
Optional Redemption Prices, and each of the foregoing, individually, a
“Redemption Price.”

 

(jj)         “Registration Rights Agreement” means that certain registration
rights agreement, dated as of the Closing Date, by and among the Company and the
initial holders of the Notes relating to, among other things, the registration
of the resale of the Common Stock issuable upon conversion of the Notes or
otherwise pursuant to the terms of the Notes, as may be amended from time to
time.

 

(kk)         “SEC” means the United States Securities and Exchange Commission or
the successor thereto.

 

(ll)         “Securities Purchase Agreement” means that certain securities
purchase agreement, dated as of the Subscription Date, by and among the Company
and the initial holders of the Notes pursuant to which the Company issued the
Notes, as may be amended from time to time.

 

(mm)         “Subscription Date” means April [  ], 2013.

 

(a)          “Subsidiary” means, as of any date of determination, any Person in
which the Company, directly or indirectly, (i) owns a majority of the
outstanding capital stock or holds a majority of equity or similar interest of
such Person or (ii) controls or operates all or any part of the business,
operations or administration of such Person.

 

(nn)         “Successor Entity” means the Person (or, if so elected by the
Holder, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Holder, the
Parent Entity) with which such Fundamental Transaction shall have been entered
into.

 

(oo)         “Tax Receivable Agreement” means that certain Tax Receivable
Agreement, dated as of May 5, 2011, by and among the Company, Holdings and the
members of Holdings identified therein.

 

(pp)         “Trading Day” means any day on which the Common Stock is traded on
the Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded, provided that
“Trading Day” shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time) unless such day is otherwise designated
as a Trading Day in writing by the Holder.

 

(qq)         “Voting Stock” of a Person means capital stock of such Person of
the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority of
the board of directors, managers, trustees or other similar governing body of
such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).

 

25

 

 

(rr)         “VWAP” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market (or, if
the Principal Market is not the principal trading market for such security, then
on the principal securities exchange or securities market on which such security
is then traded) during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its
“Volume at Price” function or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by OTC Markets Group
Inc. (formerly Pink Sheets LLC). If the VWAP cannot be calculated for such
security on such date on any of the foregoing bases, the VWAP of such security
on such date shall be the fair market value as mutually determined by the
Company and the Holder. If the Company and the Holder are unable to agree upon
the fair market value of such security, then such dispute shall be resolved in
accordance with the procedures in Section 23. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during such period.

 

30.         DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
non-public information relating to the Company or any of its Subsidiaries, the
Company shall within four (4) Business Days after any such receipt or delivery
publicly disclose such material, non-public information on a Current Report on
Form 8-K or otherwise. In the event that the Company believes that a notice
contains material, non-public information relating to the Company or any of its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, non-public information relating to the Company or its
Subsidiaries. Nothing contained in this Section 29 shall limit any obligations
of the Company, or any rights of the Holder, under Section 4(i) of the
Securities Purchase Agreement.

 

[signature page follows]

 

26

 

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.

 

  CRUMBS BAKE SHOP, INC.       By:       Name:     Title:

  

 

 

 

EXHIBIT I
 

CRUMBS BAKE SHOP, INC.
CONVERSION NOTICE

 

Reference is made to the Senior Secured Convertible Note (the “Note”) issued to
the undersigned by Crumbs Bake Shop, Inc. (the “Company”). In accordance with
and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Common Stock, $0.0001 par value per share (the “Common Stock”), of the
Company, as of the date specified below.

 

Date of Conversion:   Aggregate Principal to be converted:   Aggregate accrued
and unpaid Interest and accrued and unpaid Late Charges with respect to such
portion of the Aggregate Principal and such Aggregate Interest to be converted:
  AGGREGATE CONVERSION AMOUNT
 TO BE CONVERTED:   Please confirm the following information: Conversion Price:
  Number of shares of Common Stock to be issued:  

 

Notwithstanding anything to the contrary contained herein, this Conversion
Notice shall constitute a representation by the Holder of the Note submitting
this Conversion Notice that, after giving effect to the conversion provided for
in this Conversion Notice, such Holder (together with its affiliates) will not
have beneficial ownership (together with the beneficial ownership of such
Person’s affiliates) of a number of Common Shares which exceeds the Maximum
Percentage (as defined in the Note) of the total outstanding Common Shares of
the Company as determined pursuant to the provisions of Section 3(d) of the
Note.

 

Exh-I-1

 

 

Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:

 

Issue to:          

Facsimile Number:  

Holder:  

By:  

Title:  

Dated:  

Account Number:  

  (if electronic book entry transfer)  

Transaction Code Number:  

  (if electronic book entry transfer)  

 

Exh-I-2

 

 

EXHIBIT II

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Conversion Notice and hereby directs
_________________ to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated _____________, 20__
from the Company and acknowledged and agreed to by ________________________.

 

  CRUMBS BAKE SHOP, INC.         By:       Name:
Title:

  

Exh-II-1

 

 

EXHIBIT B

FORM OF REGISTRATION RIGHTS AGREEMENT

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (the “Agreement”) is made and entered into as
of this __ day of ____________, 2013 by and among Crumbs Bake Shop, Inc., a
Delaware corporation (the “Company”), and the “Buyers” named in those certain
Securities Purchase Agreements, dated as of April [25], 2013, by and among the
Company and the Buyers party thereto (the “Purchase Agreement”).

 

RECITALS

 

A.           In connection with the Purchase Agreement, the Company has agreed,
upon the terms and subject to the conditions of the Purchase Agreement, to issue
and sell to each Buyer the Notes (as defined in the Purchase Agreement) which
will be convertible into Conversion Shares (as defined in the Purchase
Agreement) in accordance with the terms of the Notes.

 

B.           The Notes may be entitled to interest and certain other amounts,
which, at the option of the Company and subject to certain conditions, may be
paid in shares of Common Stock (as defined in the Purchase Agreement) that have
been registered for resale (the “Interest Shares”) or in cash.

 

C.           To induce the Buyers to consummate the transactions contemplated by
the Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the “
1933 Act ”), and applicable state securities laws.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the Buyers
hereby agree as follows::

 

1.            Certain Definitions.

 

In addition to those terms defined above and elsewhere in this Agreement, the
terms set forth below shall, for purposes of this Agreement, have the respective
meanings indicated. Capitalized terms used but not defined herein shall have the
respective meanings specified in the Purchase Agreement.

 

“Buyer” means each investor party to this Agreement and any Affiliate or
permitted transferee of any Buyer who is a subsequent holder of any Registrable
Securities.

 

“Common Stock” means the Company’s common stock, par value $0.0001 per share,
and any securities into which such shares may hereinafter be reclassified.

 

“Prospectus” means (i) the prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus, and (ii) any “free writing prospectus” as defined
in Rule 405 under the 1933 Act.

 

 

 

 

“Register,” “registered” and “registration” refer to a registration made by
preparing and filing a Registration Statement or similar document in compliance
with the 1933 Act (as defined below), and the declaration or ordering of
effectiveness of such Registration Statement or document.

 

“Registrable Securities” means (i) the Conversion Shares, (ii) the Interest
Shares, and (iii) any capital stock of the Company issued or issuable with
respect to the Conversion Shares, the Interest Shares or the Notes, including,
without limitation, (1) as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise and (2) shares of
capital stock of the Company into which the shares of Common Stock are converted
or exchanged and shares of capital stock of a successor entity into which the
shares of Common Stock are converted or exchanged, in each case, without regard
to any limitations on conversion of the Notes; provided that a security shall
cease to be a Registrable Security upon (A) sale of such Registrable Security
pursuant to a Registration Statement or Rule 144 under the 1933 Act, (B) with
respect to a Registrable Security held by any particular Person, when such
Person is permitted to sell such Registrable Security without restriction
pursuant to Rule 144, (C) when the Registrable Security is resold to the Company
for cash, or (D) when the Registrable Security otherwise ceases to be
outstanding.

 

“Registration Statement” means any registration statement of the Company filed
under the 1933 Act that covers the resale of any of the Registrable Securities
pursuant to the provisions of this Agreement, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.

 

“Required Buyers” means the Buyers beneficially owning a majority of the
Registrable Securities.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

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

 

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

 

-2-

 

 

 

2.            Registration.

 

(a)          Registration Statement. Promptly following the closing of the
purchase and sale of the Notes contemplated by the Purchase Agreement (the
“Closing Date”) but no later than thirty (30) days after the Closing Date (the
“Filing Deadline”), the Company shall prepare and file with the SEC one
Registration Statement on Form S-3 (or, if Form S-3 is not then available to the
Company, on such form of registration statement as is then available to effect a
registration for resale of the Registrable Securities), covering the resale of
the Registrable Securities. Subject to any SEC comments, such Registration
Statement shall include the plan of distribution attached hereto as Exhibit A;
provided, however, that no Buyer shall be named as an “underwriter” in the
Registration Statement without the Buyer’s prior written consent. Such
Registration Statement shall not include any shares of Common Stock or other
securities for the account of any other holder without the prior written consent
of the Required Buyers. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided in accordance with Section 3(c) to the Buyers and their
counsel prior to its filing or other submission. If a Registration Statement
covering the Registrable Securities is not filed with the SEC on or prior to the
Filing Deadline, the Company will make pro rata payments to each Buyer, as
liquidated damages and not as a penalty, in an amount equal to 1.5% of the
aggregate amount invested by such Buyer pursuant to the Purchase Agreement (or
the purchase price of the Registrable Securities purchased by any Person not an
original party to this Agreement) for each 30-day period (or pro rata for any
portion thereof) following the Filing Deadline for which no Registration
Statement is filed with respect to the Registrable Securities. Such payments
shall constitute the Buyers’ exclusive monetary remedy for such events, but
shall not affect the right of the Buyers to seek injunctive relief. Such
payments shall be made to each Buyer in cash no later than three (3) Business
Days after the end of each 30-day period.

 

(b)          Expenses. The Company will pay all expenses associated with
effecting the registration of the Registrable Securities, including filing and
printing fees, the Company’s counsel and accounting fees and expenses, costs
associated with clearing the Registrable Securities for sale under applicable
state securities laws, listing fees, and, subject to Section 4(g) of the
Purchase Agreement, fees and expenses of one counsel to the Buyers, but
excluding discounts, commissions, fees of underwriters, selling brokers, dealer
managers or similar securities industry professionals with respect to the
Registrable Securities being sold.

 

(c)          Effectiveness.

 

(i)          The Company shall use its reasonable best efforts to have the
Registration Statement declared effective as soon as practicable. The Company
shall notify the Buyers by facsimile or e-mail as promptly as practicable, and
in any event, within twenty-four (24) hours, after any Registration Statement is
declared effective and shall simultaneously provide the Buyers with copies of
any related Prospectus to be used in connection with the sale or other
disposition of the securities covered thereby. If (A) a Registration Statement
covering the Registrable Securities is not declared effective by the SEC prior
to the earlier of (i) five (5) Business Days after the SEC shall have informed
the Company that no review of the Registration Statement will be made or that
the SEC has no further comments on the Registration Statement or (ii) the 90th
day after the Closing Date (the 120th day if the SEC reviews the Registration
Statement) (the “Effectiveness Deadline”) or (B) after a Registration Statement
has been declared effective by the SEC, sales cannot be made pursuant to such
Registration Statement for any reason (including without limitation by reason of
a stop order, or the Company’s failure to update the Registration Statement),
other than because of (i) an Allowed Delay (as defined below) or (ii) the
inability of any Buyer to sell the Registrable Securities covered thereby due to
market conditions, then the Company will make pro rata payments to each Buyer,
as liquidated damages and not as a penalty, in an amount equal to 1.5% of the
aggregate amount invested by such Buyer pursuant to the Purchase Agreement (or
the purchase price of the Registrable Securities purchased by any Person not an
original party to this Agreement) for each 30-day period (or pro rata for any
portion thereof) following the Effectiveness Deadline (the “Blackout Period”).
Such payments shall constitute the Buyers’ exclusive monetary remedy for such
events, but shall not affect the right of the Buyers to seek injunctive relief.
The amounts payable as liquidated damages pursuant to this paragraph shall be
paid monthly within three (3) Business Days of the last day of each month
following the commencement of the Blackout Period until the termination of the
Blackout Period. Such payments shall be made to each Buyer in cash.

 

-3-

 

 

(ii)         For not more than twenty (20) consecutive days or for a total of
not more than forty-five (45) days in any twelve (12) month period, the Company
may suspend the use of any Prospectus included in any Registration Statement
contemplated by this Section in the event that the Company determines in good
faith that such suspension is necessary to (A) delay the disclosure of material
non-public information concerning the Company, the disclosure of which at the
time is not, in the good faith opinion of the Company, in the best interests of
the Company or (B) amend or supplement the affected Registration Statement or
the related Prospectus so that such Registration Statement or Prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the case of the Prospectus in light of the circumstances under which they
were made, not misleading (an “Allowed Delay”); provided that the Company shall
promptly (a) notify each Buyer in writing of the commencement of an Allowed
Delay, but shall not (without the prior written consent of an Buyer) disclose to
such Buyer any material non-public information giving rise to an Allowed Delay,
(b) advise the Buyers in writing to cease all sales under the Registration
Statement until the end of the Allowed Delay and (c) use its reasonable best
efforts to terminate an Allowed Delay as promptly as practicable.

 

(d)          Rule 415; Cutback If at any time the SEC takes the position that
the offering of some or all of the Registrable Securities in a Registration
Statement is not eligible to be made on a delayed or continuous basis under the
provisions of Rule 415 under the 1933 Act or requires any Buyer to be named as
an “underwriter”, the Company shall use its best efforts to persuade the SEC
that the offering contemplated by the Registration Statement is a valid
secondary offering and not an offering “by or on behalf of the issuer” as
defined in Rule 415 and that none of the Buyers is an “underwriter”. The Buyers
shall have the right to participate or have their counsel participate in any
meetings or discussions with the SEC regarding the SEC’s position and to comment
or have their counsel comment on any written submission made to the SEC with
respect thereto. No such written submission shall be made to the SEC to which
the Buyers’ counsel reasonably objects. In the event that, despite the Company’s
best efforts and compliance with the terms of this Section 2(d), the SEC refuses
to alter its position, the Company shall (i) remove from the Registration
Statement such portion of the Registrable Securities (the “Cut Back Shares”)
and/or (ii) agree to such restrictions and limitations on the registration and
resale of the Registrable Securities as the SEC may require to assure the
Company’s compliance with the requirements of Rule 415 (collectively, the “SEC
Restrictions”); provided, however, that the Company shall not agree to name any
Buyer as an “underwriter” in such Registration Statement without the prior
written consent of such Buyer. Any cut-back imposed on the Buyers pursuant to
this Section 2(d) shall be allocated among the Buyers on a pro rata basis,
unless the SEC Restrictions otherwise require or provide or the Buyers otherwise
agree. No liquidated damages shall accrue as to any Cut Back Shares until such
date as the Company is able to effect the registration of such Cut Back Shares
in accordance with any SEC Restrictions (such date, the “Restriction Termination
Date” of such Cut Back Shares). From and after the Restriction Termination Date
applicable to any Cut Back Shares, all of the provisions of this Section 2
(including the liquidated damages provisions) shall again be applicable to such
Cut Back Shares; provided, however, that (i) the Filing Deadline for the
Registration Statement including such Cut Back Shares shall be ten (10) Business
Days after such Restriction Termination Date, and (ii) the date by which the
Company is required to obtain effectiveness with respect to such Cut Back Shares
under Section 2(c) shall be the 90th day immediately after the Restriction
Termination Date.

 

-4-

 

 

(e)          Right to Piggyback Registration.

 

(i)          If at any time following the date of this Agreement that any
Registrable Securities remain outstanding (A) there is not one or more effective
Registration Statements covering all of the Registrable Securities and (B) the
Company proposes for any reason to register any shares of Common Stock under the
1933 Act (other than pursuant to a registration statement on Form S-4 or Form
S-8 (or a similar or successor form)) with respect to an offering of Common
Stock by the Company for its own account or for the account of any of its
stockholders, it shall at each such time promptly give written notice to the
holders of the Registrable Securities of its intention to do so (but in no event
less than thirty (30) days before the anticipated filing date) and, to the
extent permitted under the provisions of Rule 415 under the 1933 Act, include in
such registration all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within fifteen (15) days
after receipt of the Company’s notice (a “Piggyback Registration”). Such notice
shall offer the holders of the Registrable Securities the opportunity to
register such number of shares of Registrable Securities as each such holder may
request and shall indicate the intended method of distribution of such
Registrable Securities.

 

(ii)         Notwithstanding the foregoing, (A) if such registration involves an
underwritten public offering, the Buyers must sell their Registrable Securities
to, if applicable, the underwriter(s) at the same price and subject to the same
underwriting discounts and commissions that apply to the other securities sold
in such offering (it being acknowledged that the Company shall be responsible
for other expenses as set forth in Section 2(b)) and subject to the Buyers
entering into customary underwriting documentation for selling stockholders in
an underwritten public offering, and (B) if, at any time after giving written
notice of its intention to register any Registrable Securities pursuant to
Section 2(e)(i) and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason not to cause such registration statement to become effective under the
1933 Act, the Company shall deliver written notice to the Buyers and, thereupon,
shall be relieved of its obligation to register any Registrable Securities in
connection with such registration; provided, however, that nothing contained in
this Section 2(e)(ii) shall limit the Company’s liabilities and/or obligations
under this Agreement, including, without limitation, the obligation to pay
liquidated damages under this Section 2.

 

-5-

 

 

(iii)        If, in connection with any underwritten public offering for the
account of the Company or for stockholders of the Company that have contractual
rights to require the Company to register shares of Common Stock, the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in a Registration Statement because, in the
judgment of such underwriter(s), marketing or other factors dictate such
limitation is necessary to facilitate such offering, then the Company shall be
obligated to include in the Registration Statement only such limited portion of
the Registrable Securities with respect to which each Buyer has requested
inclusion hereunder as such underwriter(s) shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Buyers seeking to
include Registrable Securities in a Registration Statement, in proportion to the
number of Registrable Securities sought to be included by such Buyers; provided,
however, that the Company shall not exclude any Registrable Securities unless
the Company has first excluded all outstanding securities, the holders of which
are not entitled to inclusion of such securities in the Registration Statement
or are not entitled to pro rata inclusion with the Registrable Securities; and
provided further that, after giving effect to the immediately preceding proviso,
any exclusion of Registrable Securities shall be made pro rata with holders of
other securities having the right to include such securities in the Registration
Statement.

 

3.           Company Obligations. The Company will use its reasonable best
efforts to effect the registration of the Registrable Securities in accordance
with the terms hereof, and pursuant thereto the Company will, as expeditiously
as possible:

 

(a)          use its reasonable best efforts to cause such Registration
Statement to become effective and to remain continuously effective for a period
that will terminate upon the earlier of (i) the date on which all Registrable
Securities covered by such Registration Statement as amended from time to time,
have been sold, and (ii) the date on which all Registrable Securities covered by
such Registration Statement may be sold without restriction pursuant to Rule 144
by the holders thereof (the “Effectiveness Period”) and advise the Buyers in
writing when the Effectiveness Period has expired;

 

(b)          prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement and the Prospectus as may be necessary
to keep the Registration Statement effective for the Effectiveness Period and to
comply with the provisions of the 1933 Act and the 1934 Act with respect to the
distribution of all of the Registrable Securities covered thereby;

 

(c)          provide copies to and permit counsel designated by the Buyers to
review each Registration Statement and all amendments and supplements thereto no
fewer than seven (7) days prior to their filing with the SEC and not file any
document to which such counsel reasonably objects;

 

(d)          furnish to the Buyers and their legal counsel (i) promptly after
the same is prepared and publicly distributed, filed with the SEC, or received
by the Company (but not later than two (2) Business Days after the filing date,
receipt date or sending date, as the case may be) one (1) copy of any
Registration Statement and any amendment thereto, each preliminary prospectus
and Prospectus and each amendment or supplement thereto, and each letter written
by or on behalf of the Company to the SEC or the staff of the SEC, and each item
of correspondence from the SEC or the staff of the SEC, in each case relating to
such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought confidential treatment),
and (ii) such number of copies of a Prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents
as each Buyer may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such Buyer that are covered by the related
Registration Statement;

 

-6-

 

 

(e)          use its reasonable best efforts to (i) prevent the issuance of any
stop order or other suspension of effectiveness and, (ii) if such order is
issued, obtain the withdrawal of any such order at the earliest possible moment;

 

(f)          prior to any public offering of Registrable Securities, use its
reasonable best efforts to register or qualify or cooperate with the Buyers and
their counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions requested by the Buyers and do any and all other
commercially reasonable acts or things necessary or advisable to enable the
distribution in such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (i) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(f), (ii) subject itself to general taxation in any
jurisdiction where it would not otherwise be so subject but for this Section
3(f), or (iii) file a general consent to service of process in any such
jurisdiction;

 

(g)          use its reasonable best efforts to cause all Registrable Securities
covered by a Registration Statement to be listed on each securities exchange,
interdealer quotation system or other market on which similar securities issued
by the Company are then listed;

 

(h)          immediately notify the Buyers, at any time prior to the end of the
Effectiveness Period, upon discovery that, or upon the happening of any event as
a result of which, the Prospectus includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and promptly prepare, file with the SEC and furnish
to such holder a supplement to or an amendment of such Prospectus as may be
necessary so that such Prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;

 

(i)          otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act,
including, without limitation, Rule 172 under the 1933 Act, file any final
Prospectus, including any supplement or amendment thereof, with the SEC pursuant
to Rule 424 under the 1933 Act, promptly inform the Buyers in writing if, at any
time during the Effectiveness Period, the Company does not satisfy the
conditions specified in Rule 172 and, as a result thereof, the Buyers are
required to deliver a Prospectus in connection with any disposition of
Registrable Securities and take such other actions as may be reasonably
necessary to facilitate the registration of the Registrable Securities
hereunder; and make available to its security holders, as soon as reasonably
practicable, but not later than the Availability Date (as defined below), an
earnings statement covering a period of at least twelve (12) months, beginning
after the effective date of each Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the 1933 Act,
including Rule 158 promulgated thereunder (for the purpose of this subsection
3(i), “Availability Date” means the 45th day following the end of the fiscal
quarter that includes the effective date of such Registration Statement, except
that, if quarter is the last quarter of the Company’s fiscal year, “Availability
Date” means the 90th day after the end of such fiscal year); and

 

-7-

 

 

(j)          with a view to making available to the Buyers the benefits of Rule
144 (or its successor rule) and any other rule or regulation of the SEC that may
at any time permit the Buyers to sell Registrable Securities to the public
without registration, the Company covenants and agrees to: (i) make and keep
public information available, as those terms are understood and defined in Rule
144, until the earlier of (A) six months after such date as all of the
Registrable Securities may be sold without restriction by the holders thereof
pursuant to Rule 144 or any other rule of similar effect or (B) such date as all
of the Registrable Securities shall have been resold; (ii) file with the SEC in
a timely manner all reports and other documents required of the Company under
the 1934 Act; and (iii) furnish to each Buyer upon request, as long as such
Buyer owns any Registrable Securities, (A) a written statement by the Company
that it has complied with the reporting requirements of the 1934 Act, (B) a copy
of the Company’s most recent Annual Report on Form 10-K or Quarterly Report on
Form 10-Q, and (C) such other information as may be reasonably requested in
order to avail such Buyer of any rule or regulation of the SEC that permits the
selling of any such Registrable Securities without registration.

 

4.            Due Diligence Review; Information. The Company shall make
available, during normal business hours, for inspection and review by the
Buyers, advisors to and representatives of the Buyers (who may or may not be
affiliated with the Buyers and who are reasonably acceptable to the Company),
all financial and other records, all SEC Filings (as defined in the Purchase
Agreement) and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company’s officers, directors and employees, within a
reasonable time period, to supply all such information reasonably requested by
the Buyers or any such representative, advisor or underwriter in connection with
such Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Buyers and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of such Registration Statement; provided, however, that
the Company shall not disclose material nonpublic information to the Buyers, or
to advisors to or representatives of the Buyers, unless prior to disclosure of
such information the Company identifies such information as being material
nonpublic information and provides the Buyers, such advisors and representatives
with the opportunity to accept or refuse to accept such material nonpublic
information for review and any Buyer wishing to obtain such information enters
into an appropriate confidentiality agreement with the Company with respect
thereto.

 

5.            Obligations of the Buyers.

 

(a)          Each Buyer shall furnish in writing to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it, as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. At least five (5) Business Days prior to the first
anticipated filing date of any Registration Statement, the Company shall notify
each Buyer of the information the Company requires from such Buyer if such Buyer
elects to have any of the Registrable Securities included in the Registration
Statement. An Buyer shall provide such information to the Company at least two
(2) Business Days prior to the first anticipated filing date of such
Registration Statement if such Buyer elects to have any of the Registrable
Securities included in the Registration Statement.

 

-8-

 

 

 

(b)          Each Buyer, by its acceptance of the Registrable Securities, agrees
to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of a Registration Statement
hereunder, unless such Buyer has notified the Company in writing of its election
to exclude all of its Registrable Securities from such Registration Statement.

 

(c)          Each Buyer agrees that, upon receipt of any notice from the Company
of either (i) the commencement of an Allowed Delay pursuant to Section 2(c)(ii)
or (ii) the happening of an event pursuant to Section 3(h) hereof, such Buyer
will immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities, until the Buyer
is advised by the Company that such dispositions may again be made.

 

6.            Indemnification.

 

(a)          Indemnification by the Company. The Company will indemnify and hold
harmless each Buyer and its officers, directors, members, employees and agents,
successors and assigns, and each other Person, if any, who controls such Buyer
within the meaning of the 1933 Act, against any losses, claims, damages or
liabilities, joint or several, to which they may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement or omission or alleged omission of any
material fact contained in any Registration Statement, any preliminary
Prospectus or final Prospectus, or any amendment or supplement thereof; (ii) any
blue sky application or other document executed by the Company specifically for
that purpose or based upon written information furnished by the Company filed in
any state or other jurisdiction in order to qualify any or all of the
Registrable Securities under the securities laws thereof (any such application,
document or information herein called a “Blue Sky Application”); (iii) the
omission or alleged omission to state in a Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading; (iv) any violation by the Company or its agents of any rule or
regulation promulgated under the 1933 Act applicable to the Company or its
agents and relating to action or inaction required of the Company in connection
with such registration; or (v) any failure to register or qualify the
Registrable Securities included in any such Registration Statement in any state
where the Company or its agents has affirmatively undertaken or agreed in
writing that the Company will undertake such registration or qualification on an
Buyer’s behalf and will reimburse such Buyer, and each such officer, director or
member and each such controlling Person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such Buyer or any such controlling
Person in writing specifically for use in such Registration Statement or
Prospectus.

 

-9-

 

 

(b)          Indemnification by the Buyers. Each Buyer agrees, severally but not
jointly, to indemnify and hold harmless, to the fullest extent permitted by law,
the Company, its directors, officers, employees, stockholders and each Person
who controls the Company (within the meaning of the 1933 Act) against any
losses, claims, damages, liabilities and expense (including reasonable attorney
fees) resulting from any untrue statement of a material fact or any omission of
a material fact required to be stated in the Registration Statement or
Prospectus or preliminary Prospectus or amendment or supplement thereto or
necessary to make the statements therein not misleading, to the extent, but only
to the extent that such untrue statement or omission is contained in any
information furnished in writing by such Buyer to the Company specifically for
inclusion in such Registration Statement or Prospectus or amendment or
supplement thereto. In no event shall the liability of an Buyer be greater in
amount than the dollar amount of the proceeds (net of all expenses paid by such
Buyer in connection with any claim relating to this Section 6 and the amount of
any damages such Buyer has otherwise been required to pay by reason of such
untrue statement or omission) received by such Buyer upon the sale of the
Registrable Securities included in the Registration Statement giving rise to
such indemnification obligation.

 

(c)          Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder shall (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided that any Person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such Person unless (a) the indemnifying party
has agreed to pay such fees or expenses, or (b) the indemnifying party shall
have failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such Person or (c) in the reasonable judgment of any such
Person, based upon written advice of its counsel, a conflict of interest exists
between such Person and the indemnifying party with respect to such claims (in
which case, if the Person notifies the indemnifying party in writing that such
Person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such Person); and provided, further, that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations hereunder, except to the extent that such
failure to give notice shall materially adversely affect the indemnifying party
in the defense of any such claim or litigation. It is understood that the
indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm of
attorneys at any time for all such indemnified parties. No indemnifying party
will, except with the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation.

 

-10-

 

 

(d)          Contribution. If for any reason the indemnification provided for in
the preceding paragraphs (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless, other than as expressly specified therein,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the
indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. No Person guilty of fraudulent misrepresentation
within the meaning of Section 11(f) of the 1933 Act shall be entitled to
contribution from any Person not guilty of such fraudulent misrepresentation. In
no event shall the contribution obligation of a holder of Registrable Securities
be greater in amount than the dollar amount of the proceeds (net of all expenses
paid by such holder in connection with any claim relating to this Section 6 and
the amount of any damages such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission) received by it upon the sale of the Registrable Securities giving rise
to such contribution obligation.

 

7.            Miscellaneous.

 

(a)          Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Required Buyers. Any amendment
or waiver effected in accordance with this Section 7(a) shall be binding upon
each holder of any Registrable Securities at the time outstanding, each future
holder of any Registrable Securities, and the Company. The Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company shall have obtained the written consent to
such amendment, action or omission to act, of the Required Buyers.

 

(b)          Notices. All notices and other communications provided for or
permitted hereunder shall be made as set forth in Section 9(f) of the Purchase
Agreement.

 

(c)          Assignments and Transfers by Buyers. The provisions of this
Agreement shall be binding upon and inure to the benefit of the Buyers and their
respective successors and assigns. An Buyer may transfer or assign, in whole or
from time to time in part, to one or more Persons its rights hereunder in
connection with the transfer of Registrable Securities by such Buyer to such
Person, provided that such Buyer complies with all laws applicable thereto and
provides written notice of assignment to the Company promptly after such
assignment is effected.

 

(d)          Assignments and Transfers by the Company. This Agreement may not be
assigned by the Company (whether by operation of law or otherwise) without the
prior written consent of the Required Buyers, provided, however, that in the
event that the Company is a party to a merger, consolidation, share exchange or
similar business combination transaction in which the Common Stock is converted
into the equity securities of another Person, from and after the effective time
of such transaction, such Person shall, by virtue of such transaction, be deemed
to have assumed the obligations of the Company hereunder, the term “Company”
shall be deemed to refer to such Person and the term “Registrable Securities”
shall be deemed to include the securities received by the Buyers in connection
with such transaction unless such securities are otherwise freely tradable by
the Buyers after giving effect to such transaction.

 

-11-

 

 

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

 

(f)          Counterparts; Facsimile. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The exchange of copies of
this Agreement and of signature pages by facsimile or PDF transmission shall
constitute effective execution and delivery of this Agreement as to the Parties
and may be used in lieu of an original of this Agreement for all purposes.
Signatures of the Parties transmitted by facsimile or PDF transmission shall be
deemed to be their original signatures for all purposes.

 

(g)          Titles and Subtitles; Construction. The titles and subtitles used
in this Agreement are used for convenience only. They form no part of this
Agreement and shall not affect its construction or interpretation. All
references to Sections, subsections, paragraphs, clauses or other subdivisions
in this Agreement refer to the corresponding Sections, subsections, paragraphs,
clauses or other subdivisions of this Agreement. All words used in this
Agreement shall be construed to be of such gender or number as the circumstances
require. As used in this Agreement, the words “hereby”, “herein”, hereof”,
“hereunder” and words of similar import refer to this Agreement as a whole and
not to any particular provision of this Agreement.

 

(h)          Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provisions hereof prohibited or unenforceable in any respect.

 

(i)          Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

 

(j)          Entire Agreement. This Agreement and the Purchase Agreement,
together with its Exhibits and Disclosure Schedules, constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.

 

-12-

 

 

(k)          Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A
TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS
THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

[Signature Pages Follow]

 

-13-

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their
duly authorized officers to execute this Agreement as of the date first above
written.

 

The Company: CRUMBS BAKE SHOP, INC.           By:       Name: Julian Geiger  
Title: Chief Executive Officer

 

[Buyer Signature Page Immediately Follows]

 

-14-

 

 

Counterpart Signature Page

 

FOR ENTITY INVESTORS:   FOR INDIVIDUAL INVESTORS:             Signature:   [Name
of Entity]   Name:  

 

By:     Name:     Title:    

 

-15-

 

 

Exhibit A

 

Plan of Distribution

 

 

 

 

EXHIBIT C

FORM OF GUARANTY

 

GUARANTY

 

This Guaranty (the “Guaranty”) is made as of [__________], 2013, by such
guarantors listed on the signature pages hereof (collectively, jointly and
severally, “Guarantors,” and each, individually, a “Guarantor”), in favor of
each of the investors listed on the Schedule of Buyers attached to the
Securities Purchase Agreement (as defined herein) (each, individually, a “Buyer”
and together with their respective successors, assigns, endorsees and
transferees, the “Buyers”).

 

RECITALS

 

WHEREAS, pursuant to the Securities Purchase Agreements, dated as of April [25],
2013 (as amended, restated, supplemented, or otherwise modified from time to
time, including all schedules thereto, collectively, the “Securities Purchase
Agreement”), by and among Crumbs Bake Shop, Inc., a Delaware corporation
(“Parent”), and each of the Buyers, Parent has sold, and Buyers have purchased,
severally and not jointly, up to $10,000,000 principal amount of Notes;

 

WHEREAS, each Guarantor is a direct or indirect Subsidiary of Parent and will
receive direct and substantial benefits from the purchase by Buyers of the
Notes;

 

WHEREAS, in order to induce Buyers to purchase, severally and not jointly, the
Notes as provided for in the Securities Purchase Agreement, Parent has agreed to
cause its future Subsidiaries to jointly and severally guaranty all of Parent’s
obligations under and with respect to the Notes, the Securities Purchase
Agreement and the other Transaction Documents.

 

AGREEMENTS

 

NOW, THEREFORE, for and in consideration of the recitals made above and other
good and valuable consideration, the receipt, sufficiency and adequacy of which
are hereby acknowledged, each Guarantor hereby agrees as follows:

 

1.          Definitions. All capitalized terms used herein that are not
otherwise defined herein shall have the meanings given them in the Securities
Purchase Agreement.

 

2.          Guaranteed Obligations. Guarantors jointly and severally hereby
fully, irrevocably and unconditionally guaranty to Buyers the due and punctual
Satisfaction in Full of the Guaranteed Obligations (as defined below).
“Guaranteed Obligations” means, collectively, all of the present and future
payment obligations of each Obligor arising under the Securities Purchase
Agreement, any and all Notes payable to Buyer and the other Transaction
Documents, including, without limitation, reasonable attorneys’ fees and
expenses and any interest, fees, or expenses that accrue after the filing of an
Insolvency Proceeding, regardless of whether allowed or allowable in whole or in
part as a claim in any Insolvency Proceeding. “Insolvency Proceeding” means any
proceeding commenced by or against any Person under any provision of title 11 of
the United States Code, as in effect from time to time (the “Bankruptcy Code”),
or under any other state or federal bankruptcy or insolvency law or any
equivalent laws in any other jurisdiction, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.

 

 

 

 

3.          Guarantors’ Representations and Warranties. Each Guarantor
represents and warrants to Buyers that such Guarantor has received or expects to
derive substantial benefits from the Notes purchased under the Securities
Purchase Agreement and the other transactions contemplated hereby and by the
other Transaction Documents. Buyers may rely conclusively on a continuing
warranty, hereby made, that such Guarantor continues to be benefited by this
Guaranty and Buyers shall have no duty to inquire into or confirm the receipt of
any such benefits, and this Guaranty shall be effective and enforceable by
Buyers without regard to the receipt, nature or value of any such benefits.

 

4.          Unconditional Nature. No act or thing need occur to establish any
Guarantor’s liability hereunder, and no act or thing, except Satisfaction in
Full of the Guaranteed Obligations (as defined below), shall in any way
exonerate any Guarantor hereunder or modify, reduce, limit or release any
Guarantor’s liability hereunder. This is an absolute, unconditional and
continuing guaranty of payment of the Guaranteed Obligations and shall continue
to be in force and be binding upon each Guarantor until Satisfaction in Full of
the Guaranteed Obligations. Each Guarantor agrees that this Guaranty is a
guaranty of Satisfaction in Full of the Guaranteed Obligations and not of
collection, and that its obligations under this Guaranty shall be primary,
absolute and unconditional.  In addition to the terms set forth herein, it is
expressly understood and agreed that, if, at maturity and at any time during the
continuance of an Event of Default (as defined in the Notes), the outstanding
amount of the Guaranteed Obligations under the Transaction Documents (including,
without limitation, all accrued interest thereon, all accrued late charges
thereon and all premiums due in respect thereof) is declared to be immediately
due and payable, then Guarantors shall, within ten (10) days after notice of
such acceleration, without further demand, pay to each Buyer the entire
outstanding portion of the Guaranteed Obligations that is due and owing to such
Buyer.

 

5.          Subrogation. No Guarantor will exercise or enforce any right of
contribution, reimbursement, recourse or subrogation available to such Guarantor
as to any of the Guaranteed Obligations, or against any Person liable therefor,
or as to any collateral security therefor, unless and until Satisfaction in Full
of the Guaranteed Obligations.

 

6.          Enforcement Expenses. Each Guarantor shall pay or reimburse each
Buyer for all costs, expenses and reasonable attorneys’ fees paid or incurred by
such Buyer in endeavoring to collect and enforce the Guaranteed Obligations and
in enforcing this Guaranty.

 

2

 

 

7.          Obligations Absolute. Each Guarantor agrees that its obligations
hereunder are irrevocable, absolute, independent and unconditional and shall not
be affected by any circumstance which constitutes a legal or equitable discharge
of a guarantor or surety other than Satisfaction in Full of the Guaranteed
Obligations. In furtherance of the foregoing and without limiting the generality
thereof, each Guarantor agrees that none of its obligations hereunder shall be
affected or impaired by any of the following acts or things (which each Buyer is
expressly authorized to do, omit or suffer from time to time, without consent or
approval by or notice to any Guarantor): (a) any acceptance of collateral
security, guarantors, accommodation parties or sureties for any or all of the
Guaranteed Obligations; (b) one or more extensions or renewals of the Guaranteed
Obligations (whether or not for longer than the original period) or any
modification of the interest rates, maturities, if any, or other contractual
terms applicable to any of the Guaranteed Obligations or any amendment or
modification of any of the terms or provisions of any of the Transaction
Documents; (c) any waiver or indulgence granted to Parent or any other Obligor,
any delay or lack of diligence in the enforcement of the Guaranteed Obligations,
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Guaranteed Obligations; (d) any full or partial
release of, compromise or settlement with, or agreement not to sue, Parent, any
other Obligor or any other Person liable in respect of any of the Guaranteed
Obligations; (e) any release, surrender, cancellation or other discharge of any
evidence of the Guaranteed Obligations or the acceptance of any instrument in
renewal or substitution therefor; (f) any failure to obtain collateral security
(including rights of setoff) for the Guaranteed Obligations, or to see to the
proper or sufficient creation and perfection thereof, or to establish the
priority thereof, or to preserve, protect, insure, care for, exercise or enforce
any collateral security; or any modification, alteration, substitution,
exchange, surrender, cancellation, termination, release or other change,
impairment, limitation, loss or discharge of any collateral security; (g) any
collection, sale, lease or disposition of, or any other foreclosure or
enforcement of or realization on, any collateral security; (h) any assignment,
pledge or other transfer of any of the Guaranteed Obligations or any evidence
thereof; or (i) any manner, order or method of application of any payments or
credits upon the Guaranteed Obligations. Each Guarantor waives any and all
defenses and discharges available to a surety, guarantor or accommodation
co-obligor.

 

8.          Waivers by Guarantors. Each Guarantor waives any and all defenses,
claims, setoffs and discharges of, and/or against, Parent, or any other Obligor
or Person (including, without limitation, Buyer), pertaining to the Guaranteed
Obligations, except the defense of discharge by indefeasible satisfaction and
discharge in full. Without limiting the generality of the foregoing, no
Guarantor will assert, plead or enforce against any Buyer any defense of waiver,
release, discharge or disallowance in any Insolvency Proceeding, statute of
limitations, res judicata, statute of frauds, anti-deficiency statute, fraud,
incapacity, minority, usury, illegality or unenforceability which may be
available to Parent or any other Obligor or Person liable in respect of any of
the Guaranteed Obligations, or any setoff available to any Buyer against Parent
or any other such Obligor or Person, whether or not on account of a related
transaction. Each Guarantor expressly agrees that such Guarantor shall be and
remain liable for any deficiency remaining after foreclosure of any mortgage or
security interest securing the Guaranteed Obligations, whether or not the
liability of Parent or any other Obligor or Person for such deficiency is
discharged pursuant to statute or judicial decision. The liability of each
Guarantor shall not be affected or impaired by, and each Guarantor waives and
agrees it shall not at any time insist upon, plead or in any manner claim or
take the benefit of, any voluntary or involuntary liquidation, dissolution, sale
or other disposition of all or substantially all of the assets, marshalling of
assets and liabilities, any valuation, appraisal, stay, receivership,
insolvency, bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of, or other similar event or
proceeding affecting, Parent or any of its assets. No Guarantor will assert,
plead or enforce against any Buyer any claim, defense or setoff available to
such Guarantor against Parent. Except as otherwise provided herein, each
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Guaranteed Obligations.
Buyers shall not be required first to resort for payment of the Guaranteed
Obligations to Parent or any other Person, or their properties, or first to
enforce, realize upon or exhaust any collateral security for the Guaranteed
Obligations, before enforcing this Guaranty.

 

3

 

 

9.           If Payments Set Aside, etc. If any payment applied by a Buyer to
the Guaranteed Obligations is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of Parent or any other Obligor or
Person), the Guaranteed Obligations to which such payment was applied shall for
the purpose of this Guaranty be deemed to have continued in existence,
notwithstanding such application, and this Guaranty shall be enforceable as to
such Guaranteed Obligations as fully as if such application had never been made.

 

10.         Additional Obligation of Guarantors. Each Guarantor’s liability
under this Guaranty is in addition to and shall be cumulative with all other
liabilities of such Guarantor to Buyers as guarantor, surety, endorser,
accommodation co-obligor or otherwise of any of the Guaranteed Obligations,
without any limitation as to amount.

 

11.         No Duties Owed by Buyer. Each Guarantor acknowledges and agrees that
Buyers (a) have not made any representations or warranties with respect to,
(b) do not assume any responsibility to such Guarantor for, and (c) have no duty
to provide information to such Guarantor regarding, the enforceability of any of
the Guaranteed Obligations or the financial condition of Parent or any other
Obligor or Person. Each Guarantor has independently determined the
creditworthiness of Parent and the enforceability of the Guaranteed Obligations
and until Satisfaction in Full of the Guaranteed Obligations will independently,
and without reliance on any Buyer, continues to make such determinations.

 

12.         Miscellaneous.

 

(a)          This Guaranty may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such signature page
were an original thereof. Any party delivering an executed counterpart of this
Guaranty by facsimile or other electronic method of transmission also shall
deliver an original executed counterpart of this Guaranty but the failure to
deliver an original executed counterpart shall not affect the validity,
enforceability, and binding effect of this Guaranty.

 

(b)          Any provision of this Guaranty which is prohibited or unenforceable
shall be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof in that jurisdiction or
affecting the validity or enforceability of such provision in any other
jurisdiction.

 

(c)          Headings used in this Guaranty are for convenience only and shall
not be used in connection with the interpretation of any provision hereof.

 

4

 

 

(d)          The pronouns used herein shall include, when appropriate, either
gender and both singular and plural, and the grammatical construction of
sentences shall conform thereto.

 

(e)          Unless the context of this Guaranty or any other Transaction
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the terms “includes”
and “including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.” The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Guaranty or
any other Transaction Document refer to this Guaranty or such other Transaction
Document, as the case may be, as a whole and not to any particular provision of
this Guaranty or such other Transaction Document, as the case may be. Section,
subsection, clause, schedule, and exhibit references herein are to this Guaranty
unless otherwise specified. Any reference in this Guaranty or in any other
Transaction Document to any agreement, instrument, or document shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements, thereto and thereof, as
applicable (subject to any restrictions on such alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements set forth herein). “Satisfaction in Full of the
Guaranteed Obligations” shall mean the indefeasible payment in full in cash and
discharge, or other satisfaction in accordance with the terms of the Transaction
Documents and discharge, of all Guaranteed Obligations in full.

 

(f)          This Guaranty shall become effective as to each Guarantor upon
execution by such Guarantor and delivery to each Buyer, without further act,
condition or acceptance by such Buyer, and shall be binding upon each such
Guarantor and the successors and assigns of each such Guarantor, and shall inure
to the benefit of each Buyer and its participants, successors and assigns. This
Guaranty may not be waived, modified, amended, terminated, released or otherwise
changed except by a writing signed by each Guarantor and each Buyer.

 

(g)          The language used in this Guaranty will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party. For clarification
purposes, the Recitals are part of this Guaranty.

 

(h)          All dollar amounts referred to in this Guaranty and the other
Transaction Documents (as defined in the Securities Purchase Agreement) are in
United States Dollars (“U.S. Dollars”), and all amounts owing under this
Guaranty and all other Transaction Documents shall be paid in U.S. Dollars. All
amounts denominated in other currencies shall be converted into the U.S. Dollar
equivalent amount in accordance with the Exchange Rate on the date of
calculation. “Exchange Rate” means, in relation to any amount of currency to be
converted into U.S. Dollars pursuant to this Guaranty, the U.S. Dollar exchange
rate as published in the Wall Street Journal on the relevant date of
calculation.

 

5

 

 

(i)          Judgment Currency.

 

(i)          If for the purpose of obtaining or enforcing judgment against any
Guarantor in any court in any jurisdiction it becomes necessary to convert into
any other currency (such other currency being hereinafter in this Section 12(i)
referred to as the “Judgment Currency”) an amount due in U.S. Dollars under this
Guaranty or any other Transaction Document, the conversion shall be made at the
Exchange Rate prevailing on the Trading Day (as defined in the Note) immediately
preceding: (1) the date actual payment of the amount due, in the case of any
proceeding in the courts of New York or in the courts of any other jurisdiction
that will give effect to such conversion being made on such date or (2) the date
on which the foreign court determines, in the case of any proceeding in the
courts of any other jurisdiction (the date as of which such conversion is made
pursuant to this Section 12(i)(i) being hereinafter referred to as the “Judgment
Conversion Date”).

 

(ii)         If in the case of any proceeding in the court of any jurisdiction
referred to in Section 12(i)(i) above, there is a change in the Exchange Rate
prevailing between the Judgment Conversion Date and the date of actual payment
of the amount due, the applicable party shall pay such adjusted amount as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the Exchange Rate prevailing on the date of payment, will produce
the amount of U.S. Dollars which could have been purchased with the amount of
Judgment Currency stipulated in the judgment or judicial order at the Exchange
Rate prevailing on the Judgment Conversion Date.

 

(iii)        Any amount due from any Guarantor under this provision shall be due
as a separate debt and shall not be affected by judgment being obtained for any
other amounts due under or in respect of this Guaranty or any other Transaction
Document.

 

(j)          Taxes.

 

(i)          Any and all payments by any Guarantor hereunder or under any other
Transaction Document shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, imposed under any
applicable law (collectively referred to as “Taxes”) unless the applicable
Guarantor is required to withhold or deduct any amounts for, or on account of,
Taxes pursuant to any applicable law. If such Guarantor shall be required to
withhold or deduct any Taxes from or in respect of any sum payable hereunder to
Buyer, (i) the sum payable shall be increased by the amount by which the sum
payable would otherwise have to be increased (the “tax make-whole amount”) to
ensure that after making all required withholdings and deductions (including
deductions applicable to the tax make-whole amount) each Buyer would receive an
amount equal to the sum it would have received had no such deductions been made,
(ii) such Guarantor shall make such deductions and (iii) such Guarantor shall
pay the full amount withheld or deducted to the relevant governmental authority
within the time required.

 

6

 

 

(ii)         In addition, each Guarantor agrees to pay to the relevant
governmental authority in accordance with applicable law any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or in connection with
the execution, delivery, registration or performance of, or otherwise with
respect to, this Guaranty and the other Transaction Documents (“Other Taxes”).

 

(iii)        Each Guarantor shall deliver to Buyers official receipts, if any,
in respect of any Taxes and Other Taxes payable hereunder promptly after payment
of such Taxes and Other Taxes or other evidence of payment reasonably acceptable
to Buyer.

 

(iv)        If a Guarantor fails to pay any amounts in accordance with this
Section 12(j), such Guarantor shall indemnify Buyers within ten (10) calendar
days after written demand therefor, for the full amount of any Taxes or Other
Taxes, plus any related interest or penalties, that are paid by Buyers to the
relevant governmental authority or other relevant governmental authority as a
result of such failure.

 

(v)         The obligations of each Guarantor under this Section 12(j) shall
survive the termination of this Guaranty and the Satisfaction in Full of the
Guaranteed Obligations.

 

13.         Notices. All notices and other communications provided for hereunder
shall be given in the form and manner, and delivered to such addresses, as
specified in the Securities Purchase Agreement.

 

14.         Governing Law; Jurisdiction; Service of Process; Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Guaranty shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of
New York. Each Guarantor hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper; provided, however, any suit seeking enforcement of this Guaranty may
be brought, at a Buyer’s option, in the courts of any jurisdiction where such
Buyer elects to bring such action. Each Guarantor hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Guaranty and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Without limitation of the foregoing, each Guarantor hereby irrevocably appoints
Parent as such Guarantor’s agent for purposes of receiving and accepting any
service of process hereunder. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. EACH
GUARANTOR HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

  

[signature page follows]

 

7

 

 

IN WITNESS WHEREOF, this Guaranty has been duly executed by each Guarantor as of
the date set forth above.

 

  CRUMBS HOLDINGS LLC, a Delaware limited liability company         By:    
Name:     Title:           [_______________], a [________] corporation        
By:     Name:     Title:  

 

 

 

 

EXHIBIT D

ACCREDITED INVESTOR LETTER

 

___________, 2013

 

Crumbs Bake Shop, Inc.

110 West 40th Street, Suite 2100

New York, NY 10018

 

Ladies and Gentlemen:

 

In connection with the possible purchase by the undersigned Buyer of senior
unsecured convertible promissory notes (the “Notes”) of Crumbs Bake Shop, Inc.
(the “Company”) in a transaction exempt from the registration requirements of
the Securities Act of 1933, as amended (the “1933 Act”), the undersigned
Investor makes the following representations and warranties to the Company:

 

1.          The Investor is an “accredited investor” within the meaning of Rule
501 of Regulation D under the 1933 Act, and has checked the box(es) below which
are next to the category or categories under which the Investor qualifies as an
accredited investor:

 

For Individuals

 

¨         A natural person whose individual net worth, or joint net worth with
that person’s spouse, at the time of his purchase exceeds $1,000,000. For such
purposes, the value of one’s primary residence should not be counted as an asset
and the amount of the mortgage on such primary residence, to the extent that it
does not exceed the value of the residence, should not be counted as a
liability.

 

¨         A natural person with individual income (without including any income
of the Investor’s spouse) in excess of $200,000, or joint income with spouse in
excess of $300,000, in each of the two most recent years and who reasonably
expects to reach the same income level in the current year.

 

For Entities

 

¨         An entity, including a grantor trust, in which all of the equity
owners are accredited investors (for this purpose, a beneficiary of a trust is
not an equity owner, but the grantor of a grantor trust is an equity owner).

 

¨         A corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring Notes, or an
organization described in Section 501(c)(3) of the Internal Revenue Code, with
total assets in excess of $5 million.

 

¨         A bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity.

 

¨       An insurance company as defined in Section 2(a)(13) of the Securities
Act.

 

¨         A broker-dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934.

 

¨       An investment company registered under the Investment Company Act of
1940 (the “Investment Company Act”).

 

¨         A business development company as defined in Section 2(a)(48) of the
Investment Company Act of 1940.

 

 

 

 

¨       A small business investment company licensed by the Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958.

 

¨         A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.

 

¨         A trust with total assets in excess of $5 million not formed for the
specific purpose of acquiring Notes, whose purchase is directed by a person with
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of an investment in the Notes.

 

¨         An employee benefit plan within the meaning of ERISA if the decision
to invest in the Company is made by a plan fiduciary, as defined in Section
3(21) of ERISA, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5 million or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.

 

¨       A plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if the plan has total assets in
excess of $5 million.

 

2.          The Investor, if a natural person, has his or her principal
residence in the State of _________________; and, if an entity, has its
principal office in the State of _________________.

 

3.          As of the date hereof and prior to the possible investment, the
Investor beneficially owns (as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) ____________ shares of the
Company’s common stock.

 

The Investor understands and agrees that the Company will rely on the foregoing
representations and warranties in consummating the possible sale and purchase of
the Notes.

 

  Sincerely yours,       FOR INDIVIDUAL INVESTORS:       Signature:     Name:  

 

  FOR ENTITY INVESTORS:           [Name of Entity]

 

  By:     Name:     Title:  

 

 

 

 

CRUMBS BAKE SHOP, INC. DISCLOSURE SCHEDULES

 

The disclosures made in these Disclosure Schedules are made pursuant to Section
3 of the attached Securities Purchase Agreement, dated as of April 29, 2013, by
and between Crumbs Bake Shop, Inc. (the “Company”) and each of the Investors
identified therein (the “Agreement”). Capitalized terms used but not defined in
these Disclosure Schedules shall have the meanings given such terms in the
Agreement.

 

Nothing in these Disclosure Schedules is intended to broaden the scope of any
representation or warranty of the Company contained in the Agreement or to
create any covenant on the part of the Company. Inclusion of any item in these
Disclosure Schedules shall not constitute or be deemed to be an admission to any
third party concerning such item by the Company or any Subsidiary.

 

These Disclosure Schedules are arranged and numbered to correspond with the
subsections of Section 3 of the Agreement.

 

 

 

 

SCHEDULE 3(a) - LIST OF SUBSIDIARIES

 

Crumbs Holdings LLC, a Delaware limited liability company

Crumbs 17th Street, LLC, a District of Columbia limited liability company

Crumbs 42nd Street, LLC, a New York limited liability company

Crumbs 92nd Street, LLC, a New York limited liability company

Crumbs Americana, LLC, a California limited liability company

Crumbs Beverly Hills, LLC, a California limited liability company

Crumbs Broad Street, LLC, a New York limited liability company

Crumbs Broadway LLC, a New York limited liability company

Crumbs Brooklyn Heights LLC, a New York limited liability company

Crumbs Calabasas, LLC, a California limited liability company

Crumbs Catering LLC, a New York limited liability company

Crumbs Clarendon LLC, a Virginia limited liability company

Crumbs Columbia LLC, a New York limited liability company (f/k/a Crumbs 125th
Street, LLC)

Crumbs Columbus LLC, a New York limited liability company

Crumbs Douglaston Plaza, LLC, a New York limited liability company

Crumbs Downtown II, LLC, a New York limited liability company

Crumbs East Bakeshop II, LLC, a New York limited liability company

Crumbs East End, LLC, a District of Columbia limited liability company

Crumbs E-Commerce LLC, a New York limited liability company

Crumbs Federal Street LLC, a Delaware limited liability company

Crumbs Garment Center LLC, a New York limited liability company

Crumbs Grand Central LLC, a New York limited liability company

Crumbs Greenvale LLC, a New York limited liability company

Crumbs Greenwich, LLC, a Connecticut limited liability company

Crumbs Hoboken, LLC, a New Jersey limited liability company

Crumbs Hollywood LLC, a California limited liability company

Crumbs Huntington LLC, a New York limited liability company

Crumbs II, LLC, a New York limited liability company

Crumbs International Place, LLC, a Delaware limited liability company

Crumbs L Street, LLC, a District of Columbia limited liability company

Crumbs Larchmont, LLC, a California limited liability company

Crumbs LaSalle, LLC, an Illinois limited liability company

Crumbs L’Enfant Plaza, LLC, a District of Columbia limited liability company

Crumbs Lexington LLC, a New York limited liability company

Crumbs Madison LLC, a New York limited liability company

Crumbs Malibu, LLC, a California limited liability company

Crumbs Newark LLC, a New Jersey limited liability company

Crumbs New Canaan, LLC, a California limited liability company

Crumbs Oak Park, LLC, an Illinois limited liability company

Crumbs Park Avenue LLC, a New York limited liability company

Crumbs Park Avenue South, LLC, a New York limited liability company

Crumbs Queens Center, LLC, a New York limited liability company

Crumbs Retail Bake Shops, LLC, a Delaware limited liability company (f/k/a
Crumbs Fulton Street, LLC

Crumbs Ridgewood, LLC, a New Jersey limited liability company

Crumbs Rittenhouse Square, LLC, a Delaware limited liability company

Crumbs River North, LLC, an Illinois limited liability company

Crumbs Rockville Town Square, LLC, a Delaware limited liability company

Crumbs Sixth Avenue, LLC, a New York limited liability company

Crumbs South Clark, LLC, an Illinois limited liability company

Crumbs Stamford, LLC, a Connecticut limited liability company

Crumbs Third Avenue LLC, a New York limited liability company

Crumbs Times Square LLC, a New York limited liability company

 

 

 

 

 

Crumbs Union Square LLC, a New York limited liability company

Crumbs Union Station LLC, a District of Columbia limited liability company

Crumbs Wall Street II, LLC, a New York limited liability company

Crumbs West Madison, LLC, an Illinois limited liability company

Crumbs Westfield LLC, a New Jersey limited liability company

Crumbs Westport, LLC, a Connecticut limited liability company

Crumbs Wholesale II, LLC, a New York limited liability company

Crumbs Woodbury LLC, a New York limited liability company

 

 

 

 

SCHEDULE 3(g) – PLACEMENT AGENT FEES

 

The Company is a party to a letter agreement, dated as of August 24, 2012, with
Janney Scott Montgomery LLC (“Janney”) pursuant to which the Company appointed
Janney as its lead financial advisor and, in connection with the transactions
contemplated by the 2012 SPA (as defined in Schedule 3(r)), (a) paid Janney an
advisory fee of 7.00% of the gross proceeds raised in such transactions, subject
to certain exclusions, (b) reimbursed Janney for its expenses, up to $50,000.00.
The letter agreement has a 12 month term. In addition, the Company agreed to pay
Janney the advisory fee described above in the event the Company sells, within
12 months following the termination of the Janney letter agreement, securities
similar to the securities covered by the 2012 SPA to a person who was introduced
to the Company by Janney. Because the Janney letter agreement contemplated a
single private placement, which occurred on October 10, 2012, and the Buyer was
not identified to the Company by Janney, the Company does not believe that any
payments are due to Janney in connection with the transactions contemplated by
the Agreement.

 

 

 

 

SCHEDULE 3(k)—SEC DOCUMENTS; FINANCIAL STATEMENTS

 

On April 15, 2013, the Company filed (i) an amended Form 10-Q for each of the
quarters ended June 30, 2011, September 30, 2011, March 31, 2012, June 30, 2012
and September 30, 2012, and (ii) an amended Form 10-K for the year ended
December 31, 2011, in each case, to restate the Company’s consolidated financial
statements contained therein.

 

 

 

 

SCHEDULE 3(n)—CONDUCT OF BUSINESS; REGULATORY PERMITS

 

None

 

 

 

 

SCHEDULE 3(r) –CAPITALIZATION

 

Capitalization of the Company

   Shares  Preferred Stock, par value $.0001 per share      Authorized 
 1,000,000  Issued   234,000  Outstanding(1)   234,000         Potentially
Dilutive Securities:             Reserved for issuance to members if Contingency
Consideration were to vest(2) (3)   440,000         Common Stock, par value
$.0001 per share      Authorized   100,000,000  Issued(4)   13,577,437 
Outstanding   11,982,853         Potentially Dilutive Securities:            
Authorized for issuance pursuant to Equity Incentive Plan   578,295  Issuable
upon exercise of outstanding warrants   5,456,300  Reserved for conversion of
New Crumbs Class B Exchangeable Units by      Crumbs Holdings' members(1) 
 2,340,000  Reserved for issuance to members upon exchange of Contingency
Consideration that could be paid to members if such Contingency Consideration
were to vest(2) (3)   4,400,000 

 

1.The outstanding shares of Series A Voting Preferred Stock (“Series A Stock”)
of the Company are held by the persons who were members of Crumbs Holdings LLC
(“Holdings”) immediately prior to the Company’s 2011 merger transaction (the
“Merger”) and Julian Geiger, as a substituted member (collectively, the
“Members”). The outstanding shares of Series A Stock were issued
contemporaneously with the issuance by Holdings of New Crumbs Class B
Exchangeable Units (“Class B Units”) to the Members. Each share of Series A
Stock entitles its holder to cast 10 votes on any matter submitted to the
Company’s stockholders. The Class B Units are exchangeable for shares of Common
Stock on a one-for-one basis. Upon the exchange of a Class B Unit, the holder
must also surrender 0.1 share of Series A Stock for redemption by the Company at
its then par value.

 

2.Contingency Consideration includes 440,000 shares of Series A Stock of the
Company and 4,400,000 Class B Units. Contingency Consideration will vest upon
satisfaction of certain stock price and/or EBIDTA targets as provided in that
certain Business Combination Agreement, dated as of January 9, 2011, as amended
on each of February 18, 2011, March 17, 2011 and April 7, 2011 (the “Business
Combination Agreement”), by and among the Company, 57th Street Merger Sub LLC,
Crumbs Holdings, LLC (“Crumbs”), the members of Crumbs set forth on the
signature pages thereto (the “Members”), and the representatives of Crumbs and
the Member.

 

3.In addition to vesting upon reaching the stock price and/or EBIDTA targets,
all unvested Contingency Consideration will immediately vest if there is a
“Change of Control” of the Company or Holdings. A “Change of Control” will occur
if, among other things, a person or group (within the meaning of Rules 13d-3 and
13d-5 under the 1934 Act) (other than any combination of the Permitted Holders
or, in the case of Holdings, the Company) shall obtain beneficial ownership (as
defined in Rules 13d-3 and 13d-5 under the 1934 Act) or the voting stock of the
Company or Holdings representing more than 35% of the voting power of the
capital stock of the Company or Holdings entitled to vote for the election of
directors of the Company or Holdings other than directly from a Permitted Holder
in a transaction where the ultimate purchaser is known to the Permitted Holder.

 

 

 

  

4.Includes 1,594,584 shares held in treasury.

Other Rights to Acquire Securities

 

Pursuant that certain Exchange and Support Agreement, dated as of May 5, 2011,
by and among the Company, Holdings, and the other parties thereto, as modified
by that certain Accession Agreement, dated as of November 14, 2011, by and among
the Company, Holdings and Julian R. Geiger, (a) the Company is entitled to
receive New Crumbs Class A Voting Units upon the exchange of the New Crumbs
Class B Units by the holders thereof, (b) the holders of Common Stock will be
entitled to certain adjustments in respect of the Common Stock in the event of
certain dilutive actions, issuances or fundamental transactions described
therein by Holdings in respect of its New Crumbs Class B Units, and (c) the
holders of New Crumbs Class B Units of Holdings will be entitled to certain
adjustments in respect of the New Crumbs Class B Units in the event of certain
dilutive actions, issuances or fundamental transactions described therein by the
Company in respect of the Common Stock.

 

Pursuant to the Amended and Restated Certificate of Designation in respect of
the Company’s Series A Stock, the holders of shares of Series A Stock will be
entitled to certain dividends and distributions in respect of the Series A Stock
in the event the Company declares any dividend or distribution on the Common
Stock in shares of Common Stock, Preferred Stock or securities convertible,
exercisable or exchangeable for Common Stock or Preferred Stock, unless such
dividend or distribution is approved by the written consent or affirmative vote
of the holders of at least two-thirds of the then outstanding shares of Series A
Stock.

 

The Company’s warrants provide that the number of shares covered thereby and the
exercise prices thereof shall be subject to adjustment in the event of certain
changes in the Common Stock by way of stock dividends, split-ups, extraordinary
dividends or other similar events.

 

The Company’s Equity Incentive Plan, as amended (the “Amended Plan”)
contemplates that, in the event of any change in the Company’s corporate
capitalization, then the Compensation Committee, in its sole discretion, may
make substitutions or adjustments to the number of shares reserved for issuance
under the Amended Plan, the number of shares covered by awards then outstanding
under the Amended Plan, the limitations on awards under the Amended Plan, the
exercise price of outstanding options and such other equitable substitution or
adjustments as it may determine appropriate the Compensation Committee may make
substitutions or adjustments to the number of shares of Common Stock reserved
for issuance thereunder, the number of shares covered by awards then outstanding
thereunder, the limitations on awards thereunder, the exercise price of
outstanding options and such other equitable substitution or adjustments as it
may determine appropriate. There are no options to acquire shares of Common
Stock issued under the Amended Plan; only shares of restricted stock have been
granted.

 

Indebtedness

 

See disclosure in Schedule 3(s), which is incorporated by reference herein.

  

 

 

  

Registration Rights Agreements

 

The Company is a party to a Registration Rights Agreement, dated as of November
14, 2011, with Julian R. Geiger pursuant to which it has agreed to register for
resale, under specified conditions, the Registrable Securities (as defined
therein) owned, or that may be acquired, by Mr. Geiger.

 

The Company is a party to a Registration Rights Agreement, dated as of May 5,
2011, with 57th Street General Acquisition Corp., certain members of Holdings,
Morgan Joseph TriArtisan LLC, acting as representative for the initial public
offering underwriter holders, and certain service providers pursuant to which
the Company agreed to register for resale, under specified conditions, the
Registrable Securities (as defined therein) that are owned, or may be acquired,
by such Persons.

 

The Company is a party to a Registration Rights Agreement, dated as of October
11, 2012, with Special Situations Fund III QP, L.P., Special Situations Cayman
Fund, L.P., Special Situations Private Equity Fund, L.P. (collectively, the
“Special Situations Funds”), Buckingham RAF Partners, L.P., Buckingham RAF
Partners II, L.P., Buckingham RAF International Partners Master Fund, LP,
Whitney Capital Series Fund LLC – Series LS1, Durban Capital LP, John Mills,
P.A.W. Partners, L.P., P.A.W. Small Cap Partners, L.P., Prism Partners I, L.P.,
Prism Partners III Leveraged, L.P., Prism Partner IV Leveraged Offshore Fund,
Arthur J. Samberg, Leonard Potter, Frederick Kraegel, Jeffrey Roseman, Mark
Klein, and Julian Geiger (collectively, the “Investors”), pursuant to which the
Company agreed to register for resale, under specified conditions, the
Registrable Securities (as defined in the Registration Rights Agreement) that
are owned, or may be acquired, by such Investors pursuant to a Securities
Purchase Agreement dated as of October 10, 2012 between the Company and the
Investors (the “2012 SPA”).

 

 

 

 

SCHEDULE 3(s) – INDEBTEDNESS

 

Pursuant to Section 4.4 of Holdings’ Third Amended and Restated Limited
Liability Company Agreement (the “LLC Agreement”), Holdings is obligated under
certain circumstances to make pro rata quarterly Tax Distributions (as defined
in the LLC Agreement) to its members in an amount equal to the excess of (i) the
Assumed Tax Liability (as defined in the LLC Agreement) for the applicable
quarterly estimated tax period over (ii) Tax Distributions (as defined in the
LLC Agreement) made by the Company with respect to the calendar year of which
such quarterly estimated tax period is a part.

 

See the disclosure of the Tax Receivable Agreement in Schedule 3(z), which is
incorporated herein by reference.

 

In lieu of security deposits required pursuant to the terms of several operating
leases, Holdings has chosen to obtain letters of credit issued by Southeastern
Bank and JPMorganChase when such substitution is allowed by the landlords. See
attached schedule of letters of credit issued by Southeastern Bank.
JPMorganChase has issued two letters of credit: (i) $68,000 (automatically
renews each year through its expiration date of February 29, 2016); and (ii)
$30,000 (automatically renews each year through its expiration date of November
30, 2016).

 

On May 5, 2011, Holdings entered into a Commercial Loan Agreement with
Southeastern Bank in connection with the letters of credit issued by
Southeastern Bank in the form of a $575,000 revolving line of credit, with a
variable rate based on the Wall Street Journal Prime Rate. Letters of credit
amounting to $539,425 were reserved under this line of credit as of March 31,
2013. The line of credit is secured by a $575,000 certificate of deposit, and no
amounts are outstanding on the line of credit.

 

 

 

 

Letters of Credit issued by Southeastern Bank

 

Issue Date  Expires
Date  Auto
Renew  Days
Notice   Date
Financials
and
Memo
Needed
for
Renewal
Decision  Type  Amt   Most Recent Fee
Collected   Date Most Recent Fee
Collected 5/20/2008  5/20/2013  Y  60   02/19/13  F  $27,000.00   $400.00  
3/29/2013 6/11/2008  6/11/2013  Y  60   03/13/13  F  $17,500.00   $400.00  
3/29/2013 6/11/2008  6/11/2013  Y  60   03/13/13  F  $42,917.00   $435.00  
3/29/2013 6/18/2008  4/30/2013  N  60   01/30/13  F  $45,600.00   $456.00  
3/26/2012 6/19/2008  6/19/2013  Y  60   03/21/13  F  $15,000.00   $400.00  
3/29/2013 6/1/2008  6/1/2013  Y  60   03/03/13  F  $28,144.00   $400.00  
3/29/2013 6/1/2008  6/1/2013  Y  60   03/03/13  F  $9,440.00   $400.00  
3/29/2013 7/1/2008  7/1/2013  Y  60   04/02/13  F  $41,925.00   $419.00  
03/26/2012 and 5/22/2012* 8/1/2008  8/1/2013  Y  30   06/02/13  F  $62,500.00  
$625.00   5/22/2012 8/1/2008  8/1/2013  Y  60   05/03/13  F  $10,416.67  
$400.00   3/29/2013 8/1/2008  8/1/2013  Y  60   05/03/13  F  $24,300.00  
$400.00   3/29/2013 8/20/2008  8/20/2013  Y  60   05/22/13  F  $9,645.33  
$400.00   3/29/2013 8/1/2008  8/1/2013  Y  60   05/03/13  F  $50,000.00  
$500.00   3/29/2013 9/1/2008  9/1/2013  Y  60   06/03/13  F  $15,750.00  
$400.00   5/22/2012 5/4/2009  5/4/2013  Y  60   02/03/13  F  $7,500.00  
$400.00   3/29/2013 5/7/2009  5/7/2013  Y  60   02/06/13  F  $29,287.50  
$400.00   3/29/2013 5/13/2009  5/13/2013  Y  60   02/12/13  F  $43,749.99  
$450.00   3/29/2013 7/28/2009  7/28/2013  Y  60   04/29/13  F  $18,750.00  
$400.00   3/29/2013 3/3/2011  3/3/2014  Y  60   12/03/13  F  $40,000.00  
$400.00   3/29/2013                                                  
$539,425.49         

  

 

 

 

SCHEDULE 3(t) - LITIGATION

 

The following summary of litigation identifies legal actions pending against the
Company’s Chief Executive Officer, as disclosed in the Quarterly Report of
Aéropostale, Inc. (“Aéropostale”) on Form 10-Q for the quarter ended July 28,
2012, filed with the SEC on August 30, 2012.

 

In October 2011, Julian R. Geiger, in his capacity as a director of Aéropostale,
was named, along with the other directors and certain officers of Aéropostale,
as defendants in the case styled, Bell v. Geiger, et al., No. 652931/2011, a
shareholder derivative lawsuit filed in New York state court seeking relief
derivatively on behalf of Aéropostale. The action alleges that the defendants
breached their fiduciary duties to Aéropostale between February 3, 2011 and
August 3, 2011 by failing to establish and maintain internal controls that would
have prevented Aéropostale from disseminating allegedly false and misleading and
inaccurate statements and other information to shareholders, and to manage and
oversee Aéropostale. As a result, the plaintiff alleges that the defendants
exposed Aéropostale to potential liability in the federal securities class
action lawsuit styled, City of Providence, v. Aéropostale, Inc., et al., No.
11-7132, described below.

 

In February 2012, Julian R. Geiger, in his capacity as a former director of
Aéropostale, was named, along with the other current and former directors and
certain officers of Aéropostale, as defendants in the case styled, The Booth
Family Trust v. Meads, et al., No. 650594/2012, a shareholder derivative lawsuit
filed in New York state court seeking relief derivatively on behalf of
Aéropostale. As in Bell, this action alleges that the defendants breached their
fiduciary duties to Aéropostale by failing to establish and maintain internal
controls that would have prevented Aéropostale from disseminating allegedly
false and misleading and inaccurate statements and other information to
shareholders, and to manage and oversee Aéropostale. As a result, and as in
Bell, the plaintiff alleges that the defendants have exposed Aéropostale to
losses and damages, including civil liability from City of Providence suit.

 

On April 24, 2012, the New York Supreme Court, New York County, issued an order
consolidating and staying the Bell and Booth actions pending a ruling on the
motion to dismiss filed in City of Providence, a class action lawsuit filed in
New York federal court in October 2011 alleging violations of the federal
securities laws by certain officers of Aéropostale.

 

 

 

 

SCHEDULE 3(x) – INTELLECTUAL PROPERTY RIGHTS

 

The Company has a pending Intent-to-Use trademark application filed with the
United States Patent and Trademark Office for the mark CRUMBS BAKE SHOP, and
Design (Ser. No. 77/603,879), for “Housewares, namely, baking molds, cake pans,
cake tins and cake molds.”  The Company may not use this mark for these goods in
a sufficient manner and in sufficient time to prevent the application from
becoming abandoned.

 

The Company has a pending Intent-to-Use trademark application filed with the
Canadian Intellectual Property Office for the mark CRUMBS BAKE SHOP, and Design
(App. No. 1451649)  for  “Bakery products, namely, cupcakes, pastries, cookies,
cakes, pies; and Retail bakery shops; take-out bakery services.”  The Company
may not use this mark in Canada for these goods and services in a sufficient
manner and in sufficient time to prevent the application from becoming
abandoned.

 

 

 

 

SCHEDULE 3(z) – SUBSIDIARY RIGHTS

 

Holdings has two classes of membership interests outstanding: (i) New Crumbs
Class A Voting Units (“Class A Units”), all of which are owned by the Company,
and (ii) the Class B Units, all of which are owned by the Members. The Class A
Units constitute all of the voting equity of Holdings and represent
approximately 83.7% of all outstanding equity issued by Holdings. Holdings’
limited liability company agreement generally requires distributions by Holdings
to be pro rata to all its members, including the Company and the holders of
Class B Units, except in the case of distributions for public company expenses.

 

The Company entered into a Tax Receivable Agreement, dated as of May 5, 2011,
with Holdings and the Members (the “Tax Receivable Agreement) that provides for
the payment by the Company to the Members of up to 75% of the amount of the tax
benefits, if any, that the Company is deemed to realize as a result of (i) the
existing tax basis in the assets of Holdings on the date of the Merger, (ii) any
increases in such tax basis and (iii) certain other tax benefits related to
Holdings entering into the Tax Receivable Agreement, including tax benefits
attributable to payments under the Tax Receivable Agreement. These payment
obligations are obligations of the Company and not of Holdings. For purposes of
the Tax Receivable Agreement, the benefit deemed realized by the Company will be
computed by comparing the actual income tax liability of Holdings (calculated
with certain assumptions) to the amount of such taxes that the Company would
have been required to pay had there been no increase to the tax basis of the
assets of Holdings as a result of the purchase or exchanges, had there been no
tax benefit from the tax basis in the intangible assets of Holdings on the date
of the Merger and had the Company not entered into the Tax Receivable Agreement.
The term of the Tax Receivable Agreement will continue until all such tax
benefits have been utilized or expired, unless the Company exercises its right
to terminate the Tax Receivable Agreement for an amount based on the agreed
payments remaining to be made under the Tax Receivable Agreement or the Company
breaches any of its material obligations under the Tax Receivable Agreement, in
which case all obligations will generally be accelerated and due as if the
Company had exercised its right to terminate the Tax Receivable Agreement.

  

 

 

 

SCHEDULE 3(aa) – TAX STATUS

  

None

 

 

 

 

SCHEDULE 3(mm)—MANAGEMENT

  

None

 

 

 

 

SCHEDULE 4(d)—USE OF PROCEEDS

 

None