Exhibit 10.1

 

 

 

DEBT CONVERSION AND PURCHASE AND SALE AGREEMENT

BY AND AMONG

BEBE STORES, INC.,

THE MANNY MASHOUF LIVING TRUST

AND

B. RILEY FINANCIAL, INC.

DATED AS OF JANUARY 12, 2018

 

 

 

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TABLE OF CONTENTS

 

         Page  

ARTICLE I

 

CONVERSION; PURCHASE AND SALE; CLOSING

 

1.1

  Conversion; Purchase and Sale      1  

1.2

  Time and Place of Closing      2  

1.3

  Right to Future Purchase      2  

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

2.1

  Organization, Good Standing and Qualification      3  

2.2

  Capital Structure      5  

2.3

  Corporate Authority; Approval and Fairness      5  

2.4

  Issuance; Private Placement      6  

2.5

  Governmental Filings; No Violations; Certain Contracts      6  

2.6

  Company Reports; Financial Statements      7  

2.7

  Absence of Certain Changes      9  

2.8

  Litigation and Liabilities      9  

2.9

  Compliance with Laws; Licenses      10  

2.10

  Material Contracts      10  

2.11

  Real Property      11  

2.12

  Takeover Statutes      12  

2.13

  Taxes      12  

2.14

  Intellectual Property      13  

2.15

  Brokers and Finders      15  

2.16

  Joint Venture      16  

2.17

  No Other Representations or Warranties      16  

2.18

  Disclaimer of Other Representations and Warranties      16  

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

3.1

  Organization, Good Standing and Qualification      16  

3.2

  Authority      17  

3.3

  Governmental Filings; No Violations; Etc.      17  

3.4

  Litigation and Liabilities      17  

3.5

  Investment Representations      18  

3.6

  Ownership      18  

3.7

  Brokers and Finders      19  

3.8

  No Other Representations or Warranties      19  

3.9

 

Disclaimer of Other Representations and Warranties

     19  

 

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ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF SELLER

 

4.1

  Ownership of Shares      19  

4.2

  Organization, Good Standing and Qualification      20  

4.3

  Authority      20  

4.4

  Governmental Filings; No Violations; Etc.      20  

4.5

  Litigation and Liabilities      21  

4.6

  Brokers and Finders      21  

4.7

  No Other Representations or Warranties      21  

4.8

  Disclaimer of Other Representations and Warranties      21  

ARTICLE V

 

COVENANTS

 

5.1

  Stock Exchange Deregistration      21  

5.2

  Expenses      22  

5.3

  Taxes      22  

5.4

  Publicity      22  

5.5

  Takeover Statutes      22  

5.6

  Information Rights      22  

5.7

  Joint Venture Distributions      22  

ARTICLE VI

 

CLOSING DELIVERABLES

 

6.1

  Company’s Deliverables      23  

6.2

  Purchaser’s Deliverables      23  

6.3

  Seller’s Deliverables      24  

ARTICLE VII

 

MISCELLANEOUS AND GENERAL

 

7.1

  Survival of Representations, Warranties and Covenants      24  

7.2

  Modification or Amendment      24  

7.3

  Waiver of Conditions      24  

7.4

  Counterparts      24  

7.5

  GOVERNING LAW AND VENUE; SPECIFIC PERFORMANCE      25  

7.6

  Notices      26  

 

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7.7

 

Entire Agreement

     27  

7.8

 

No Third Party Beneficiaries

     27  

7.9

 

Obligations of Purchaser and of the Company

     27  

7.10

 

Definitions

     28  

7.11

 

Severability

     28  

7.12

 

Interpretation; Construction

     28  

7.13

 

Assignment

     29  

 

Annex A:

  

Definitions

Exhibit A:

  

Tax Benefit Preservation Plan

Exhibit B:

  

Investor Agreement

 

 

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DEBT CONVERSION AND PURCHASE AND SALE AGREEMENT

THIS DEBT CONVERSION AND PURCHASE AND SALE AGREEMENT (including the exhibits and
schedules hereto, each as amended or restated from time to time, this
“Agreement”), dated as of January 12, 2018, is made by and between B. Riley
Financial, Inc., a Delaware corporation (“Purchaser”), The Manny Mashouf Living
Trust (“Seller”), and bebe stores, inc., a California corporation (the
“Company”).

RECITALS

WHEREAS, the Company, GACP Finance Co., LLC and the lenders from time to time
party thereto entered into a Loan and Security Agreement, dated as of May 31,
2017 (the “LSA”), pursuant to which GACP I, L.P. extended a loan to the Company
evidenced by a promissory note, dated as of May 31, 2017, in the principal
amount of $35 million;

WHEREAS, GACP I, L.P. and Purchaser entered into an Assignment and Assumption,
dated as of January 5, 2018 (the “Assignment Agreement”), pursuant to which
Purchaser assumed the rights and obligations of GACP I, L.P. under the LSA;

WHEREAS, principal in the amount of $16,917,168.40 remains outstanding under the
LSA as of the date hereof;

WHEREAS, on the terms and subject to the conditions set forth in this Agreement,
Purchaser has agreed to cancel all of the outstanding principal amount, as well
as all accrued interest through the Closing Date, under the LSA in exchange for
the Company’s issuance of shares of the Company’s common stock, par value $0.001
per share (“Common Stock”) on the terms and subject to the conditions set forth
in this Agreement;

WHEREAS, Seller has agreed to sell to Purchaser and Purchaser wishes to purchase
250,000 shares of Common Stock (the “Purchased Shares”) on the terms and subject
to the conditions set forth in this Agreement; and

WHEREAS, the Company has agreed to issue to Purchaser and Purchaser wishes to
purchase 250,000 shares of Common Stock (the “Issued Shares”) on the terms and
subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises, and of the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:

ARTICLE I

CONVERSION; PURCHASE AND SALE; CLOSING

1.1 Conversion; Purchase and Sale. Subject to the terms and conditions of this
Agreement, and in reliance on the representations, warranties and covenants
contained herein, at the Closing:

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(a) Purchaser hereby cancels all of the outstanding principal amount and accrued
interest through the Closing Date under the LSA, and the Company hereby issues,
sells, assigns, conveys, transfers and delivers to Purchaser one share of the
Common Stock for every $6.00 of outstanding principal amount or accrued interest
(the “Price Per Share”) under the LSA cancelled pursuant to this Section 1.1,
for an aggregate of 2,819,528 shares, free and clear of any mortgage, lien,
charge, pledge, security interest, claim, easement, covenant or other
encumbrance (each, a “Lien”), other than any Lien created by or arising as a
direct result of actions of Purchaser or by the Investor Agreement, dated as of
the date hereof, in the form of Exhibit B attached hereto (the “Investor
Agreement”) (collectively, the “Conversion”). The shares of Common Stock issued
to Purchaser pursuant to clause (a) of this Section 1.1 are collectively
referred to as the “Conversion Shares” and together with the Purchased Shares,
the Issued Shares and the Subsequent Purchase Shares, the “Shares”.

(b) Seller hereby sells, assigns, conveys, transfers and delivers to Purchaser,
and Purchaser hereby purchases from Seller, the Purchased Shares, free and clear
of any Lien, other than any Lien created by or arising as a direct result of
actions of Purchaser or by the Investor Agreement, for a cash amount per share
equal to the Price Per Share (the “Purchase”).

(c) The Company hereby issues, sells, assigns, conveys, transfers and delivers
to Purchaser, and Purchaser hereby purchases from the Company, the Issued Shares
free and clear of any Lien, other than any Lien created by or arising as a
direct result of actions Purchaser or by the Investor Agreement, for a cash
amount per share equal to the Price Per Share (the “Issuance”).

1.2 Time and Place of Closing. Subject to the terms and conditions of this
Agreement, the closing of the Conversion, Purchase and Issuance provided for in
this Agreement (the “Closing”) will take place simultaneously with the execution
of this Agreement unless otherwise mutually agreed in writing between the
Company, Seller and Purchaser (such date on which the Closing actually occurs,
the “Closing Date”). For purposes of this Agreement, the term “business day”
shall mean any day ending at 11:59 p.m. (Pacific Time) other than a Saturday or
Sunday or a day on which banks are required or authorized to close in the City
of New York or the City of Los Angeles.

1.3 Right to Future Purchase. Notwithstanding anything to the contrary herein,
from time to time and on any date within 45 business days following the date
hereof, subject to mutual agreement between Purchaser and Seller, Purchaser
shall purchase up to 500,000 shares of Common Stock from Seller for a cash
amount per share equal to the Price Per Share, and Seller shall sell, assign,
convey, transfer and deliver such shares to Purchaser, free and clear of any
Lien, other than any Lien created by or arising as a direct result of actions of
Purchaser or by the Investor Agreement. Purchaser and Seller shall use their
respective reasonable best efforts to consummate any Subsequent Purchase
contemplated by this Section 1.3 as promptly as reasonably practicable. The
shares of Common Stock issued to Purchaser pursuant to this Section 1.3 are
collectively referred to as the “Subsequent Purchase Shares” and any purchase
pursuant to this Section 1.3 is referred to as a “Subsequent Purchase”.

 

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ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the Company Reports filed with the Securities and
Exchange Commission (the “SEC”) after July 2, 2016 and prior to entering into
this Agreement (excluding, in each case, any disclosures set forth in any risk
factor section or in any other section to the extent they are forward looking
statements or cautionary, predictive or forward-looking in nature) or in the
corresponding sections or subsections of the disclosure letter delivered to
Purchaser by the Company prior to the date hereof (the “Company Disclosure
Letter”), it being agreed that disclosure of any item in any section or
subsection of the Company Disclosure Letter shall be deemed disclosure with
respect to any other section or subsection to which the relevance of such item
is reasonably apparent on its face, the Company hereby represents and warrants
to Purchaser as of the date hereof, as of the Closing Date, and, with respect to
the representations contained in Section 2.4, as of the date of any Subsequent
Purchase, as follows:

2.1 Organization, Good Standing and Qualification.

(a) Each of the Company and its Subsidiaries is a legal entity duly organized,
validly existing and in good standing under the Laws of its respective
jurisdiction of organization and has all requisite corporate or similar power
and authority to own, lease, license and operate its properties and assets and
to carry on its business as presently conducted and is qualified to do business
and is in good standing as a foreign corporation or other legal entity in each
jurisdiction where the ownership, leasing, licensing or operation of its assets
or properties or conduct of its business requires such qualification, except
where the failure to be so organized, qualified or in good standing, or to have
such power or authority, would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. The Company has provided to
Purchaser prior to the date of this Agreement correct and complete copies of the
Company’s and its Subsidiaries’ articles of incorporation and bylaws or
comparable governing documents, each as amended to the date of this Agreement,
and each as so delivered is in full force and effect.

(b) As used in this Agreement, the term (i) “Subsidiary” means, with respect to
any Person, any other Person of which at least a majority of the securities or
ownership interests having by their terms ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
is directly or indirectly owned or controlled by such Person and/or by one or
more of its Subsidiaries; provided, however, for the avoidance of doubt, that BB
Brand Holdings LLC, a Delaware limited liability company (the “Joint Venture”),
shall not be deemed a Subsidiary of the Company for purposes of this Agreement,
(ii) “Person” means any individual, corporation (including not-for-profit),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, Governmental Entity or other entity of
any kind or nature and (iii) “Material Adverse Effect” means a change, effect,
event, circumstance, occurrence or state of facts that is materially adverse to
the business, condition (financial or otherwise), properties, assets,
liabilities (contingent or otherwise) or results of operations of the Company
and its Subsidiaries, taken as a whole, provided, however, that any changes,
effects, events, circumstances, occurrences or state of facts, either alone or
in combination, resulting from any of the following shall not constitute a
Material Adverse Effect:

 

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(i) changes in the economy or financial, credit or security markets generally in
the United States or other countries in which the Company conducts material
operations (including changes in interest or exchange rates);

(ii) changes in operating, business or other conditions affecting the industries
in which the Company and its Subsidiaries operate;

(iii) changes or proposed changes in U.S. generally accepted accounting
principles (“GAAP”) or other applicable accounting principles or requirements or
in any applicable Laws or the interpretation or enforcement thereof;

(iv) changes or proposed changes in Laws relating to Taxes or the interpretation
or enforcement thereof;

(v) any change resulting from the announcement or performance of this Agreement,
including any cancellation of or delays in customer orders, failure to obtain
new customer orders, disruption in supplier, partnership, distributor, reseller
or similar relationships or loss of employees;

(vi) any failure by the Company to meet any projections or forecasts or
estimates of revenues or earnings for any period, provided that the exception in
this clause shall not prevent or otherwise affect a determination that any
change, effect, circumstance or development underlying such failure has resulted
in, or contributed to, a Material Adverse Effect;

(vii) a decline in the price of the Common Stock on the OTCQB Market operated by
the OTC Markets Group (“OTCQB”), provided that the exception in this clause
shall not prevent or otherwise affect a determination that any change, effect,
circumstance or development underlying such failure has resulted in, or
contributed to, a Material Adverse Effect;

(viii) the existence, occurrence or continuation of any force majeure events,
including earthquakes, floods, hurricanes, tropical storms, fires or other
natural disasters;

(ix) global, national, or regional political or social conditions, including
acts of war, sabotage or terrorism or military actions or any escalation or
worsening of such actions;

(x) compliance by the Company and its Subsidiaries with the terms of this
Agreement or any action taken or omitted to be taken with the written consent of
or at the written request of Purchaser; and

provided, further, that, the foregoing clauses (i), (ii), (iii), (iv), (viii)
and (ix) shall not apply to the extent such change, effect, event, circumstance,
occurrence or state of facts disproportionately adversely affects the Company
and its Subsidiaries, taken as a whole, compared to other companies of similar
size operating in the industries in which the Company and its Subsidiaries
operate (but only to the extent of such disproportionality).

 

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2.2 Capital Structure.

(a) The authorized capital stock of the Company consists of 14,000,000 shares of
Common Stock, of which 8,200,765 shares of Common Stock were outstanding as of
the close of business on January, 10, 2018, and 1,000,000 shares of preferred
stock, par value $0.001 per share of the Company, none of which were outstanding
immediately prior to the execution and delivery by the Company of this
Agreement. All of the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable. The Company has
no shares of Common Stock reserved for future issuance. Each of the outstanding
shares of capital stock or other securities of each of the Company’s
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and owned by the Company or by a direct or indirect wholly-owned Subsidiary of
the Company, free and clear of any Lien. Except as set forth above, there are no
preemptive or other outstanding rights, options, warrants, conversion rights,
stock appreciation rights, redemption rights, repurchase rights, agreements,
arrangements, calls, commitments or rights of any kind that obligate the Company
or any of its Subsidiaries to issue or sell any shares of capital stock or other
securities of the Company or any of its Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of the Company or any
of its Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. The Company does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote) with the shareholders of the Company on any matter.

(b) Section 2.2(b) of the Company Disclosure Letter sets forth (i) each of the
Company’s Subsidiaries and the ownership interest of the Company in each such
Subsidiary, as well as the ownership interest of any other Person or Persons in
each such Subsidiary and (ii) the Company’s or its Subsidiaries’ capital stock,
equity interest or other direct or indirect ownership interest in any other
Person.

(c) Except as expressly contemplated by this Agreement, there are no voting
trusts or other agreements or understandings to which the Company or any of its
Subsidiaries is a party or otherwise to the Company’s Knowledge with respect to
the voting of any capital stock of the Company or any of its Subsidiaries.

(d) There are no contracts, agreements or understandings granting any Person
registration rights or other similar rights to have any securities of the
Company registered for resale pursuant to a registration statement filed with
the SEC or otherwise registered for resale.

2.3 Corporate Authority; Approval and Fairness.

(a) The Company has all requisite corporate power and authority and has taken
all corporate action necessary in order to execute, deliver and perform its
obligations under this Agreement and to consummate the Conversion, the Issuance
and the other transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company

 

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and, assuming due authorization, execution and delivery by Purchaser,
constitutes a valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar Laws of general
applicability relating to or affecting creditors’ rights and to general equity
principles (the “Bankruptcy and Equity Exception”).

(b) At a meeting duly called and held prior to the execution and delivery of
this Agreement, the board of directors of the Company has unanimously
(A) determined that the Issuance and the Conversion and the other transactions
contemplated by this Agreement are fair to and in the best interests of the
Company and its shareholders and (B) approved this Agreement, the Issuance, the
Conversion and the other transactions contemplated hereby in accordance with the
requirements of the California General Corporation Law.

2.4 Issuance; Private Placement.

(a) The Shares to be issued or sold pursuant to this Agreement have been duly
authorized; the Purchased Shares and the Subsequent Purchase Shares are validly
issued, fully paid and nonassessable; and the Shares to be issued pursuant to
this Agreement in the Issuance and the Conversion, when issued by the Company in
compliance with the provisions of this Agreement, shall be validly issued, fully
paid and nonassessable; and all Shares issued pursuant to this Agreement in the
Issuance and the Conversion shall be free and clear of all Liens, other than any
Lien created by or arising as a direct result of the Investor Agreement or
actions of Purchaser.

(b) Assuming the accuracy of Purchaser’s representations and warranties set
forth in Section 3.5, the issuance of the Shares to Purchaser in the Issuance
and the Conversion is exempt from the registration requirements of the
Securities Act of 1933 (the “Securities Act”). Neither the Company nor any of
its Affiliates, nor any Person acting on is or their behalf, has taken any
action (including, any offering of any securities of the Company under
circumstances which would require the integration of such offering with the
Issuance and the Conversion pursuant to the Securities Act and the rules and
regulations of the SEC promulgated thereunder) which might subject the offering,
issuance or sale of any of the Shares to the registration requirements of the
Securities Act.

(c) Neither the Company, nor any of its Affiliates, nor any Person acting on its
or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Section 4(a)(2) under the Securities Act) in
connection with the offer or issuance of the Shares in the Purchase, the
Issuance, the Conversion or any Subsequent Purchase.

2.5 Governmental Filings; No Violations; Certain Contracts.

(a) Other than (i) reports and filings under, and compliance with, the
Securities Act or the Exchange Act of 1934, as amended (the “Exchange Act”), as
may be required in connection with this Agreement and the transactions
contemplated hereby, (ii) the filings under the rules and regulations of OTCQB
in connection with the Issuance and the Conversion and (iii) such filings and
approvals as may be required under the California securities Laws, no notices,
reports or other filings are required to be made by the Company with, nor are

 

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any consents, registrations, approvals, permits or authorizations required to be
obtained by the Company from, any domestic or foreign governmental or regulatory
authority, agency, commission, body, court or other legislative, executive or
judicial governmental entity (each, a “Governmental Entity”) in connection with
the execution, delivery and performance of this Agreement by the Company and the
consummation of the Issuance, the Conversion and the other transactions
contemplated hereby, or in connection with the continuing operation of the
business of the Company and its Subsidiaries following the Closing, except those
that the failure to make or obtain would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or prevent, materially
delay or materially impair the consummation of the transactions contemplated by
this Agreement.

(b) The execution, delivery and performance of this Agreement by the Company do
not, and the consummation of the Issuance, the Conversion and the other
transactions contemplated hereby will not, constitute or result in (i) a breach
or violation of, or a default under, the articles of incorporation or bylaws of
the Company or the comparable governing documents of any of its Subsidiaries,
(ii) with or without notice, lapse of time or both, a breach or violation of, a
termination (or right of termination) or default under, the creation or
acceleration of any obligations under or the creation of a Lien on any of the
assets of the Company or any of its Subsidiaries pursuant to any written or oral
agreement, lease, license (including Intellectual Property Contracts), contract,
note, mortgage, indenture, arrangement or other obligation (each, a “Contract”)
binding upon the Company or any of its Subsidiaries or, assuming (solely with
respect to performance of this Agreement and consummation of the Issuance, the
Conversion and the other transactions contemplated hereby) compliance with the
matters referred to in Section 2.5(a)(i) under any Laws to which the Company or
any of its Subsidiaries are subject, or (iii) any change in the rights or
obligations of any party under any Contract binding upon the Company or any of
its Subsidiaries, except, in the case of clause (ii) or (iii) above, for any
such breach, violation, termination, default, creation, acceleration or change
that would not, individually or in the aggregate, reasonably be expected to be
material and adverse to the Company and its Subsidiaries, taken as a whole, or
prevent, materially delay or materially impair the consummation of the
transactions contemplated by this Agreement.

2.6 Company Reports; Financial Statements.

(a) Except as set forth in Section 2.6(a) of the Company Disclosure Letter, The
Company has filed or furnished, as applicable, on a timely basis, all forms,
statements, certifications, reports and documents required to be filed or
furnished by it with the SEC pursuant to the Exchange Act or the Securities Act
since July 4, 2015 (the “Applicable Date”) (the forms, statements, reports and
documents filed or furnished since the Applicable Date and those filed or
furnished subsequent to the date of this Agreement, including any amendments
thereto, the “Company Reports”). Each of the Company Reports, at the time of its
filing or being furnished complied or, if not yet filed or furnished, will
comply in all material respects with the applicable requirements of the
Securities Act, the Exchange Act and the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”), and any rules and regulations promulgated thereunder
applicable to the Company Reports. As of their respective dates (or, if amended
prior to the date of this Agreement, as of the date of such amendment), the
Company Reports did not, and any Company Reports filed with or furnished to the
SEC subsequent to the date of this Agreement will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading.

 

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(b) The Company is in compliance in all material respects with the applicable
listing and corporate governance rules and regulations of the OTCQB. Except as
permitted by the Exchange Act, including Sections 13(k)(2) and (3) or rules of
the SEC, since the Applicable Date, neither the Company nor any of its
Affiliates has made, arranged or modified (in any material way) any extensions
of credit in the form of a personal loan to any executive officer or director of
the Company. For purposes of this Agreement, the term “Affiliate” when used with
respect to any party shall mean any Person who is an “affiliate” of that party
within the meaning of Rule 405 promulgated under the Securities Act.

(c) The Company maintains disclosure controls and procedures required by Rule
13a-15 or 15d-15 under the Exchange Act. Such disclosure controls and procedures
are effective to ensure that information required to be disclosed by the Company
is recorded and reported on a timely basis to the individuals responsible for
the preparation of the Company’s filings with the SEC and other public
disclosure documents. The Company maintains internal control over financial
reporting (as defined in Rule 13a-15 or 15d-15, as applicable, under the
Exchange Act). Such internal control over financial reporting is effective in
providing reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with GAAP and includes policies and procedures that (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of the asset of the Company, (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts
and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company, and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on its financial statements. The Company has disclosed, based on
the most recent evaluation of its chief executive officer and its chief
financial officer prior to the date of this Agreement, to the Company’s auditors
and the audit committee of the Company’s board of directors (A) any significant
deficiencies in the design or operation of its internal controls over financial
reporting that are reasonably likely to adversely affect the Company’s ability
to record, process, summarize and report financial information and has
identified for the Company’s auditors and audit committee of the Company’s board
of directors any material weaknesses in internal control over financial
reporting and (B) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company’s internal control
over financial reporting. The Company has provided to Purchaser prior to the
date of this Agreement (i) a summary of any such disclosure made by management
to the Company’s auditors and audit committee since the Applicable Date and
(ii) any material communication since the Applicable Date made by management or
the Company’s auditors to the audit committee required or contemplated by
listing standards of the NASDAQ Global Select Market (prior to the de-listing
from the NASDAQ Global Select Market) or the OTCQB (following the de-listing
from the NASDAQ Global Select Market), the audit committee’s charter or
professional standards of the Public Company Accounting Oversight Board. Since
the Applicable Date, no material complaints from any source regarding
accounting, internal accounting controls or auditing matters, and no concerns
from Company employees regarding

 

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questionable accounting or auditing matters, have been received by the Company.
The Company has provided to Purchaser prior to the date of this Agreement a
summary of all material complaints or concerns relating to other matters made
since the Applicable Date through the Company’s whistleblower hot line or
equivalent system for receipt of employee concerns regarding possible violations
of Laws. To the Knowledge of the Company, there have been no reports of evidence
of a violation of securities Laws, breach of fiduciary duty or similar violation
by the Company or any of its officers, directors, employees or agents to the
Company’s chief legal officer, audit committee (or other committee designated
for the purpose) of the board of directors or the board of directors pursuant to
the rules adopted pursuant to Section 307 of the Sarbanes-Oxley Act or any
Company policy contemplating such reporting, including in instances not required
by those rules.

(d) Each of the consolidated balance sheets included in or incorporated by
reference into the Company Reports (including the related notes and schedules)
fairly presents in all material respects the consolidated financial position of
the Company and its consolidated Subsidiaries as of its date and each of the
consolidated statements of operations and comprehensive loss, changes in
shareholders’ equity and cash flows included in or incorporated by reference
into the Company Reports (including any related notes and schedules) fairly
presents in all material respects the results of operations, retained earnings
(deficit) and changes in financial position, as the case may be, of such
companies for the periods set forth therein (subject, in the case of unaudited
statements, to notes and normal year-end audit adjustments that will not be
material in amount or effect) in each case in accordance with GAAP consistently
applied during the periods involved, except as may be noted therein.

2.7 Absence of Certain Changes. Since July 1, 2017, the Company and its
Subsidiaries have conducted their respective businesses only in, and have not
engaged in any material transaction other than in accordance with, the ordinary
course of such businesses consistent with past practices and there has not been:

(a) Any change, effect, event, circumstance, occurrence, development or state of
facts which, individually or in the aggregate, has had or would reasonably be
expected to have a Material Adverse Effect, except as set forth in
Section 2.7(a) of the Company Disclosure Letter;

(b) any material abandonment, forfeiture, invalidation, cancellation, damage,
destruction or other casualty loss with respect to any material asset, right, or
property owned, leased, licensed or otherwise used by the Company or any of its
Subsidiaries, whether or not covered by insurance; or

(c) any agreement to do any of the foregoing.

2.8 Litigation and Liabilities.

(a) There are no civil, criminal or administrative actions, suits, claims,
complaints, litigation, hearings, arbitrations, investigations, audit or other
proceedings (each, an “Action”) pending or, to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries.

 

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(b) The Company is not subject to any material outstanding order, writ,
injunction or decree, except as set forth in Section 2.8(b) of the Company
Disclosure Letter.

(c) Except for obligations and liabilities (i) reflected or reserved against in
the Company’s consolidated balance sheets (and the notes thereto) included in
the Company Reports filed prior to the date of this Agreement, (ii) incurred in
the ordinary course of business since July 1, 2017 or (iii) incurred in
connection with the transactions expressly contemplated by this Agreement or as
expressly permitted by this Agreement, to the Knowledge of the Company, there
are no obligations or liabilities of the Company or any of its Subsidiaries,
whether or not accrued, contingent or otherwise, or any other facts or
circumstances of which the Company has Knowledge that would reasonably be
expected to result in any obligations or liabilities of, the Company or any of
its Subsidiaries, including under any applicable Licenses or Laws, except for
those that, individually or in the aggregate, are not and would not reasonably
be expected to be material and adverse to the Company and its Subsidiaries,
taken as a whole.

For purposes of this Agreement, “Knowledge” means, with respect to the Company,
the actual knowledge of the individuals set forth in Section 2.8(c) of the
Company Disclosure Letter, and with respect to Purchaser, the actual knowledge
of its officers, in each case, after reasonable inquiry.

2.9 Compliance with Laws; Licenses. The businesses of each of the Company and
its Subsidiaries have not been, and are not being, conducted in violation of any
federal, state, local or foreign law, statute or ordinance, common law, or any
rule, regulation, standard, judgment, legally imposed duty (such as tort
duties), order, writ, injunction, decree, arbitration award, agency requirement,
license or permit of any Governmental Entity (collectively, “Laws”), except for
those violations that, individually or in the aggregate, would not reasonably be
expected to be material and adverse to the Company and its Subsidiaries, taken
as a whole. No investigation or review by any Governmental Entity with respect
to the Company or any of its Subsidiaries or any of their employees or
independent contractors is pending or, to the Knowledge of the Company,
threatened, nor has any Governmental Entity delivered notice of an intention in
writing to conduct the same. The Company has not received any written notice or
communication of any material noncompliance with any such Laws (including with
respect to its employees or independent contractors) that has not been cured as
of the date of this Agreement. The Company and its Subsidiaries and, to the
Knowledge of the Company, each of their employees or independent contractors
have obtained and are in compliance with all material Licenses necessary to
conduct its business as presently conducted except for non-compliance that,
individually or in the aggregate, would not reasonably be expected to be
material and adverse to the Company and its Subsidiaries, taken as a whole. As
used in this Agreement, “Licenses” means all permits, licenses, certifications,
approvals, registrations, consents, authorizations, franchises, variances,
exemptions and orders issued or granted by a Governmental Entity.

2.10 Material Contracts.

(a) Except for this Agreement, and except as set forth in Section 2.10(a) of the
Company Disclosure Letter, as of the date of this Agreement, none of the Company
or its Subsidiaries is a party to or bound by any Contract:

 

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(i) (A) containing material restrictions on the right of the Company or any of
its Subsidiaries to engage in activities competitive with any Person or to
solicit suppliers anywhere in the world or (B) granting a right of exclusivity
to any Person which prevents the Company or any of its Subsidiaries from
entering any territory, market or field or freely engaging in business anywhere
in the world (including, but not limited to Contracts containing “most favored
nations” provisions);

(ii) that prohibits or limits the right of the Company or any of its
Subsidiaries to make, sell or distribute any products or services or use,
transfer, license, distribute or enforce any Company Intellectual Property
rights;

(iii) relating to the formation, creation, ownership, operation, management or
control of any partnership, joint venture or similar arrangement, including
arrangements that include the sharing of revenue, profits, losses, costs or
liabilities, that is material to the business of the Company and its
Subsidiaries, taken as a whole;

(iv) that was entered into between the Company or one of its Subsidiaries and
any Affiliate or that was otherwise not negotiated and entered into on an arm’s
length basis (other than agreements solely among the Company and its
Subsidiaries);

(v) that would prevent, materially delay or materially impede the Company’s
ability to consummate the Issuance, the Conversion or the other transactions
contemplated hereby; and

(vi) containing a put, call or similar right pursuant to which the Company or
any of its Subsidiaries could be required to purchase or sell, as applicable,
any equity interests of any Person or assets.

Each such Contract described in clauses (i) through (vi) is referred to herein
as a “Material Contract”.

(b) Each of the Material Contracts is valid and binding on the Company or its
Subsidiaries, as the case may be and, to the Knowledge of the Company, each
other party thereto, and is in full force and effect. There is no default in any
material respect under any such Contracts by the Company or its Subsidiaries or,
to the Knowledge of the Company, any other party thereto, and to the Knowledge
of the Company, no event has occurred that with the lapse of time or the giving
of notice or both would constitute a default in any material respect thereunder
by the Company or any of its Subsidiaries.

2.11 Real Property.

(a) Section 2.11(a) of the Company Disclosure Letter contains a true and
complete list of all real property owned by the Company or its Subsidiaries (the
“Owned Real Property”) (together with all land, buildings, structures, fixtures
and improvements located thereon). With respect to the Owned Real Property,
(i) the Company or one of its Subsidiaries, as applicable, has good and
marketable title to such Owned Real Property, free and clear of all Liens other
than Permitted Liens, and (ii) there are no outstanding options or rights of
first refusal to purchase such Owned Real Property or any portion of the Owned
Real Property or interest therein.

 

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(b) For purposes of this Agreement, “Permitted Lien” means: (i) specified Liens
described in Section 2.11(b) of the Company Disclosure Letter; (ii) Liens for
current Taxes or other governmental charges not yet due or delinquent or which
are due or delinquent but are being contested in good faith by appropriate
proceedings and, if required pursuant to GAAP, are reflected on or specifically
reserved against or otherwise disclosed in the consolidated balance sheets
included in the Company Reports; (iii) mechanics’, carriers’, workmen’s,
repairmen’s or other like Liens arising or incurred in the ordinary course of
business consistent with past practice; (iv) Liens with respect to zoning,
entitlement, building and other land use regulations imposed by Governmental
Entities having jurisdiction over the Owned Real Property which are not violated
by the current use and operation of the Owned Real Property; (v) Liens with
respect to Owned Real Property that do not, individually or in the aggregate,
materially impair the continued use, operation, value or marketability of the
specific parcel of Owned Real Property to which they relate or the conduct of
the business of the Company and its Subsidiaries as presently conducted, or
restrictions or exclusions which would be shown by a current title report or
other similar report; (vi) all matters that are disclosed in any title insurance
policy provided to Purchaser; (vii) any restriction on transfer arising under
applicable securities laws; (viii) Liens of lessors and licensors arising under
lease agreements or license arrangements; and (ix) any condition or other matter
with respect to Owned Real Property, if any, that may be shown or disclosed by a
current and accurate survey or physical inspection.

2.12 Takeover Statutes. No “fair price,” “moratorium,” “control share
acquisition” or other similar anti-takeover statute or regulation (each, a
“Takeover Statute”) or any anti-takeover provision in the Company’s articles of
incorporation or bylaws is applicable to the Company, the Shares, the Issuance,
the Conversion or the other transactions contemplated by this Agreement.

2.13 Taxes.

(a) All material Tax Returns that are required to be filed on or before the date
of this Agreement by or on behalf of the Company and each of its Subsidiaries
have been filed. All such Tax Returns were correct and complete in all material
respects and were prepared and filed in compliance with all applicable Laws.

(b) All material Taxes of the Company and each of its Subsidiaries have been
paid, except for Taxes being contested in good faith through appropriate
proceedings.

(c) There are no material Liens for Taxes upon any assets of the Company or any
of its Subsidiaries, except for Liens for Taxes not yet due or payable.

(d) No Subsidiary has been a member of an Affiliated Group filing a consolidated
federal income Tax Return other than an Affiliated Group of which the Company is
the common parent.

 

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(e) No unresolved claim has been made in writing by a Tax authority in a
jurisdiction where the Company and its Subsidiaries do not file Tax Returns that
the Company or any of its Subsidiaries is or may be subject to taxation by that
jurisdiction.

(f) No Tax audits or proceedings are pending or being conducted with respect to
any material Tax of the Company or any of its Subsidiaries, nor has any such
audit or proceeding been threatened in writing by a Tax authority.

(g) Neither the Company nor any of its Subsidiaries is a party to or bound by
any material Tax allocation or sharing agreement with any Person other than the
Company and its Subsidiaries (other than customary provisions for Taxes
contained in credit, lease or other commercial agreements the primary purposes
of which do not relate to Taxes).

(h) Neither the Company nor any of its Subsidiaries will be required, as a
result of (i) a change in accounting method required to be filed for a taxable
period beginning on or before the Closing, to include any material adjustment
under Section 481(c) of the Code (or any similar provisions of state, local or
foreign Laws) in taxable income for any taxable period beginning after the
Closing Date, or (ii) any “closing agreement” as described in Section 7121 of
the Code (or any similar provision of state, local, or foreign Tax Laws), to
include any material item of income in or exclude any material item of deduction
from any taxable period beginning after the Closing Date.

(i) Notwithstanding anything to the contrary herein, the Company makes no
representation or warranty as to (i) the amount or availability of the net
operating loss carryforwards, capital loss carryforwards, tax basis or other tax
attributes of the Company and its Subsidiaries or any limitation thereon,
including any limitation under Section 382 or Section 383 of the Internal
Revenue Code of 1986, as amended (the “Code”), (ii) any Tax consequences
relating to or arising from the transactions contemplated by this Agreement and
(iii) except with respect to Sections 2.13(g) and 2.13(h), any liability of the
Company and its Subsidiaries for Taxes after the Closing.

(j) As used in this Agreement, (i) the term “Tax” (including, with correlative
meaning, the term “Taxes”) means all federal, state, local and foreign income,
profits, franchise, gross receipts, environmental, customs duty, capital stock,
severances, stamp, payroll, sales, employment, unemployment, disability, use,
property, withholding, excise, production, value added, occupancy and other
governmental taxes, duties or assessments in the nature of a tax, together with
all interest, penalties and additions imposed with respect to such amounts,
(ii) the term “Tax Return” means all returns, reports, claims or other filings
(including elections, declarations, disclosures, schedules, estimates and
information returns) with respect to Taxes required to be filed with a Tax
authority, (iii) the term “Affiliated Group” means an “affiliated group” as
defined in Section 1504 of the Code, and (iv) the term “Treasury Regulations”
means the United States Treasury Regulations promulgated under the Code.

2.14 Intellectual Property.

(a) The Company or one of its Subsidiaries, as applicable, is the sole and
exclusive owner of, and possesses all rights, title and interests in and to, the
Owned Intellectual

 

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Property, free and clear of all Liens other than Permitted Liens except as,
individually or in the aggregate, would not reasonably be expected to be
material and adverse to the Company and its Subsidiaries, taken as a whole. No
shareholder, member, officer, director, manager, employee, contractor or
consultant of the Company or its Subsidiaries has any right, title or interest
in any material Owned Intellectual Property (other than by virtue of their
ownership interest in the Company or any of its Subsidiaries). The Owned
Intellectual Property is valid, subsisting and, to the Knowledge of the Company,
enforceable in all material respects, and all periodic registration,
maintenance, renewal and other fees required for maintaining the Owned
Intellectual Property have been paid in the ordinary course of business. None of
the Company or its Subsidiaries is in the process of abandoning any of the Owned
Intellectual Property.

(b) To the Knowledge of the Company, in addition to the Owned Intellectual
Property, the Company or a Subsidiary of the Company has a valid right or
license to use all other Intellectual Property that is necessary for the conduct
of the business of the Company and its Subsidiaries as currently conducted
(collectively with the Owned Intellectual Property, the “Company Intellectual
Property”) except as, individually or in the aggregate, would not reasonably be
expected to be material and adverse to the Company and its Subsidiaries, taken
as a whole, provided that the foregoing is not a representation of
non-infringement by the Company or any Subsidiary of the Company, which is
addressed by Section 2.14(d) below. To the Knowledge of Company, no order,
litigation, action, suit, claim, hearing, arbitration, investigation or other
proceeding has been issued in the last three (3) years, is pending or, to the
Knowledge of the Company, is threatened, that challenges the Company’s or any of
its Subsidiaries’ ownership of, right or license to use, or the legality, scope,
validity or enforceability of any of the Owned Intellectual Property, that
would, if there were an unfavorable decision, reasonably be expected to be
material and adverse to the Company and its Subsidiaries, taken as a whole.

(c) To the Knowledge of the Company, each of the Intellectual Property Contracts
is valid and binding on the Company or its Subsidiaries, as the case may be, and
each other party thereto except as, individually or in the aggregate, would not
reasonably be expected to be material and adverse to the Company and its
Subsidiaries, taken as a whole. In the past three (3) years, neither the Company
nor any of its Subsidiaries has given or received written notice of any default
or event that, with the lapse of time or the giving of notice, or both, would
constitute a default under any such Intellectual Property Contracts by the
Company or its Subsidiaries or any Person party thereto, except for any such
default that, individually or in the aggregate, are not and would not reasonably
be expected to be material and adverse to the Company and its Subsidiaries,
taken as a whole.

(d) To the Knowledge of the Company, the Company and its Subsidiaries are not
interfering with, infringing upon, misappropriating, or violating any
Intellectual Property of any Person and, in the past three (3) years, none of
the Company or any of its Subsidiaries has received any written charge,
complaint, claim, demand or notice alleging any such interference, infringement,
misappropriation or violation (including any claim that the Company or a
Subsidiary must license or refrain from using the Intellectual Property of any
third party). To the Knowledge of the Company, no third party is materially
interfering with, infringing upon, misappropriating or violating any Company
Intellectual Property.

 

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(e) For purposes of this Agreement, the following terms have the following
meanings:

(i) “Intellectual Property” means all intellectual property rights, in any
jurisdiction worldwide, whether registered or unregistered, including: (A) all
classes or types of patents, design patents and utility patents, including
originals, provisionals, divisions, continuations, continuations in part,
conversions, counterparts, revisions, extensions, reexaminations and reissues
and all invention disclosures for such classes or types of patent rights
(whether or not patentable and whether or not reduced to practice); (B) all
trademarks, service marks, trade dress, trade names, product names, Internet
domain names, URLs and social media account names, corporate names, brand names,
logos and similar designations of source or origin, including all goodwill
symbolized by any of the foregoing; (C) all rights of publicity and privacy and
all moral rights; (D) all published and unpublished works of authorship, whether
copyrightable or not, and all copyrights in and to the foregoing; (E) all
proprietary rights in data, databases, data collection and other compilations of
information, including customer and supplier lists and marketing and loyalty
programs; (F) all know-how, trade secrets and proprietary information, including
ideas, research and development, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, digital design
files, fabric patterns, drawings, specifications, schematics, business methods,
prototypes, concept boards, plans, proposals, tooling and models; (G) all
applications and registrations for the foregoing and all renewals or extensions
thereof; and (H) all claims or causes of action arising out of or related to
past, present or future infringement or misappropriation of the foregoing,
including the right to sue for and recover damages for such infringement or
misappropriation.

(ii) “Intellectual Property Contracts” means, collectively, each Contract
pursuant to which (A) the Company or any of its Subsidiaries has granted any
Person any license under or right to use (in each case that is currently
exercisable), any material Owned Intellectual Property, other than
non-disclosure agreements and customer agreements entered into in the ordinary
course of business, or (B) any Person has granted the Company or any of its
Subsidiaries any license under or right to use any material Intellectual
Property, other than non-disclosure agreements and licenses for Off-the-Shelf
Software.

(iii) “Off-the-Shelf Software” means software, other than open source software,
obtained from a third party (A) on general commercial terms, (B) that is not
distributed with or incorporated in any product or service of the Company or its
Subsidiaries, (C) that is used for business infrastructure or other internal
purposes and (D) was licensed for fixed payments of less than $100,000 in the
aggregate or annual payments of less than $100,000 per year.

(iv) “Owned Intellectual Property” means, collectively, all Intellectual
Property owned or purported to be owned by the Company or its Subsidiaries.

2.15 Brokers and Finders. Neither the Company nor any of its officers, directors
or employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders, fees in connection with the Conversion
or the other transactions contemplated in this Agreement.

 

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2.16 Joint Venture. To the Knowledge of the Company (i) there are no Actions
pending or threatened against the Joint Venture or any of its Subsidiaries;
(ii) the Joint Venture is not infringing upon, misappropriating, or violating
any Intellectual Property of any Person; and (iii) the business of the Joint
Venture has not been, and is not being, conducted in violation of any Laws or
Licenses, except for those violations that, individually or in the aggregate,
would not reasonably be expected to be material and adverse to the Joint
Venture. There are no liabilities on the part of the Company or any of its
Subsidiaries in respect of any indemnification obligations to the Joint Venture
pursuant to any Contracts to which the Company and the Joint Venture are party.

2.17 No Other Representations or Warranties. Except for the representations and
warranties contained in this Article II, neither the Company nor any other
Person on behalf of the Company makes any express or implied representation or
warranty with respect to the Company or with respect to any other information
provided to Purchaser in connection with the transactions contemplated hereby.

2.18 Disclaimer of Other Representations and Warranties. The Company
acknowledges and agrees that, except for the representations and warranties
expressly set forth in this Agreement (a) none of Purchaser or any other Person
on behalf of Purchaser makes, or has made, any representations or warranties
relating to itself or its business or otherwise in connection with the Purchase,
the Issuance or the Conversion and the Company or any Person on behalf of the
Company is not entitled to and is not relying on any representation or warranty
except for those expressly set forth in Article III of this Agreement and (b) no
Person has been authorized by Purchaser to make any representation or warranty
relating to itself or its business or otherwise in connection with the Purchase,
the Issuance or the Conversion, and if made, such representation or warranty
must not be relied upon by the Company as having been authorized by such party.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to the Company as of the date hereof
and as of the Closing as follows:

3.1 Organization, Good Standing and Qualification. Purchaser is a legal entity
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, has all requisite corporate or similar power and
authority to own, lease and operate its properties and assets and to carry on
its business as presently conducted and is qualified to do business and is in
good standing as a foreign corporation or other legal entity in each
jurisdiction where the ownership, leasing or operation of its assets or
properties or conduct of its business requires such qualification, except where
the failure to be so organized, qualified or in good standing or to have such
power or authority, would not, individually or in the aggregate, reasonably be
expected to prevent, materially delay or impair the ability of Purchaser to
consummate the Purchase, the Issuance, the Conversion or the other transactions
contemplated by this Agreement.

 

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3.2 Authority. Purchaser has all requisite limited liability company power and
authority and has taken all limited liability company action necessary in order
to execute, deliver and perform its obligations under this Agreement and to
consummate the Purchase, the Issuance, the Conversion and the transactions
contemplated by this Agreement. This Agreement has been duly executed and
delivered by Purchaser and, assuming due authorization, execution and delivery
by the Company and Seller, constitutes a valid and binding agreement of
Purchaser enforceable against Purchaser in accordance with its terms, subject to
the Bankruptcy and Equity Exception.

3.3 Governmental Filings; No Violations; Etc.

(a) Other than reports and filings under, and compliance with, the Securities
Act or the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated hereby, no notices, reports or other filings are
required to be made by Purchaser with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by Purchaser from,
any Governmental Entity in connection with the execution, delivery and
performance of this Agreement by Purchaser and the consummation of the Purchase,
the Issuance, the Conversion and the other transactions contemplated hereby,
except those that the failure to make or obtain would not, individually or in
the aggregate, reasonably be expected to prevent or materially delay the ability
of Purchaser to consummate the Purchase, the Issuance, the Conversion and the
other transactions contemplated by this Agreement.

(b) The execution, delivery and performance of this Agreement by Purchaser do
not, and the consummation by Purchaser of the Issuance, the Purchase, the
Conversion and the other transactions contemplated hereby will not, constitute
or result in (i) a breach or violation of, or a default under, the articles of
incorporation or bylaws of Purchaser or the comparable governing documents of
any of its Subsidiaries, (ii) with or without notice, lapse of time or both, a
breach or violation of, a termination (or right of termination) or default
under, the creation or acceleration of any obligations under or the creation of
a Lien on any of the assets of Purchaser or any of its Subsidiaries pursuant to,
any Contracts binding upon Purchaser or any of its Subsidiaries or any Laws or
governmental or non-governmental permit or license to which Purchaser or any of
its Subsidiaries is subject; or (iii) any change in the rights or obligations of
any party under any of such Contracts, permits or licenses, except, in the case
of clause (ii) or (iii) above, for any breach, violation, termination, default,
creation, acceleration or change that would not, individually or in the
aggregate, reasonably be expected to prevent or materially delay the ability of
Purchaser to consummate the Purchase, the Issuance, the Conversion and the other
transactions contemplated by this Agreement.

3.4 Litigation and Liabilities.

(a) There are no material Actions pending or, to the Knowledge of Purchaser,
threatened against Purchaser or any of its Subsidiaries that would prevent,
materially delay or materially impede Purchaser’s ability to consummate the
Purchase, the Issuance, the Conversion or the other transactions contemplated
hereby.

 

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(b) Purchaser is not subject to any outstanding order, writ, injunction or
decree that would prevent, materially delay or materially impede Purchaser’s
ability to consummate the Purchase, the Issuance, the Conversion or the other
transactions contemplated hereby.

3.5 Investment Representations

(a) The Shares are being acquired for Purchaser’s own account, not as a nominee
or agent for any other person, and without a view to the distribution of the
Shares or any interest therein in violation of the Securities Act, and the
Shares will not be disposed of in contravention of the Securities Act or any
applicable state securities laws.

(b) Purchaser (i) is an “Accredited Investor” as such term is defined in
Regulation D under the Securities Act and (ii) has, or with a “purchaser
representative” (as defined in Rule 501 of the Securities Act as presently in
effect) has, such knowledge and experience in financial or business matters that
Purchaser is capable of evaluating the merits and risks of the investment in the
Shares.

(c) Purchaser has business or financial experience from which it could be
reasonably assumed that Purchaser has the capacity to protect its own interest
in connection with the transaction.

(d) Purchaser has been provided, to its satisfaction, the opportunity to ask
questions concerning the terms and conditions of the issuance of the Shares in
the Issuance and the Conversion, has had all such questions answered to its
satisfaction and has been supplied all additional information requested by it to
verify the accuracy of the information furnished to it and to make an informed
investment decision based on the information provided with respect to the
Shares.

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

(f) Purchaser understands and acknowledges that (i) the Shares are being offered
and sold without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act, (ii) the
availability of such exemption depends in part on, and the Company and Seller
will rely upon the accuracy and truthfulness of, the foregoing representations
and Purchaser hereby acknowledges such reliance, and (iii) the Shares are
“restricted securities” for purposes of the Securities Act and rules thereunder
and may not be resold without registration under the Securities Act or an
exemption therefrom, and any certificates representing such shares will bear a
restrictive legend to such effect.

3.6 Ownership. Pursuant to the Assignment Agreement, Purchaser holds of record
and beneficially owns the promissory note evidencing the indebtedness of the
Company under the LSA, free and clear of all Liens (other than any restrictions
under the Securities Act and state securities laws, and those arising under the
terms of the LSA and this Agreement).

 

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3.7 Brokers and Finders. Neither Purchaser nor any of its officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders, fees in connection with the Purchase,
the Issuance, the Conversion or the other transactions contemplated in this
Agreement.

3.8 No Other Representations or Warranties. Except for the representations and
warranties contained in this Article III, none of Purchaser or any other Person
on behalf of Purchaser makes any express or implied representation or warranty
with respect to Purchaser or with respect to any other information provided to
the Company or Seller in connection with the transactions contemplated hereby.

3.9 Disclaimer of Other Representations and Warranties. Purchaser acknowledges
and agrees that, except for the representations and warranties expressly set
forth in this Agreement (a) none of Seller, the Company, its Subsidiaries or any
other Person on behalf of Seller, the Company or its Subsidiaries makes, or has
made, any representations or warranties relating to itself or its business or
otherwise in connection with the Purchase, the Issuance or the Conversion and
Purchaser or any Person on behalf of Purchaser is not entitled to and is not
relying on any representation or warranty except for those expressly set forth
in Articles II and IV of this Agreement and (b) no Person has been authorized by
Seller, the Company or any of its Subsidiaries to make any representation or
warranty relating to itself or its business or otherwise in connection with the
Purchase, the Issuance or the Conversion, and if made, such representation or
warranty must not be relied upon by Purchaser as having been authorized by such
party.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Purchaser as of the date hereof, as of
the Closing and, with respect to the representations contained in Section 4.1,
as of the date of any Subsequent Purchase, as follows:

4.1 Ownership of Shares.

(a) Such Seller is the sole record and beneficial owner of the Purchased Shares
and the Subsequent Purchase Shares. Such Seller has good title to all such
Purchased Shares and Subsequent Purchase Shares, free and clear of all Liens
(other than any transfer restrictions imposed by federal and state securities
laws) and, upon the transfer to Purchaser in compliance with the provisions of
this Agreement, such Purchased Shares and Subsequent Purchase Shares shall be
free and clear of all Liens, other than any Lien created by or arising as a
direct result of the Investor Agreement or actions of Purchaser.

(b) There are no preemptive or other outstanding rights, options, warrants,
conversion rights, stock appreciation rights, redemption rights, repurchase
rights, agreements, arrangements or commitments of any character under which
such Seller is or may become obligated to sell, or giving any Person a right to
acquire, or in any way dispose of, any of such Seller’s Purchased Shares or and
the Subsequent Purchase Shares, or any securities or

 

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obligations exercisable or exchangeable for, or convertible into, such Seller’s
Purchased Shares or the Subsequent Purchase Shares, or any “tag-along”,
“drag-along” or similar rights with respect to such Purchased Shares or
Subsequent Purchase Shares. Except for this Agreement and the Investor
Agreement, such Seller is not a party to any voting trusts, proxies, or other
shareholder or similar agreements or understandings with respect to the voting,
purchase, repurchase or transfer of the Common Stock.

4.2 Organization, Good Standing and Qualification. Such Seller is a legal entity
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, has all requisite corporate or similar power and
authority to own, lease and operate its properties and assets and to carry on
its business as presently conducted and is qualified to do business and is in
good standing as a foreign corporation or other legal entity in each
jurisdiction where the ownership, leasing or operation of its assets or
properties or conduct of its business requires such qualification, except where
the failure to be so organized, qualified or in good standing or to have such
power or authority, would not, individually or in the aggregate, reasonably be
expected to prevent, materially delay or impair the ability of Purchaser to
consummate the Purchase, the Issuance, the Conversion or the other transactions
contemplated by this Agreement.

4.3 Authority. Such Seller has all requisite power and authority and has taken
all action necessary in order to execute, deliver and perform its obligations
under this Agreement and to consummate the Purchase and the transactions
contemplated by this Agreement, and has all requisite organizational power and
authority and has taken all organizational action necessary in order to execute,
deliver and perform its obligations under this Agreement and to consummate the
Purchase and the transactions contemplated by this Agreement. This Agreement has
been duly executed and delivered by Seller and, assuming due authorization,
execution and delivery by the Company and Purchaser, constitutes a valid and
binding agreement of such Seller enforceable against such Seller in accordance
with its terms, subject to the Bankruptcy and Equity Exception.

4.4 Governmental Filings; No Violations; Etc.

(a) No notices, reports or other filings are required to be made by such Seller
with, nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by such Seller from, any Governmental Entity in
connection with the execution, delivery and performance of this Agreement by
such Seller and the consummation of the Purchase and the other transactions
contemplated hereby, except those that the failure to make or obtain would not,
individually or in the aggregate, reasonably be expected to prevent or
materially delay the ability of such Seller to consummate the Purchase and the
other transactions contemplated by this Agreement.

(b) The execution, delivery and performance of this Agreement by such Seller
does not, and the consummation by such Seller of the Purchase and the other
transactions contemplated hereby will not, constitute or result in (i) a breach
or violation of, or a default under, the governing documents of such Seller, as
applicable, (ii) with or without notice, lapse of time or both, a breach or
violation of, a termination (or right of termination) or default under, the
creation or acceleration of any obligations under or the creation of a Lien on
any of the assets of

 

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such Seller pursuant to, any Contracts binding upon such Seller or any Laws or
governmental or non-governmental permit or license to which such Seller is
subject; or (iii) any change in the rights or obligations of any party under any
of such Contracts, permits or licenses, except, in the case of clause (ii) or
(iii) above, for any breach, violation, termination, default, creation,
acceleration or change that would not, individually or in the aggregate,
reasonably be expected to prevent or materially delay the ability of such Seller
to consummate the Purchase and the other transactions contemplated by this
Agreement.

4.5 Litigation and Liabilities.

(a) There are no material Actions pending or, to the knowledge of such Seller,
threatened against such Seller that would prevent, materially delay or
materially impede such Seller’s ability to consummate the Purchase or the other
transactions contemplated hereby.

(b) Such Seller is not subject to any outstanding order, writ, injunction or
decree that would prevent, materially delay or materially impede such Seller’s
ability to consummate the Purchase or the other transactions contemplated
hereby.

4.6 Brokers and Finders. Such Seller has not employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders, fees in
connection with the Purchase or the other transactions contemplated in this
Agreement.

4.7 No Other Representations or Warranties. Except for the representations and
warranties contained in this Article IV, none of Seller or any other Person on
behalf of Seller makes any express or implied representation or warranty with
respect to Seller or with respect to any other information provided to Purchaser
in connection with the transactions contemplated hereby.

4.8 Disclaimer of Other Representations and Warranties. Seller acknowledges and
agrees that, except for the representations and warranties expressly set forth
in this Agreement (a) none of Purchaser or any other Person on behalf of
Purchaser makes, or has made, any representations or warranties relating to
itself or its business or otherwise in connection with the Purchase, the
Issuance or the Conversion and Seller or any Persons on behalf of Seller are not
entitled to and are not relying on any representation or warranty except for
those expressly set forth in Article III of this Agreement and (b) no Person has
been authorized by Purchaser to make any representation or warranty relating to
itself or its business or otherwise in connection with the Purchase, the
Issuance or the Conversion, and if made, such representation or warranty must
not be relied upon by Seller as having been authorized by such party.

ARTICLE V

COVENANTS

5.1 Stock Exchange Deregistration. The Company shall use reasonable best
efforts, and Purchaser shall reasonably cooperate with the Company, to take, or
cause to be taken, all actions, and do or cause to be done all things,
reasonably necessary, proper or advisable on its part under applicable Laws to
enable the deregistration of the Common Stock under the Exchange Act as promptly
as practicable after the Closing.

 

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5.2 Expenses. All costs and expenses incurred in connection with this Agreement
and the Issuance, the Purchase, the Conversion and the other transactions
contemplated hereby shall be paid by the party incurring such expense.

5.3 Taxes. For U.S. federal income tax purposes, Purchaser and the Company
intend that the Conversion will result in a value-for-value satisfaction of
indebtedness of the Company’s obligations under the LSA (within the meaning of
Section 108(e)(8) of the Code) to the extent of the value of the Common Stock
received by Purchaser in the Conversion.

5.4 Publicity. The initial press release regarding the Issuance, the Purchase
and the Conversion shall be a joint press release among all parties thereto, and
thereafter the Company, Seller and Purchaser each shall use their respective
best efforts to consult with each other prior to issuing any press releases or
otherwise making public announcements with respect to the Issuance, the
Purchase, the Conversion and the other transactions contemplated by this
Agreement and prior to making any filings with any third party and/or any
Governmental Entity (including any national securities exchange or interdealer
quotation service) with respect thereto, except as may be required by applicable
Laws or by obligations pursuant to any listing agreement with or rules of any
national securities exchange or interdealer quotation service or by the request
of any Governmental Entity.

5.5 Takeover Statutes. If any Takeover Statute is or may become applicable to
the Issuance, the Purchase, the Conversion or the other transactions
contemplated by this Agreement, the Company and its board of directors shall
grant such approvals and take such actions as are necessary so that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.

5.6 Information Rights. The Company shall promptly deliver to Purchaser (i) such
information concerning the Company and its Subsidiaries, including financial
information, in such manner and at such times as Purchaser may reasonably
request, so as to allow Purchaser to (A) comply with its obligations under the
Exchange Act, including any financial reporting, certification and disclosure
requirements (or any attestation by an independent auditor with respect to any
of the foregoing) or (B) complete any Tax filings or respond to any queries
raised by a Tax authority in any jurisdiction and (ii) such other financial and
business information as Purchaser may reasonably request from time to time.

5.7 Joint Venture Distributions. From and after the Closing, unless prohibited
by any Law or Contract between the Company and one or more third parties and
except as otherwise determined by the unanimous vote of the board of directors
of the Company, the Company shall distribute at least annually to shareholders
of the Company, in the form of cash dividends, available cash proceeds received
by the Company from the Joint Venture as a result of the Company’s membership in
the Joint Venture, after payment of or reasonable provision for any and all
expenses and liabilities of the Company, in each case as determined by the board
of directors of the Company in its reasonable discretion.

 

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ARTICLE VI

CLOSING DELIVERABLES

6.1 Company’s Deliverables. At the Closing, the Company shall make or tender, or
cause to be made or tendered, delivery of the following to Purchaser and Seller,
as applicable:

(a) Transfer Agent Instructions. A copy of the irrevocable instructions
delivered to Computershare Trust Company, N.A., or such other transfer agent of
the Company at the Closing Date (the “Transfer Agent”), instructing the Transfer
Agent to deliver, on an expedited basis, to Purchaser, the Purchased Shares, the
Issued Shares and the Conversion Shares in book entry form in the Direct
Registration System.

(b) Board of Directors. The Company shall have (i) caused the number of
directors that will comprise the full board of directors of the Company from and
after the Closing to be five, (ii) obtained the written resignations of Brett
Brewer and Seth Johnson as directors of the Company, effective as of the
Closing, (iii) caused Kenny Young and Nick Capuano to be appointed to the board
of directors of the Company to fill the vacancies resulting from the
resignations contemplated by clause (ii) hereof from and after the Closing,
(iv) caused Nick Capuano to be appointed to the board of managers of the Joint
Venture and (v) obtained the irrevocable written resignations of Robert Galvin
and Corrado Federico as directors of the Company in the form previously provided
to Purchaser.

(c) Tax Benefit Preservation. A tax benefit preservation plan duly executed and
delivered by the Company and the Transfer Agent in the form set forth in Exhibit
A hereto.

(d) Investor Agreement. The Investor Agreement, duly executed and delivered by
the Company and the other investors party thereto (other than Purchaser and
Seller).

6.2 Purchaser’s Deliverables. At the Closing, Purchaser shall make or tender, or
cause to be made or tendered, delivery of the following to the Company or
Seller, as applicable:

(a) Investor Agreement. The Investor Agreement, duly executed and delivered by
Purchaser.

(b) Termination Agreement and Release. (i) A termination agreement duly executed
by Purchaser and any other parties to the LSA in form and substance previously
approved by to the Company and (ii) a copy or copies of any and all releases of
any and all Liens against the Company or its Subsidiaries arising from or in
connection with the LSA in form and substance previously approved by to the
Company.

(c) IRS Form W-9. An IRS Form W-9 duly executed by Purchaser certifying
Purchaser’s employer identification number, status as a United States person and
exemption from U.S. backup withholding, and any similar forms required for U.S.
state or local tax purposes.

 

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(d) Purchased Shares Consideration. For Seller, an amount equal to the product
of the Price Per Share multiplied by the number of Purchased Shares pursuant to
instructions given to Purchaser by Seller no later than two (2) business days
prior to the Closing Date.

(e) Issued Shares Consideration. For the Company, an amount equal to the product
of the Price Per Share multiplied by the number of Issued Shares pursuant to
instructions given to Purchaser by the Company no later than two (2) business
days prior to the Closing Date.

6.3 Seller’s Deliverables. At the Closing, Seller shall make or tender, or cause
to be made or tendered, delivery to the Company or Purchaser, as applicable:

(a) Purchased Shares. The share certificates, if any, representing ownership of
Seller’s Purchased Shares, duly endorsed in blank by the record holder thereof
or accompanied by duly executed stock power(s) endorsed in blank by the record
holder thereof.

(b) Investor Agreement. The Investor Agreement, duly executed and delivered by
Seller.

ARTICLE VII

MISCELLANEOUS AND GENERAL

7.1 Survival of Representations, Warranties and Covenants. The representations
and warranties contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Closing until December 31, 2018
(the “Expiration Date”). Any claim for a breach of a representation or warranty
must be delivered prior to the Expiration Date. Unless otherwise indicated, the
covenants and agreements set forth in this Agreement or in any instrument
delivered pursuant to this Agreement which by their terms are required to be
performed at or after the Closing shall survive the Closing until they have been
performed or satisfied.

7.2 Modification or Amendment. The parties hereto may modify or amend this
Agreement by written agreement which, in the case of an entity, is executed and
delivered by duly authorized officers of such entity.

7.3 Waiver of Conditions. Any failure of the parties to comply with any
obligation, covenant, agreement or condition in this Agreement may be waived by
the party entitled to the benefits thereof only by a written agreement signed by
the party granting such waiver. No delay on the part of any party to this
Agreement in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any waiver on the part of any party of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder.

7.4 Counterparts. This Agreement may be executed by digital or telephonic
facsimile in any number of counterparts, each such counterpart being deemed to
be an original instrument, and all such counterparts shall together constitute
the same agreement.

 

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7.5 GOVERNING LAW AND VENUE; SPECIFIC PERFORMANCE.

(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF TO
THE EXTENT THAT SUCH PRINCIPLES WOULD DIRECT A MATTER TO ANOTHER JURISDICTION.
The parties hereby irrevocably submit to the personal jurisdiction of the courts
of the State of Delaware and the Federal courts of the United States of America
located in the State of Delaware solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement, and in respect of the transactions contemplated hereby, and
hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such document,
that it is not subject thereto or that such action, suit or proceeding may not
be brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement or any such document may not be
enforced in or by such courts, and the parties hereto irrevocably agree that all
claims relating to such action, proceeding or transactions shall be heard and
determined in such a State or Federal court. The parties hereby consent to and
grant any such court jurisdiction over the person of such parties and, to the
extent permitted by law, over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 7.6 or in such other manner as may
be permitted by Law shall be valid and sufficient service thereof.

(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (II) IT UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (III) IT MAKES SUCH WAIVERS
VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.5(b).

(c) The parties agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any court identified in Section 7.5(a), and each party hereby
agrees to waive the defense in any such suit that the other parties to this
Agreement have an adequate remedy at law and to interpose no opposition, legal
or otherwise, as to the propriety

 

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of injunction as a remedy, and hereby agrees to waive any requirement to post
any bond in connection with obtaining such relief. The equitable remedies
described in this Section 7.5(c) shall be in addition to, and not in lieu of,
any other remedy to which such party is entitled at law or in equity.

7.6 Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and delivered
personally or sent by overnight courier, by facsimile or by e-mail of a pdf
attachment.

If to Purchaser:

B. Riley Financial, Inc.

21255 Burbank Boulevard, Suite 400

Woodland Hills, California 91367

Attention: Alan Forman

email: aforman@brileyfin.com

with a copy to Patrick S. Brown, Esq.,

Sullivan & Cromwell LLP

1888 Century Park East, Suite 2100

Los Angeles, California 90067

fax: (310) 407-2685

email: brownp@sullcrom.com

If to the Company:

400 Valley Drive,

Brisbane, CA 94005

Attention: Gary Bosch

email: gbosch@bebe.com

with a copy to Tad J. Freese,

Latham & Watkins LLP

140 Scott Drive

Menlo Park, California 94025

fax: (650) 463-2600

email: tad.freese@lw.com

If to Seller:

639 Huntsley Drive, #4,

West Hollywood, CA 90069.

Attention: Manny Mashouf

email: mannymashouf@yahoo.com

with a copy to Tad J. Freese,

Latham & Watkins LLP

140 Scott Drive

Menlo Park, California 94025

fax: (650) 463-2600

email: tad.freese@lw.com

 

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or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above. Any notice, request, instruction
or other document given as provided above shall be deemed given to the receiving
party upon actual receipt, if delivered personally; when sent if sent by
facsimile or email of a .pdf attachment (provided, that if given by facsimile or
email of a .pdf attachment, such notice, request, instruction or other document
shall be followed up within one business day by dispatch pursuant to another
method described herein; which, for the avoidance of doubt, may include by email
of a .pdf attachment if the initial notice is given by facsimile or by facsimile
in the initial notice is given by email of a .pdf attachment); or on the next
business day after deposit with an overnight courier, if sent by an overnight
courier.

7.7 Entire Agreement. This Agreement (including any exhibits hereto), the
Company Disclosure Letter, the Investor Agreement, the LSA and documents
relating thereto constitute the entire agreement and supersede all other prior
agreements, understandings, representations and warranties both written and
oral, among the parties, with respect to the subject matter hereof.

7.8 No Third Party Beneficiaries.

(a) Seller, Purchaser and the Company hereby agree that their respective
representations, warranties and covenants set forth herein are solely for the
benefit of the other parties hereto, in accordance with and subject to the terms
of this Agreement, and this Agreement is not intended to, and does not, confer
upon any Person other than the parties hereto any rights or remedies hereunder,
including the right to rely upon the representations and warranties set forth
herein.

(b) The representations and warranties in this Agreement are the product of
negotiations among the parties hereto and are for the sole benefit of the
parties hereto. Any inaccuracies in such representations and warranties are
subject to waiver by the parties hereto in accordance with Section 7.3 without
notice or liability to any other Person. In some instances, the representations
and warranties in this Agreement may represent an allocation among the parties
hereto of risks associated with particular matters regardless of the knowledge
of any of the parties hereto. Consequently, Persons other than the parties
hereto may not rely upon the representations and warranties in this Agreement as
characterizations of actual facts or circumstances as of the date of this
Agreement or as of any other date.

7.9 Obligations of Purchaser and of the Company. Whenever this Agreement
requires a Subsidiary of Purchaser to take any action, such requirement shall be
deemed to include an undertaking on the part of Purchaser to cause such
Subsidiary to take such action. Whenever this Agreement requires a Subsidiary of
the Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action.

 

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7.10 Definitions. Each of the terms set forth in Annex A is defined in the
Section of this Agreement set forth opposite such term.

7.11 Severability. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof. If any provision of
this Agreement, or the application of such provision to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application of
such provision, in any other jurisdiction.

7.12 Interpretation; Construction.

(a) The table of contents and headings herein are for convenience of reference
only, do not constitute part of this Agreement and shall not be deemed to limit
or otherwise affect any of the provisions hereof. Where a reference in this
Agreement is made to a Section or Exhibit, such reference shall be to a Section
of or Exhibit to this Agreement unless otherwise indicated. Whenever the words
“include,” “includes” or “including” are used in this Agreement, they shall be
deemed to be followed by the words “without limitation.”

(b) The parties have participated jointly in negotiating and drafting this
Agreement. In the event that an ambiguity or a question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provision of this
Agreement. Any reference to any federal, state, county, local or foreign statute
or Law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. Any reference in this
Agreement to gender shall include all genders, and words imparting the singular
number only shall include the plural and vice versa. The words such as “herein,”
“hereinafter,” “hereof,” “hereunder” and “hereto” refer to this Agreement as a
whole and not merely to a subdivision in which such words appear unless the
context otherwise requires. Any reference in this Agreement to “$” or dollars
shall mean U.S. dollars. References to any agreement or Contract are to that
agreement or Contract as amended, modified or supplemented from time to time in
accordance with their terms. Time is of the essence with respect to the
performance of this Agreement.

(c) The Company has set forth information in the Company Disclosure Letter in a
section of such Company Disclosure Letter that corresponds to the section of
this Agreement to which it relates. The fact that any item of information is
disclosed in a Company Disclosure Letter to this Agreement is not intended to
broaden the scope of any representation or warranty of the Company contained in
this Agreement, and disclosure of any item in the Company Disclosure Letter
shall not be construed to mean that such information is material or required to
be disclosed by this Agreement.

 

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7.13 Assignment. No party may assign any of its rights or delegate any of its
obligations under this Agreement, by operation of law or otherwise, without the
prior written consent of the other party, except that Purchaser may assign any
and all of its rights under this Agreement to one or more of the direct or
indirect wholly-owned Subsidiaries of Purchaser’s public parent company (but no
such assignment shall relieve Purchaser of any of its obligations hereunder).
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties to this Agreement and their
respective successors and assigns. Any purported assignment in violation of this
Agreement is void.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
duly authorized officers of the parties hereto as of the date first written
above.

 

bebe stores, inc. By:  

/s/ MANNY MASHOUF

  Name:   Manny Mashouf   Title:   Chief Executive Officer B. Riley Financial,
Inc. By:  

/s/ BRYANT RILEY

  Name:   Bryant Riley   Title:   Chairman and Chief Executive
Officer The Manny Mashouf Living Trust By:  

/s/ MANNY MASHOUF

  Name:   Manny Mashouf   Title:   Trustee

[Signature Page to Debt Conversion and Purchase and Sale Agreement]

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

ANNEX A

Defined Terms

 

Terms

 

Section

Action

 

2.8(a)

Affiliate

 

2.6(b)

Affiliated Group

 

2.13(j)

Agreement

 

Preamble

Applicable Date

 

2.6(a)

Assignment Agreement

 

Recitals

Bankruptcy and Equity Exception

 

2.3(a)

business day

 

1.2

Closing

 

1.2

Closing Date

 

1.2

Code

 

2.13(i)

Common Stock

 

Recitals

Company

 

Preamble

Company Disclosure Letter

 

ARTICLE II

Company Intellectual Property

 

2.14(b)

Company Reports

 

2.6(a)

Contract

 

2.5(b)

Conversion

 

1.1(a)

Conversion Shares

 

1.1(a)

Exchange Act

 

2.5(a)

Expiration Date

 

7.1

GAAP

 

2.1(b)(iii)

Governmental Entity

 

2.5(a)

Intellectual Property

 

2.14(e)(i)

Intellectual Property Contracts

 

2.14(e)(ii)

Investor Agreement

 

1.1(a)

Issuance

 

1.1(c)

Issued Shares

 

Recitals

Joint Venture

 

2.1(b)

Knowledge

 

2.8(c)

Laws

 

2.9

Licenses

 

2.9

Lien

 

1.1(a)

LSA

 

Recitals

Material Adverse Effect

 

2.1(b)

Material Contract

 

2.10(a)

Off-the-Shelf Software

 

2.14(e)(iii)

OTCQB

 

2.1(b)(vii)

Owned Intellectual Property

 

2.14(e)(iv)

Owned Real Property

 

2.11(a)

Permitted Lien

 

2.11(b)

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

Person

 

2.1(b)

Price Per Share

 

1.1(a)

Purchase

 

1.1(b)

Purchased Shares

 

Recitals

Purchaser

 

Preamble

Sarbanes-Oxley Act

 

2.6(a)

SEC

 

ARTICLE II

Securities Act

 

2.4(b)

Seller

 

Preamble

Shares

 

1.1(a)

Subsequent Purchase

 

1.3

Subsequent Purchase Shares

 

1.3

Subsidiary

 

2.1(b)

Takeover Statute

 

2.12

Tax

 

2.13(j)

Tax Return

 

2.13(j)

Taxes

 

2.13(j)

Transfer Agent

 

6.1(a)

Treasury Regulations

 

2.13(j)

 

Annex A-2