SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made as of October 10,
2012 by and between Crumbs Bake Shop, Inc., a Delaware corporation (the
“Company”), and each of the Investors set forth on the signature pages affixed
hereto (each an “Investor” and collectively the “Investors”).

 

Recitals

 

A. The Company and each of the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended;

 

B. The Investors wish to purchase from the Company, and the Company wishes to
sell and issue to the Investors, upon the terms and conditions stated in this
Agreement, an aggregate of 4,456,968 shares (the “Shares”) of the Company’s
common stock, par value $0.0001 per share (together with any securities into
which such common stock may be reclassified, whether by merger, charter
amendment or otherwise, the “Common Stock”), at a purchase price of $2.21 per
Share;

 

C. Contemporaneous with the sale of the Shares, the parties hereto will execute
and deliver a Registration Rights Agreement, in the form attached hereto as
Exhibit A (the “Registration Rights Agreement”), pursuant to which the Company
will agree to provide certain registration rights under the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder, and
applicable state securities laws; and

 

D. Prior to the date hereof, 1,560,000 Class B Exchangeable Units of Crumbs
Holdings, LLC, together with 156,000 shares of the Company’s Series A Voting
Preferred Stock, par value $0.0001 per share, have been irrevocably exchanged
for an aggregate of 1,560,000 shares of Common Stock (the “Restructuring”).

 

In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

Agreement

 

1.                  Definitions. In addition to those terms defined above and
elsewhere in this Agreement, for the purposes of this Agreement, the following
terms shall have the meanings set forth below:

 

“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common Control with, such Person.

 

 

 

 

“Agents” means Janney Montgomery Scott, LLC and Susman Partners, LLC d/b/a
Threadstone Partners.

 

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

 

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

 

“Company’s Knowledge” means the actual knowledge of the executive officers (as
defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.

 

“Confidential Information” means trade secrets, confidential information and
know-how (including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).

 

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

 

“Effective Date” means the date on which the initial Registration Statement is
declared effective by the SEC.

 

“Effectiveness Deadline” means the date on which the initial Registration
Statement is required to be declared effective by the SEC under the terms of the
Registration Rights Agreement.

 

“Intellectual Property” means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii) trademarks, service marks, trade
dress, trade names, corporate names, logos, slogans and Internet domain names,
together with all goodwill associated with each of the foregoing; (iii)
copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).

 

“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.

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“Material Contract” means any contract, instrument or other agreement to which
the Company or any Subsidiary is a party or by which it is bound which is
material to the business of the Company and its Subsidiaries, taken as a whole,
including those that have been filed or were required to have been filed as an
exhibit to the SEC Filings pursuant to Item 601(b)(4) or Item 601(b)(10) of
Regulation S-K.

 

“Nasdaq” means The NASDAQ Capital Market.

 

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

 

“Purchase Price” means Two Dollars and Twenty-One Cents ($2.21).

 

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

 

“Required Investors” means (i) prior to the Closing, (A) any Investor which,
together with its Affiliates, has agreed to purchase at least 1,000,000 Shares
pursuant to this Agreement and (B) the Investors agreeing to purchase a majority
of the Shares pursuant to this Agreement, and (ii) from and after the Closing,
(A) any Investor which, together with its Affiliates, beneficially owns at least
1,000,000 Shares and (B) the Investors beneficially owning a majority of the
Shares then beneficially owned by all Investors.

 

“SEC Filings” has the meaning set forth in Section 4.6.

 

“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.

 

“Transaction Documents” means this Agreement and the Registration Rights
Agreement.

 

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

 

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

 

2.                  Purchase and Sale of the Shares. Subject to the terms and
conditions of this Agreement, on the Closing Date, each of the Investors shall
severally, and not jointly, purchase, and the Company shall sell and issue to
the Investors, the Shares in the respective amounts set forth opposite the
Investors’ names on the signature pages attached hereto in exchange for the
Purchase Price as specified in Section 3 below.

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3.                  Closing. Unless other arrangements have been made with a
particular Investor, upon confirmation that the other conditions to closing
specified herein have been satisfied or duly waived by the Investors, the
Company shall deliver to Lowenstein Sandler PC, in trust, a certificate or
certificates, registered in such name or names as the Investors may designate,
representing the Shares, with instructions that such certificates are to be held
for release to the Investors only upon payment in full of the Purchase Price to
the Company by all the Investors. Unless other arrangements have been made with
a particular Investor, upon such receipt by Lowenstein Sandler PC of the
certificates, each Investor shall promptly, but no later than one Business Day
thereafter, cause a wire transfer in same day funds to be sent to the account of
the Company as instructed in writing by the Company, in an amount representing
such Investor’s pro rata portion of the Purchase Price as set forth on the
signature pages to this Agreement. On the date (the “Closing Date”) the Company
receives the Purchase Price, the certificates evidencing the Shares shall be
released to the Investors (the “Closing”). The Closing of the purchase and sale
of the Shares shall take place at the offices of Lowenstein Sandler PC, 1251
Avenue of the Americas, 18th Floor, New York, New York 10020, or at such other
location and on such other date as the Company and the Investors shall mutually
agree.

 

4.                  Representations and Warranties of the Company. The Company
hereby represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the “Disclosure Schedules”):

 

4.1              Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and each of the Company’s Subsidiaries is an entity
duly formed, validly existing and in good standing under the laws of the
jurisdiction under which it was formed. The Company has all requisite power and
authority to carry on its business as now conducted and to own or lease its
properties and to execute, deliver and perform all of its obligations under the
Transaction Documents and to consummate the transactions contemplated thereby.
Each of the Company’s Subsidiaries has all requisite power and authority to
carry on its business as now conducted and to own or lease its properties. Each
of the Company and its Subsidiaries is qualified to do business as a foreign
entity and is in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property makes such qualification or
leasing necessary unless the failure to be so qualified has not had and could
not reasonably be expected to have a Material Adverse Effect. The Company’s
Subsidiaries are listed on Schedule 4.1 hereto.

 

4.2              Authorization. The Company has full power and authority and has
taken all requisite action on the part of the Company, its officers, directors
and stockholders necessary for (i) the authorization, execution and delivery of
the Transaction Documents, (ii) the authorization of the performance of all
obligations of the Company hereunder or thereunder, (iii) the authorization,
issuance (or reservation for issuance) and delivery of the Shares and (iv) the
Restructuring Assuming the due execution and delivery by the counterparties
thereto, the Transaction Documents constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability, relating
to or affecting creditors’ rights generally and to general equitable principles.

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4.3              Capitalization. Schedule 4.3 sets forth as of the date hereof
and after giving effect to the Restructuring (a) the authorized capital stock of
the Company; (b) the number of shares of capital stock issued and outstanding;
(c) the number of shares of capital stock issuable pursuant to the Company’s
stock plans as in effect on the date hereof (“Stock Plans”); and (d) the number
of shares of capital stock issuable and reserved for issuance pursuant to
securities exercisable for, or convertible into or exchangeable for any shares
of capital stock of the Company. All of the issued and outstanding shares of the
Company’s capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights and were issued in full
compliance with applicable state and federal securities law and any rights of
third parties. Except as described on Schedule 4.3, all of the issued and
outstanding capital securities of each Subsidiary have been duly authorized and
validly issued and are fully paid, nonassessable and free of pre-emptive rights,
were issued in full compliance with applicable state and federal securities law
and any rights of third parties and are owned by the Company, beneficially and
of record, subject to no lien, encumbrance or other adverse claim. Except as
described on Schedule 4.3, no Person is entitled to pre-emptive or similar
statutory or contractual rights with respect to any securities of the Company.
Except as described on Schedule 4.3, there are no outstanding warrants, options,
convertible securities or other rights, agreements or arrangements of any
character under which the Company or any of its Subsidiaries is or may be
obligated to issue any equity securities of any kind and, except as contemplated
by this Agreement, neither the Company nor any of its Subsidiaries is currently
in negotiations for the issuance of any equity securities of any kind. Except as
described on Schedule 4.3 and except for the Registration Rights Agreement,
there are no voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind among the Company and any of
the securityholders of the Company relating to the securities of the Company
held by them. Except as described on Schedule 4.3 and except as provided in the
Registration Rights Agreement, no Person has the right to require the Company to
register any securities of the Company under the 1933 Act, whether on a demand
basis or in connection with the registration of securities of the Company for
its own account or for the account of any other Person.

 

Except as described on Schedule 4.3, the issuance and sale of the Shares
hereunder will not obligate the Company to issue shares of Common Stock or other
securities to any other Person (other than the Investors) and will not result in
the adjustment of the exercise, conversion, exchange or reset price of any
outstanding security.

 

Except as described on Schedule 4.3, the Company does not have outstanding
stockholder purchase rights or “poison pill” or any similar arrangement in
effect giving any Person the right to purchase any equity interest in the
Company upon the occurrence of certain events.

 

4.4              Valid Issuance. The Shares have been duly and validly
authorized and, when issued and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws.

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4.5              Consents. The (i) execution, delivery and performance by the
Company of the Transaction Documents, (ii) the offer, issuance and sale of the
Shares and (iii) the Restructuring require no consent of, action by or in
respect of, or filing with, any Person, governmental body, agency, or official
other than (A) filings that have been made pursuant to applicable state
securities laws or the rules of any applicable securities exchange or securities
market, (B) post-sale filings pursuant to applicable state and federal
securities laws and the rules of any applicable securities exchange or
securities market which the Company undertakes to file within the applicable
time periods, and (C) such consents, actions and filings as have been made and
are in full force and effect. Subject to the accuracy of the representations and
warranties of each Investor set forth in Section 5 hereof, the Company has taken
all action necessary to exempt (i) the issuance and sale of the Shares and (ii)
the other transactions contemplated by the Transaction Documents from the
provisions of any stockholder rights plan or other “poison pill” arrangement,
any anti-takeover, business combination or control share law or statute binding
on the Company or to which the Company or any of its assets and properties may
be subject and any provision of the Company’s Certificate of Incorporation or
Bylaws that is or could reasonably be expected to become applicable to the
Investors as a result of the transactions contemplated hereby, including without
limitation, the issuance of the Shares and the ownership, disposition or voting
of the Shares by the Investors or the exercise of any right granted to the
Investors pursuant to this Agreement or the Registration Rights Agreement.

 

4.6              Delivery of SEC Filings; Business. The Company has made
available to the Investors through the EDGAR system, true and complete copies of
the Company’s most recent Annual Report on Form 10-K for the fiscal year ended
December 31, 2011 (the “10-K”), and all other reports filed by the Company
pursuant to the 1934 Act since the filing of the 10-K and prior to the date
hereof (collectively, the “SEC Filings”). The SEC Filings are the only filings
required of the Company pursuant to the 1934 Act for such period. The Company
and its Subsidiaries are engaged in all material respects only in the business
described in the SEC Filings and the SEC Filings contain a complete and accurate
description in all material respects of the business of the Company and its
Subsidiaries, taken as a whole.

 

4.7              Use of Proceeds. The net proceeds of the sale of the Shares
hereunder shall be used by the Company for working capital and general corporate
purposes.

 

4.8              No Material Adverse Change. Since December 31, 2011, except (A)
as identified and described in the SEC Filings, (B) for the transactions
constituting the Restructuring, or (C) as described on Schedule 4.8, there has
not been:

 

(a)                any change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that reflected in the
financial statements included in the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2012 (as amended by Amendment No. 1 on Form 10-Q/A
filed with the SEC on August 17, 2012), except for changes in the ordinary
course of business which have not had and could not reasonably be expected to
have a Material Adverse Effect, individually or in the aggregate;

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(b)               any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;

 

(c)                any material damage, destruction or loss, whether or not
covered by insurance to any assets or properties of the Company or its
Subsidiaries;

 

(d)               any waiver, not in the ordinary course of business, by the
Company or any Subsidiary of a material right or of a material debt owed to it;

 

(e)                any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or a Subsidiary, except
in the ordinary course of business and which have not had and could not
reasonably be expected to have a Material Adverse Effect taken as a whole (as
such business is presently conducted and as it is proposed to be conducted);

 

(f)                any change or amendment to the Company’s Certificate of
Incorporation or Bylaws, or material change to any Material Contract;

 

(g)               any material labor difficulties or labor union organizing
activities with respect to employees of the Company or any Subsidiary;

 

(h)               any material transaction entered into by the Company or a
Subsidiary other than in the ordinary course of business;

 

(i)                 any loss of the services of any key employee, or material
change in the composition or duties of the senior management of the Company or
any Subsidiary;

 

(j)                 any loss or threatened loss of any customer which has had or
could reasonably be expected to have a Material Adverse Effect; or

 

(k)               any other event or condition of any character that has had or
could reasonably be expected to have a Material Adverse Effect.

 

4.9              SEC Filings; S-3 Eligibility.

 

(a)    At the time of filing thereof, the SEC Filings complied as to form in all
material respects with the requirements of the 1934 Act and did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.

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(b)    Each registration statement and any amendment thereto filed by the
Company since January 1, 2009 pursuant to the 1933 Act and the rules and
regulations thereunder, as of the date such statement or amendment became
effective, complied as to form in all material respects with the 1933 Act and
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading; and each prospectus filed pursuant to
Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of
any sale of securities pursuant thereto did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.

 

(c)    The Company is eligible to use Form S-3 to register the Registrable
Securities (as such term is defined in the Registration Rights Agreement) for
sale or other disposition by the Investors as contemplated by the Registration
Rights Agreement.

 

4.10          No Conflict, Breach, Violation or Default. The execution, delivery
and performance of the Transaction Documents by the Company and the issuance and
sale of the Shares will not (a) conflict with or result in a breach or violation
of (i) any of the terms and provisions of, or constitute a default under, the
Company’s Certificate of Incorporation or the Company’s Bylaws, both as in
effect on the date hereof (true and complete copies of which have been made
available to the Investors through the EDGAR system), or (ii) any statute, rule,
regulation or order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company, any Subsidiary or any of their
respective assets or properties, or (b) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, result in the creation of any lien, encumbrance or other adverse claim
upon any of the properties or assets of the Company or any Subsidiary or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any Material Contract.

 

4.11          Tax Matters. The Company and each Subsidiary has timely prepared
and filed all tax returns required to have been filed by the Company or such
Subsidiary with all appropriate governmental agencies and timely paid all taxes
shown thereon or otherwise owed by it, except for taxes which it reasonably
disputes in good faith and for which appropriate reserves have been established
on the Company’s books and records The charges, accruals and reserves on the
books of the Company in respect of taxes for all fiscal periods are adequate in
all material respects, and there are no material unpaid assessments against the
Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the
assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except for any
assessment which has not had and could not reasonably be expected to have a
Material Adverse Effect taken as a whole. All taxes and other assessments and
levies that the Company or any Subsidiary is required to withhold or to collect
for payment have been duly withheld and collected and paid to the proper
governmental entity or third party when due. There are no tax liens or claims
pending or, to the Company’s Knowledge, threatened against the Company or any
Subsidiary or any of their respective assets or properties. Except as described
on Schedule 4.11, there are no outstanding tax sharing agreements or other such
arrangements between the Company and any Subsidiary or other corporation or
entity.

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4.12          Title to Properties. Except as disclosed in the SEC Filings, (a)
the Company and each Subsidiary has good and marketable title to all real
properties and all other properties and assets owned by it, in each case free
from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or currently planned to be
made thereof by them, and (b) the Company and each Subsidiary holds any leased
real or personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or currently planned to be
made thereof by them.

 

4.13          Certificates, Authorities and Permits. The Company and each
Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct their
respective businesses now operated by them, and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if determined
adversely to the Company or such Subsidiary, could reasonably be expected to
have a Material Adverse Effect, individually or in the aggregate.

 

4.14          Labor Matters.

 

(a)    Except as disclosed in the SEC Filings, the Company is not a party to or
bound by any collective bargaining agreements or other agreements with labor
organizations. The Company has not violated in any material respect any laws,
regulations, orders or contract terms, affecting the collective bargaining
rights of employees, labor organizations or any laws, regulations or orders
affecting employment discrimination, equal opportunity employment, or employees’
health, safety, welfare, wages and hours.

 

(b)    (i) There are no labor disputes existing, or to the Company’s Knowledge,
threatened, involving strikes, slow-downs, work stoppages, job actions,
disputes, lockouts or any other disruptions of or by the Company’s employees,
(ii) there are no unfair labor practices or petitions for election pending or,
to the Company’s Knowledge, threatened before the National Labor Relations Board
or any other federal, state or local labor commission relating to the Company’s
employees, (iii) no demand for recognition or certification heretofore made by
any labor organization or group of employees is pending with respect to the
Company and (iv) to the Company’s Knowledge, the Company enjoys good labor and
employee relations with its employees and labor organizations.

 

(c)    The Company is, and at all times has been, in compliance in all material
respects with all applicable laws respecting employment (including laws relating
to classification of employees and independent contractors) and employment
practices, terms and conditions of employment, wages and hours, and immigration
and naturalization. There are no claims pending against the Company before the
Equal Employment Opportunity Commission or any other administrative body or in
any court asserting any violation of Title VII of the Civil Rights Act of 1964,
the Age Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or any other
federal, state or local Law, statute or ordinance barring discrimination in
employment.

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(d)    Except as disclosed in the SEC Filings, the Company is not a party to, or
bound by, any employment or other contract or agreement that contains any
severance, termination pay or change of control liability or obligation,
including, without limitation, any “excess parachute payment,” as defined in
Section 280G(b) of the Internal Revenue Code.

 

(e)    To the Company’s Knowledge, each of the Company’s employees is a Person
who is either a United States citizen or a permanent resident entitled to work
in the United States. To the Company’s Knowledge, the Company has no liability
for the improper classification by the Company of such employees as independent
contractors or leased employees prior to the Closing.

 

4.15          Intellectual Property.

 

(a)    All Intellectual Property of the Company and its Subsidiaries is
currently in compliance in all material respects with all legal requirements
(including timely filings, proofs and payments of fees) and is valid and
enforceable. No Intellectual Property of the Company or its Subsidiaries which
is necessary for the conduct of Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be
conducted has been or is now involved in any cancellation, dispute or
litigation, and, to the Company’s Knowledge, no such action is threatened. No
patent of the Company or its Subsidiaries has been or is now involved in any
interference, reissue, re-examination or opposition proceeding.

 

(b)    All of the licenses and sublicenses and consent, royalty or other
agreements concerning Intellectual Property which are necessary for the conduct
of the Company’s and each of its Subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted to which the
Company or any Subsidiary is a party or by which any of their assets are bound
(other than  generally commercially available, non-custom, off-the-shelf
software application programs having a retail acquisition price of less than
$10,000 per license) (collectively, “License Agreements”) are valid and binding
obligations of the Company or its Subsidiaries that are parties thereto and, to
the Company’s Knowledge, the other parties thereto, enforceable in accordance
with their terms, except to the extent that enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors’ rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.

 

(c)    The Company and its Subsidiaries own or have the valid right to use all
of the Intellectual Property that is necessary for the conduct of the Company’s
and each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted and for the ownership, maintenance and
operation of the Company’s and its Subsidiaries’ properties and assets, free and
clear of all liens, encumbrances, adverse claims or obligations to license all
such owned Intellectual Property and Confidential Information, other than
licenses entered into in the ordinary course of the Company’s and its
Subsidiaries’ businesses. The Company and its Subsidiaries have a valid and
enforceable right to use all third party Intellectual Property and Confidential
Information used or held for use in the respective businesses of the Company and
its Subsidiaries.

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(d)    Except as disclosed in the SEC Filings or on Schedule 4.15, the conduct
of the Company’s and its Subsidiaries’ businesses as currently conducted does
not infringe or otherwise impair or conflict with (collectively, “Infringe”) any
Intellectual Property rights of any third party or any confidentiality
obligation owed to a third party, and, to the Company’s Knowledge, the
Intellectual Property and Confidential Information of the Company and its
Subsidiaries which are necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted are not being Infringed by any third party. There is no
litigation or order pending or outstanding or, to the Company’s Knowledge,
threatened or imminent, that seeks to limit or challenge or that concerns the
ownership, use, validity or enforceability of any Intellectual Property or
Confidential Information of the Company and its Subsidiaries and the Company’s
and its Subsidiaries’ use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company’s Knowledge, there is no
valid basis for the same.

 

(e)    The consummation of the transactions contemplated hereby and by the
Registration Rights Agreement will not result in the alteration, loss,
impairment of or restriction on the Company’s or any of its Subsidiaries’
ownership or right to use any of the Intellectual Property or Confidential
Information which is necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted.

 

(f)    The Company and its Subsidiaries have taken reasonable steps to protect
the Company’s and its Subsidiaries’ rights in their Intellectual Property and
Confidential Information. To the Company’s Knowledge, except under
confidentiality obligations, there has been no material disclosure of any of the
Company’s or its Subsidiaries’ Confidential Information to any third party.

 

4.16          Environmental Matters. Neither the Company nor any Subsidiary (a)
is in material violation of any statute, rule, regulation, decision or order of
any governmental agency or body or any court, domestic or foreign, relating to
the use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), (b) owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, (c) is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or (d) is subject to any claim relating to
any Environmental Laws, which violation, contamination, liability or claim has
had or could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate. There is no pending or, to the Company’s
Knowledge, threatened investigation that might lead to any claim described in
items (a) through (d) of this Section 4.16.

-11-

 

 

4.17          Litigation. There are no pending actions, suits or proceedings
against or affecting the Company, its Subsidiaries or any of its or their
properties; and to the Company’s Knowledge, no such actions, suits or
proceedings are threatened or contemplated. Except as disclosed in the SEC
Filings or on Schedule 4.17, neither the Company nor any Subsidiary, nor any
director or officer thereof, is or since January 1, 2007 has been the subject of
any action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been, and
to the Company’s Knowledge, there is not pending or contemplated, any
investigation by the SEC involving the Company or any current or former director
or officer of the Company. The SEC has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the 1933 Act or the 1934 Act.

 

4.18          Financial Statements. The financial statements included in each
SEC Filing comply in all material respects with applicable accounting
requirements and the rules and regulations of the SEC with respect thereto as in
effect at the time of filing (or to the extent corrected by a subsequent
restatement) and present fairly, in all material respects, the consolidated
financial position of the Company as of the dates shown and its consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with United States generally
accepted accounting principles applied on a consistent basis (“GAAP”) (except as
may be disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the 1934 Act). Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as described on Schedule 4.18, neither the
Company nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those incurred in the ordinary course of business, consistent
(as to amount and nature) with past practices, since the date of such financial
statements, none of which, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect.

 

4.19          Insurance Coverage. The Company and each Subsidiary maintains in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted and properties owned or
leased by the Company and each Subsidiary, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.

 

4.20          Compliance with Nasdaq Continued Listing Requirements. The Company
is in compliance with applicable Nasdaq continued listing requirements. There
are no proceedings pending or, to the Company’s Knowledge, threatened against
the Company relating to the continued listing of the Common Stock on Nasdaq and
the Company has not received any notice of, nor to the Company’s Knowledge is
there any basis for, the delisting of the Common Stock from Nasdaq.

 

4.21          Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Company, other than the
Agents as described in Schedule 4.21.

-12-

 

 

4.22          No Directed Selling Efforts or General Solicitation. Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Shares.

 

4.23          No Integrated Offering. Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration under the
1933 Act of the offer and sale of the Shares pursuant to this Agreement.

 

4.24          Private Placement. The offer and sale of the Shares to the
Investors as contemplated hereby is exempt from the registration requirements of
the 1933 Act.

 

4.25          Questionable Payments. Neither the Company nor any of its
Subsidiaries nor, to the Company’s Knowledge, any of their respective current or
former stockholders, directors, officers, employees, agents or other Persons
acting on behalf of the Company or any Subsidiary, has on behalf of the Company
or any Subsidiary or in connection with their respective businesses: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.

 

4.26          Transactions with Affiliates. Except as disclosed in the SEC
Filings, none of the officers or directors of the Company and, to the Company’s
Knowledge, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than as holders of stock
options and/or warrants, and for services as employees, officers and directors)
of the type required to be disclosed in any existing or future SEC Filing
pursuant to Item 404 of the SEC’s Regulation S-K.

-13-

 

 

4.27          Internal Controls. The Company is in material compliance with the
provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the
Company. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in 1934
Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including the Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which the
Company’s most recently filed periodic report under the 1934 Act, as the case
may be, is being prepared. The Company’s certifying officers have evaluated the
effectiveness of the Company’s controls and procedures as of the end of the
period covered by the most recently filed periodic report under the 1934 Act
(such date, the “Evaluation Date”). The Company presented in its most recently
filed periodic report under the 1934 Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no significant changes in the Company’s internal control over
financial reporting (as such term is defined in Item 308 of Regulation S-K) or,
to the Company’s Knowledge, in other factors that could significantly affect the
Company’s internal control over financial reporting. The Company maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP and the applicable requirements of the 1934
Act.

 

4.28          Disclosures. Neither the Company nor any Person acting on its
behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information, other than (i) the terms of the transactions contemplated hereby
and (ii) certain information contained in the Company’s investor presentation
(the “Other Data”). The written materials delivered to the Investors in
connection with the transactions contemplated by the Transaction Documents do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.

 

4.29          Investment Company. The Company is not required to be registered
as, and is not an Affiliate of, and immediately following the Closing will not
be required to register as, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

 

5.                  Representations and Warranties of the Investors. Each of the
Investors hereby severally, and not jointly, represents and warrants to the
Company that:

 

5.1              Organization and Existence. If an entity, such Investor is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization as set forth below such
Investor’s name on the signature page hereof with the requisite power and
authority to purchase the Shares to be purchased by it hereunder and to execute
and deliver this Agreement and Registration Rights Agreement.

 

5.2              Authorization. Assuming the due authorization, execution and
delivery thereof by the Company, the Transaction Documents constitute such
Investor’s valid and legally binding obligation, enforceable against such
Investor in accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability, relating to or affecting creditors’ rights generally.

-14-

 

 

5.3              Purchase Entirely for Own Account. The Shares to be received by
such Investor hereunder will be acquired for such Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the 1933 Act, and such Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act without prejudice, however, to such Investor’s right
at all times to sell or otherwise dispose of all or any part of such Shares in
compliance with applicable federal and state securities laws. Nothing contained
herein shall be deemed a representation or warranty by such Investor to hold the
Shares for any period of time. Such Investor is not a broker-dealer registered
with the SEC under the 1934 Act or an entity engaged in a business that would
require it to be so registered.

 

5.4              Investment Experience. Such Investor acknowledges that it can
bear the economic risk and complete loss of its investment in the Shares and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.

 

5.5              Disclosure of Information. Such Investor has had an opportunity
to receive all information related to the Company requested by it and to ask
questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Shares. Such
Investor acknowledges receipt of copies of the SEC Filings. Neither such
inquiries nor any other due diligence investigation conducted by such Investor
shall modify, limit or otherwise affect such Investor’s right to rely on the
Company’s representations and warranties contained in this Agreement. Such
Investor understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Shares or the fairness or suitability of the investment in
the Shares, nor have such authorities passed upon or endorsed the merits of the
offering of the Shares.

 

5.6              Restricted Securities. Such Investor understands that the
Shares are characterized as “restricted securities” under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. Without limiting the scope
of the foregoing, such Investor acknowledges that the Shares have not been and,
except as provided in the Registration Rights Agreement, are not being
registered under the 1933 Act and may not be transferred or resold without
registration under the 1933 Act or unless pursuant to an exemption therefrom.

-15-

 

 

5.7              Legends. It is understood that, except as provided in Section
7.7 of this Agreement, certificates evidencing the Shares will bear the
following legends:

 

(a)    “The securities represented hereby have not been registered with the
Securities and Exchange Commission or the securities commission of any state in
reliance upon an exemption from registration under the Securities Act of 1933,
as amended, and, accordingly, may not be transferred unless (i) such securities
have been registered for sale pursuant to the Securities Act of 1933, as
amended, (ii) such securities may be sold pursuant to Rule 144, or (iii) the
Company has received an opinion of counsel reasonably satisfactory to it that
such transfer may lawfully be made without registration under the Securities Act
of 1933, as amended.”

 

(b)    If required by the authorities of any state in connection with the
issuance of sale of the Shares, the legend required by such state authority.

 

5.8              Accredited Investor. Such Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act, as
amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, and,
prior to the Closing, has delivered to the Company a true and correct letter, in
the form attached hereto as Exhibit B, identifying the basis for its accredited
investor status.

 

5.9              No General Solicitation. Such Investor did not learn of the
investment in the Shares as a result of any general solicitation or general
advertising.

 

5.10           Reliance on Representations. Such Investor understands that the
Shares are being offered and sold to the Investor in reliance upon specific
exemptions from the registration requirements of the 1933 Act and state
securities laws and that the Company is relying upon the truth and accuracy of
the representations and warranties of such Investor set forth in this Section 5
to determine the availability of such exemptions and the eligibility of such
Investor to acquire the Shares.

 

5.11           Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of such Investor.

 

5.12           Prohibited Transactions. Since the earlier of (a) such time as
such Investor was first contacted by the Company or any other Person acting on
behalf of the Company regarding the transactions contemplated hereby or (b)
thirty (30) days prior to the date hereof, neither such Investor nor any
Affiliate of such Investor which (x) had knowledge of the transactions
contemplated hereby, (y) has or shares discretion relating to such Investor’s
investments or trading or information concerning such Investor’s investments,
including in respect of the Shares, or (z) is subject to such Investor’s review
or input concerning such Affiliate’s investments or trading (collectively,
“Trading Affiliates”) has, directly or indirectly, effected or agreed to effect
any short sale, whether or not against the box, established any “put equivalent
position” (as defined in Rule 16a-1(h) under the 1934 Act) with respect to the
Common Stock, granted any other right (including, without limitation, any put or
call option) with respect to the Common Stock or with respect to any security
that includes, relates to or derived any significant part of its value from the
Common Stock or otherwise sought to hedge its position in the Shares (each, a
“Prohibited Transaction”). Prior to the earliest to occur of (i) the termination
of this Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline,
such Investor shall not, and shall cause its Trading Affiliates not to, engage,
directly or indirectly, in a Prohibited Transaction. Such Investor acknowledges
that the representations, warranties and covenants contained in this Section
5.12 are being made for the benefit of the Investors as well as the Company and
that each of the other Investors shall have an independent right to assert any
claims against such Investor arising out of any breach or violation of the
provisions of this Section 5.12.

-16-

 

 

5.13          Agents. Such Investor understands that the Agents have acted
solely as the agents of the Company in this placement of the Shares, and that no
Agent makes any representation or warranty with regard to the merits of this
transaction or as to the accuracy of any information such Investor may have
received in connection therewith. Such Investor acknowledges that he has not
relied on any information or advice furnished by or on behalf of any Agent.

 

6.                  Conditions to Closing.

 

6.1             Conditions to the Investors’ Obligations. The obligation of each
Investor to purchase its Shares at the Closing is subject to the fulfillment to
such Investor’s satisfaction, on or prior to the Closing Date, of the following
conditions, any of which may be waived by such Investor (as to itself only):

 

(a)    The representations and warranties made by the Company in Section 4
hereof qualified as to materiality shall be true and correct at all times prior
to and on the Closing Date, except to the extent any such representation or
warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and correct as of such earlier date,
and, the representations and warranties made by the Company in Section 4 hereof
not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date. The Company shall have performed in all
material respects all obligations and covenants herein required to be performed
by it on or prior to the Closing Date.

 

(b)    The Company shall have obtained any and all consents, permits, approvals,
registrations and waivers necessary or appropriate for consummation of the
purchase and sale of the Shares and the consummation of the other transactions
contemplated by the Transaction Documents, all of which shall be in full force
and effect.

 

(c)    The Company shall have executed and delivered the Registration Rights
Agreement.

-17-

 

 

(d)    The Company shall have filed with Nasdaq a Notification Form: Listing of
Additional Shares for the listing of the Shares on Nasdaq, a copy of which shall
have been provided to the Investors.

 

(e)    No judgment, writ, order, injunction, award or decree of or by any court,
or judge, justice or magistrate, including any bankruptcy court or judge, or any
order of or by any governmental authority, shall have been issued, and no action
or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated hereby
or by the Registration Rights Agreement.

 

(f)    The Company shall have delivered a Certificate, executed on behalf of the
Company by its Chief Executive Officer or its Chief Financial Officer, dated as
of the Closing Date, certifying to the fulfillment of the conditions specified
in subsections (a), (b), (d), (e) and (i) of this Section 6.1.

 

(g)    The Company shall have delivered a Certificate, executed on behalf of the
Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the Registration Rights
Agreement, the issuance of the Shares and the Restructuring, certifying the
current versions of the Certificate of Incorporation and Bylaws of the Company
and certifying as to the signatures and authority of persons signing the
Transaction Documents and related documents on behalf of the Company.

 

(h)    The Investors shall have received an opinion from Gordon Feinblatt LLC,
the Company’s counsel, dated as of the Closing Date, in form and substance
reasonably acceptable to the Investors and addressing such legal matters as the
Investors may reasonably request.

 

(i)    No stop order or suspension of trading shall have been imposed by Nasdaq,
the SEC or any other governmental or regulatory body with respect to public
trading in the Common Stock.

 

6.2              Conditions to Obligations of the Company. The Company’s
obligation to sell and issue the Shares at the Closing is subject to the
fulfillment to the satisfaction of the Company on or prior to the Closing Date
of the following conditions, any of which may be waived by the Company:

 

(a)    The representations and warranties made by the Investors in Section 5
hereof, other than the representations and warranties contained in Sections 5.3,
5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be
true and correct in all material respects when made, and shall be true and
correct in all material respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The Investment
Representations shall be true and correct in all respects when made, and shall
be true and correct in all respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The Investors shall have
performed in all material respects all obligations and covenants herein required
to be performed by them on or prior to the Closing Date.

-18-

 

 

(b)    Each of the Investors shall have executed and delivered the Registration
Rights Agreement.

 

(c)    Each of the Investors shall have delivered the Purchase Price to the
Company.

 

6.3              Termination of Obligations to Effect Closing; Effects.

 

 

(a)    The obligations of the Company, on the one hand, and the Investors, on
the other hand, to effect the Closing shall terminate as follows:

 

(b)    Upon the mutual written consent of the Company and the Investors;

 

(c)    By the Company if any of the conditions set forth in Section 6.2 shall
have become incapable of fulfillment, and shall not have been waived by the
Company;

 

(d)    By an Investor (with respect to itself only) if any of the conditions set
forth in Section 6.1 shall have become incapable of fulfillment, and shall not
have been waived by the Investor; or

 

(e)    By either the Company or any Investor (with respect to itself only) if
the Closing has not occurred on or prior to October 15, 2012;

 

provided, however, that, except in the case of clause (b) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the Registration Rights Agreement if such breach
has resulted in the circumstances giving rise to such party’s seeking to
terminate its obligation to effect the Closing.

 

(f)    In the event of termination by the Company or any Investor of its
obligations to effect the Closing pursuant to this Section 6.4, written notice
thereof shall forthwith be given to the other Investors by the Company and the
other Investors shall have the right to terminate their obligations to effect
the Closing upon written notice to the Company and the other Investors. Nothing
in this Section 6.4 shall be deemed to release any party from any liability for
any breach by such party of the terms and provisions of this Agreement or the
Registration Rights Agreement or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement
or the Registration Rights Agreement.

-19-

 

 

7.                  Covenants and Agreements of the Company.

 

7.1              Reports. The Company will furnish to the Investors and/or their
assignees such information relating to the Company and its Subsidiaries as from
time to time may reasonably be requested by the Investors and/or their
assignees; provided, however, that the Company shall not disclose material
nonpublic information to the Investors, or to advisors to or representatives of
the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides
the Investors, such advisors and representatives with the opportunity to accept
or refuse to accept such material nonpublic information for review and any
Investor wishing to obtain such information enters into an appropriate
confidentiality agreement with the Company with respect thereto.

 

7.2              No Conflicting Agreements. The Company will not take any
action, enter into any agreement or make any commitment that would conflict or
interfere in any material respect with the Company’s obligations to the
Investors under the Transaction Documents.

 

7.3              Insurance. The Company shall not materially reduce the
insurance coverages described in Section 4.19.

 

7.4              Compliance with Laws. The Company will comply in all material
respects with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities.

 

7.5              Listing of Shares and Related Matters. Promptly following the
date hereof, the Company shall take all necessary action to cause the Shares to
be listed on Nasdaq no later than the Closing Date. Further, if the Company
applies to have its Common Stock traded on any other principal stock exchange or
market, it shall include in such application the Shares and will take such other
action as is necessary to cause such Shares to be so listed. The Company will
use commercially reasonable efforts to continue the listing and trading of its
Common Stock on Nasdaq and, in accordance, therewith, will use commercially
reasonable efforts to comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of such market or
exchange, as applicable.

 

7.6              Termination of Covenants. The provisions of Sections 7.1
through 7.4 shall terminate and be of no further force and effect on the date on
which the Company’s obligations under the Registration Rights Agreement to
register or maintain the effectiveness of any registration covering the
Registrable Securities (as such term is defined in the Registration Rights
Agreement) shall terminate.

-20-

 

 

7.7              Removal of Legends. In connection with any sale or disposition
of the Shares by an Investor pursuant to Rule 144 or pursuant to any other
exemption under the 1933 Act such that the purchaser acquires freely tradable
shares and upon compliance by the Investor with the requirements of this
Agreement, the Company shall cause the transfer agent for the Common Stock (the
“Transfer Agent”) to issue replacement certificates representing the Shares sold
or disposed of without restrictive legends. Upon the earlier of (i) registration
for resale pursuant to the Registration Rights Agreement or (ii) the Shares
becoming freely tradable by a non-affiliate pursuant to Rule 144 the Company
shall (A) deliver to the Transfer Agent irrevocable instructions that the
Transfer Agent shall reissue a certificate representing shares of Common Stock
without legends upon receipt by such Transfer Agent of the legended certificates
for such shares, together with (1) either a customary representation by the
Investor that Rule 144 applies to the shares of Common Stock represented thereby
or (2) a statement by the Investor that such Investor has sold the shares of
Common Stock represented thereby in accordance with the Plan of Distribution
contained in the Registration Statement, and (B) cause its counsel to deliver to
the Transfer Agent one or more blanket opinions to the effect that the removal
of such legends in such circumstances may be effected under the 1933 Act. From
and after the earlier of such dates, upon an Investor’s written request, the
Company shall promptly cause certificates evidencing the Investor’s Shares to be
replaced with certificates which do not bear such restrictive legends. When the
Company is required to cause an unlegended certificate to replace a previously
issued legended certificate, if: (1) the unlegended certificate is not delivered
to an Investor within three (3) Business Days of submission by that Investor of
a legended certificate and supporting documentation to the Transfer Agent as
provided above and (2) prior to the time such unlegended certificate is received
by the Investor, the Investor, or any third party on behalf of such Investor or
for the Investor’s account, purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Investor of shares represented by such certificate (a “Buy-In”), then the
Company shall pay in cash to the Investor (for costs incurred either directly by
such Investor or on behalf of a third party) the amount by which the total
purchase price paid for Common Stock as a result of the Buy-In (including
brokerage commissions, if any) exceeds the proceeds received by such Investor as
a result of the sale to which such Buy-In relates. The Investor shall provide
the Company written notice indicating the amounts payable to the Investor in
respect of the Buy-In.

 

7.8              Subsequent Equity Sales.

 

(a)    From the date hereof until ninety (90) days after the Closing Date,
without the consent of the Required Investors, neither the Company nor any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents.
Notwithstanding the foregoing, the provisions of this Section 7.8(a) shall not
apply to (i) the issuance of Common Stock or Common Stock Equivalents upon the
conversion, exercise or exchange of any securities of the Company or a
Subsidiary outstanding on the date hereof, provided that the terms of such
security are not amended after the date hereof to decrease the exercise price or
increase the Common Stock or Common Stock Equivalents receivable upon the
exercise, conversion or exchange thereof or (ii) the issuance of any Common
Stock or Common Stock Equivalents pursuant to any Stock Plans.

-21-

 

 

(b)    From the date hereof until the earlier of (i) two years from the Closing
Date or (ii) such time as no Investor holds any of the Shares, the Company shall
be prohibited from effecting or entering into an agreement to effect any
“Variable Rate Transaction”. The term “Variable Rate Transaction” shall mean a
transaction, other than an Exempt Transaction (as defined below), in which the
Company (A) issues or sells any debt or equity securities that are convertible
into, exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (x) at a conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for the shares of Common Stock at any time after the
initial issuance of such debt or equity securities, or (y) with a conversion,
exercise or exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock or (B) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price. For the
avoidance of doubt, the issuance of a security which is subject to customary
anti-dilution protections, including where the conversion, exercise or exchange
price is subject to adjustment as a result of stock splits, reverse stock splits
and other similar recapitalization or reclassification events, shall not be
deemed to be a “Variable Rate Transaction.” As used in this Section 7.8(b),
“Exempt Transaction” shall mean (i) the issuance and exercise of any awards
pursuant to the Stock Plans and (ii) the issuance of any security of the Company
upon the vesting, conversion, exchange or exercise of any other security of the
Company outstanding on the date of this Agreement in accordance with the terms
of such other security, provided, that such other security are not amended after
the date hereof to increase the amount of securities issuable thereunder or to
lower the conversion, exchange or exercise price thereof.

 

(c)    The Company shall not, and shall use its commercially reasonable efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the 1933 Act) that will be integrated with the offer or
sale of the Shares in a manner that would require the registration under the
1933 Act of the sale of the Shares to the Investors, or that will be integrated
with the offer or sale of the Shares for purposes of the rules and regulations
of any trading market such that it would require stockholder approval prior to
the closing of such other transaction unless stockholder approval is obtained
before the closing of such subsequent transaction.

 

7.9              Equal Treatment of Investors. No consideration shall be offered
or paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Investor by the Company and negotiated separately by each Investor, and is
intended for the Company to treat the Investors as a class and shall not in any
way be construed as the Investors acting in concert or as a group with respect
to the purchase, disposition or voting of Shares or otherwise.

 

8.                  Survival and Indemnification.

 

8.1              Survival. The representations, warranties, covenants and
agreements contained in this Agreement shall survive the Closing of the
transactions contemplated by this Agreement.

-22-

 

 

8.2              Indemnification. The Company agrees to indemnify and hold
harmless each Investor and its Affiliates and their respective directors,
officers, trustees, members, managers, employees and agents, and their
respective successors and assigns, from and against any and all losses, claims,
damages, liabilities and expenses (including without limitation reasonable
attorney fees and disbursements and other expenses incurred in connection with
investigating, preparing or defending any action, claim or proceeding, pending
or threatened and the costs of enforcement thereof) to which such Person may
become subject as a result of any breach of representation, warranty, covenant
or agreement made by or to be performed on the part of the Company under the
Transaction Documents, and will reimburse any such Person for all such amounts
as they are incurred by such Person.

 

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

 

9.                  Miscellaneous.

 

9.1              Successors and Assigns. This Agreement may not be assigned by a
party hereto without the prior written consent of the Company or the Investors,
as applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Shares in a transaction complying with
applicable securities laws without the prior written consent of the Company or
the other Investors. The provisions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties. Without limiting the generality of the foregoing, in the event that the
Company is a party to a merger, consolidation, share exchange or similar
business combination transaction in which the Common Stock is converted into the
equity securities of another Person, from and after the effective time of such
transaction, such Person shall, by virtue of such transaction, be deemed to have
assumed the obligations of the Company hereunder, the term “Company” shall be
deemed to refer to such Person and the term “Shares” shall be deemed to refer to
the securities received by the Investors in connection with such transaction.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.

-23-

 

 

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

 

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

 

9.4              Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given as hereinafter described (a) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (b) if given by telex
or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (c) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (d) if given by an internationally recognized overnight air
courier, then such notice shall be deemed given one Business Day after delivery
to such carrier. All notices shall be addressed to the party to be notified at
the address as follows, or at such other address as such party may designate by
ten days’ advance written notice to the other party:

 

                               If to the Company:

 

Crumbs Bake Shop, Inc.

110 West 40th Street, Suite 2100

New York, NY 10018

Attention: Julian Geiger, Chief Executive Officer

Fax:

-24-

 

 

                               With a copy to:

 

Gordon Feinblatt LLC

233 East Redwood Street

Baltimore, MD 21202

Attention: Andrew D. Bulgin, Esq.

Fax: (410) 576-4196

 

                               If to the Investors:

 

                                                to the addresses set forth on
the signature pages hereto.

 

9.5              Expenses. The parties hereto shall pay their own costs and
expenses in connection herewith, except that the Company shall pay the
reasonable, documented fees and expenses of Lowenstein Sandler PC, not to exceed
$40,000, incurred or to be incurred by the Special Situations Funds
participating in this transaction in connection with the negotiation,
preparation, execution and delivery of this Agreement and the Registration
Rights Agreement, regardless of whether the transactions contemplated hereby are
consummated; it being understood that Lowenstein Sandler PC has only rendered
legal advice to the Special Situations Funds participating in this transaction
and not to the Company or any other Investor in connection with the transactions
contemplated hereby, and that each of the Company and each Investor has relied
for such matters on the advice of its own respective counsel. Such expenses
shall be paid upon demand and presentment to the Company of an invoice for the
same. The Company shall reimburse the Investors upon demand for all reasonable
out-of-pocket expenses incurred by the Investors, including without limitation
reimbursement of attorneys’ fees and disbursements, in connection with any
amendment, modification or waiver of this Agreement or the Registration Rights
Agreement requested by the Company. In the event that legal proceedings are
commenced by any party to this Agreement against another party to this Agreement
in connection with this Agreement or the Registration Rights Agreement, or the
transactions contemplated hereby or thereby, the party or parties which do not
prevail in such proceedings shall severally, but not jointly, pay their pro rata
share of the reasonable attorneys’ fees and other reasonable out-of-pocket costs
and expenses incurred by the prevailing party in such proceedings.

 

9.6              Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Investors. Any amendment or waiver effected in accordance with this Section 9.6
shall be binding upon each holder of any Shares purchased under this Agreement
at the time outstanding, each future holder of all such Shares, and the Company.

-25-

 

 

9.7              Publicity. Except as set forth below, no public release or
announcement concerning the transactions contemplated hereby shall be issued by
the Company or the Investors without the prior consent of the Company (in the
case of a release or announcement by the Investors) or the Investors (in the
case of a release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the trading day immediately following the execution and delivery of
this Agreement by the parties hereto (the “Disclosure Deadline”), the Company
shall issue a press release disclosing the entry into this Agreement and the
transactions contemplated hereby and the Other Data. From and after the
Disclosure Deadline, no Investor will be deemed by the Company to be in
possession of any material non-public information and the Investors will be free
to trade in the securities of the Company, subject to (a) restrictions on
transfer arising under the 1933 Act and (b) the provisions of Section 5.12. The
Company acknowledges that the Investors will be entitled to rely on the
representation and warranty contained in the foregoing sentence in effecting
transactions in the Company’s securities and that such reliance is reasonable.
No later than the fourth trading day following the execution and delivery of
this Agreement by the parties hereto, the Company will file a Current Report on
Form 8-K attaching the press release described in the foregoing sentence, the
Other Data, and copies of the Transaction Documents. In addition, the Company
will make such other filings and notices in the manner and time required by the
SEC or Nasdaq.

 

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

 

9.9              Entire Agreement. This Agreement, including the Exhibits and
the Disclosure Schedules, and the Registration Rights Agreement constitute the
entire agreement among the parties hereof with respect to the subject matter
hereof and thereof and supersede all prior agreements and understandings, both
oral and written, between the parties with respect to the subject matter hereof
and thereof.

 

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

-26-

 

 

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

 

9.12          Independent Nature of Investors’ Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Shares pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Shares or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the Registration Rights Agreement, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.

 

9.13          No Reliance. Each party hereto acknowledges that (a) it has such
knowledge in business and financial matters as to be fully capable of evaluating
the Transaction Documents, and the transactions contemplated thereby, (b) it is
not relying on any advice or representation or warranty of any other party
hereto in connection with entering into the Transaction Documents or such
transactions (other than the representations and warranties made in the
Transaction Documents), (c) it has not received from any other party hereto any
assurance or guarantee as to the merits (whether legal, regulatory, tax,
financial or otherwise) of entering into the Transaction Documents or the
performance of its obligations thereunder, and (d) it has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisors
to the extent that it has deemed necessary, and has entered into the Transaction
Documents based on its own independent judgment and on the advice of its
advisors as it has deemed necessary, and not on any view (whether written or
oral) expressed by any other party hereto.

 

 

[Signature Pages Follow]

-27-

 

 

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

 

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

 

 

 

[Signature Page for Investors Follows]

-28-

 

 

Counterpart Signature Page

 

 

FOR ENTITY INVESTORS:   FOR INDIVIDUAL INVESTORS:                          
Signature:   [Name of Entity]   Name:   By:     Taxpayer ID #:   Name:        
Title:         Taxpayer ID #:        

 

 

ADDRESS FOR DELIVERY:   ADDRESS FOR NOTICE IF DIFFERENT:                        
      Attention:      Attention:   Tel:      Tel:   Fax:      Fax:    E-mail    
E-mail:   

 

  With a copy to:                             Attention:       Tel:       Fax:  
    E-mail:    

 

 

Aggregate Purchase Price: $_________________         Shares Purchased:
_________________  

 

-29-

 

 

LIST OF EXHIBITS AND SCHEDULES

 

Exhibits

 

Exhibit A – Registration Rights Agreement

Exhibit B – Accredited Investor Letter

 

Schedules

 

Schedule 4.1 – List of Subsidiaries

Schedule 4.3 – Capitalization

Schedule 4.8 – Material Adverse Changes

Schedule 4.11 – Tax Matters

Schedule 4.15 – Intellectual Property Matters

Schedule 4.17 – Litigation

Schedule 4.18 – Undisclosed Liabilities

Schedule 4.21 – Fees to Agents

-30-

 

 

EXHIBIT A

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (the “Agreement”) is made and entered into as
of this 11th day of October, 2012 by and among Crumbs Bake Shop, Inc., a
Delaware corporation (the “Company”), and the “Investors” named in that certain
Purchase Agreement by and among the Company and the Investors (the “Purchase
Agreement”).

 

The parties hereby agree as follows:

 

1.                  Certain Definitions.

 

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

 

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

 

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

 

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

 

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

 

“Registrable Securities” means (i) the Shares and (ii) any other securities
issued or issuable with respect to or in exchange for Registrable Securities,
whether by merger, charter amendment or otherwise; provided, that, a security
shall cease to be a Registrable Security upon (A) sale of such Registrable
Security pursuant to a Registration Statement or Rule 144 under the 1933 Act,
(B) with respect to a Registrable Security held by any particular Person, when
such Person is permitted to sell such Registrable Security without restriction
pursuant to Rule 144 or (C) when the Registrable Security is resold to the
Company for cash.

 

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

A-1

 

 

“Required Investors” means (A) any Investor which, together with its Affiliates,
beneficially owns at least 1,000,000 shares of Common Stock constituting
Registrable Securities and (B) the Investors beneficially owning a majority of
the Registrable Securities.

 

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

 

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

 

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

 

2.                  Registration.

 

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

 

(b)               Expenses. The Company will pay all expenses associated with
effecting the registration of the Registrable Securities, including filing and
printing fees, the Company’s counsel and accounting fees and expenses, costs
associated with clearing the Registrable Securities for sale under applicable
state securities laws, listing fees, and subject to Section 9.5 of the Purchase
Agreement, fees and expenses of one counsel to the Investors, but excluding
discounts, commissions, fees of underwriters, selling brokers, dealer managers
or similar securities industry professionals with respect to the Registrable
Securities being sold.

A-2

 

 

(c)                Effectiveness.

 

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

 

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

A-3

 

 

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

 

(e)                Right to Piggyback Registration.

 

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

A-4

 

 

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

 

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

 

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

 

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

A-5

 

 

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

 

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

 

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

 

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

 

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

 

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

A-6

 

 

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

 

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

 

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

A-7

 

 

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

 

5.                  Obligations of the Investors.

 

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

 

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

 

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

A-8

 

 

6.                  Indemnification.

 

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

 

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

A-9

 

 

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

 

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

A-10

 

 

7.                  Miscellaneous.

 

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

 

9.14          Notices. All notices and other communications provided for or
permitted hereunder shall be made as set forth in Section 9.4 of the Purchase
Agreement.

 

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

 

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

 

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

 

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

A-11

 

 

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

 

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

 

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

 

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

 

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

 

 

 

[Signature Pages Follow]

A-12

 

 

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

 

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

 

 

[Investor Signature Page Immediately Follows]

A-13

 

 

Counterpart Signature Page

 

 

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

 

A-14

 

 

Exhibit A

 

Plan of Distribution

 

The selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or
in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.

 

The selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:

 

  · ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;         · block trades in which the broker-dealer will
attempt to sell the shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction;         · purchases by a
broker-dealer as principal and resale by the broker-dealer for its account;    
    · an exchange distribution in accordance with the rules of the applicable
exchange;         · privately negotiated transactions;         · short sales
effected after the date the registration statement of which this Prospectus is a
part is declared effective by the SEC;         · through the writing or
settlement of options or other hedging transactions, whether through an options
exchange or otherwise;         · broker-dealers may agree with the selling
stockholders to sell a specified number of such shares at a stipulated price per
share;         · a combination of any such methods of sale; and         · any
other method permitted by applicable law.

 

A-15

 

 

The selling stockholders may, from time to time, pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock, from time to time, under
this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.

 

In connection with the sale of our common stock or interests therein, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

 

The aggregate proceeds to the selling stockholders from the sale of the common
stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering.

 

The selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.

 

The selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act.

 

To the extent required, the shares of our common stock to be sold, the names of
the selling stockholders, the respective purchase prices and public offering
prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

A-16

 

 

In order to comply with the securities laws of some states, if applicable, the
common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.

 

We have advised the selling stockholders that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of shares in the market
and to the activities of the selling stockholders and their affiliates. In
addition, to the extent applicable we will make copies of this prospectus (as it
may be supplemented or amended from time to time) available to the selling
stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act. The selling stockholders may indemnify any broker-dealer
that participates in transactions involving the sale of the shares against
certain liabilities, including liabilities arising under the Securities Act.

 

We have agreed to indemnify the selling stockholders against liabilities,
including liabilities under the Securities Act and state securities laws,
relating to the registration of the shares offered by this prospectus.

 

We have agreed with the selling stockholders to keep the registration statement
of which this prospectus constitutes a part effective until the earlier of (1)
such time as all of the shares covered by this prospectus have been disposed of
pursuant to and in accordance with the registration statement or (2) the date on
which all of the shares may be sold without restriction pursuant to Rule 144 of
the Securities Act.

A-17

 

 

EXHIBIT B

ACCREDITED INVESTOR LETTER

 

October __, 2012

 

Crumbs Bake Shop, Inc.

110 West 40th Street, Suite 2100

New York, NY 10018

 

Ladies and Gentlemen:

 

In connection with the possible purchase by the undersigned Investor of shares
of common stock, par value $.0001 per share (the “Common Stock”), of Crumbs Bake
Shop, Inc. (the “Company”) in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended (the “1933 Act”), the
undersigned Investor makes the following representations and warranties to the
Company:

 

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

 

For Individuals

 

 

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

 

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

 

For Entities

 

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

 

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

B-1

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

B-2

 

 

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

 

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

 

  Sincerely yours,         FOR INDIVIDUAL INVESTORS:               Signature:  
  Name:                 FOR ENTITY INVESTORS:                   [Name of Entity]
              By:     Name:     Title:  

 

B-3

 

 

CRUMBS BAKE SHOP, INC. DISCLOSURE SCHEDULES

 

The disclosures made in these Disclosure Schedules are made pursuant to Section
4 of the attached Securities Purchase Agreement, dated as of October 10, 2012,
by and between Crumbs Bake Shop, Inc. (the “Company”) and each of the Investors
identified therein (the “Agreement”). Capitalized terms used but not defined in
these Disclosure Schedules shall have the meanings given such terms in the
Agreement.

 

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

 

These Disclosure Schedules are arranged and numbered to correspond with the
subsections of Section 4 of the Agreement.

 

 

 

SCHEDULE 4.1 - LIST OF SUBSIDIARIES

 

Crumbs Holdings LLC, a Delaware limited liability company

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

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

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

Crumbs Americana, LLC, a California limited liability company

Crumbs Beverly Hills, LLC, a California limited liability company

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

Crumbs Broadway LLC, a New York limited liability company

Crumbs Brooklyn Heights LLC, a New York limited liability company

Crumbs Calabasas, LLC, a California limited liability company

Crumbs Catering LLC, a New York limited liability company

Crumbs Clarendon LLC, a Virginia limited liability company

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

Crumbs Columbus LLC, a New York limited liability company

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

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

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

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

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

Crumbs Federal Street LLC, a Delaware limited liability company

Crumbs Garment Center LLC, a New York limited liability company

Crumbs Grand Central LLC, a New York limited liability company

Crumbs Greenvale LLC, a New York limited liability company

Crumbs Greenwich, LLC, a Connecticut limited liability company

Crumbs Hoboken, LLC, a New Jersey limited liability company

Crumbs Hollywood LLC, a California limited liability company

Crumbs Huntington LLC, a New York limited liability company

Crumbs II, LLC, a New York limited liability company

Crumbs International Place, LLC, a Delaware limited liability company

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

Crumbs Larchmont, LLC, a California limited liability company

Crumbs LaSalle, LLC, an Illinois limited liability company

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

Crumbs Lexington LLC, a New York limited liability company

Crumbs Madison LLC, a New York limited liability company

Crumbs Malibu, LLC, a California limited liability company

Crumbs Newark LLC, a New Jersey limited liability company

Crumbs New Canaan, LLC, a California limited liability company

Crumbs Oak Park, LLC, an Illinois limited liability company

Crumbs Park Avenue LLC, a New York limited liability company

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

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

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

 

 

 

Crumbs Ridgewood, LLC, a New Jersey limited liability company

Crumbs Rittenhouse Square, LLC, a Delaware limited liability company

Crumbs River North, LLC, an Illinois limited liability company

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

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

Crumbs South Clark, LLC, an Illinois limited liability company

Crumbs Stamford, LLC, a Connecticut limited liability company

Crumbs Third Avenue LLC, a New York limited liability company

Crumbs Times Square LLC, a New York limited liability company

Crumbs Union Square LLC, a New York limited liability company

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

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

Crumbs West Madison, LLC, an Illinois limited liability company

Crumbs Westfield LLC, a New Jersey limited liability company

Crumbs Westport, LLC, a Connecticut limited liability company

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

Crumbs Woodbury LLC, a New York limited liability company

 

 

 

SCHEDULE 4.3 –CAPITALIZATION

 

Capitalization of the Company

 

    Shares Preferred Stock, par value $.0001 per share  

  Authorized 1,000,000   Issued 234,000   Outstanding 234,000      

  Potentially Dilutive Securities:  

        Reserved for issuance to members if Contingency Consideration were to
vest(1) (2)(3) 440,000       Common Stock, par value $.0001 per share  

  Authorized 100,000,000   Issued(4) 8,940,969   Outstanding 7,346,385      

  Potentially Dilutive Securities:        

  Authorized for issuance pursuant to Equity Incentive Plan 757,795   Issuable
upon exercise of outstanding warrants 5,456,300   Reserved for conversion of New
Crumbs Class B Exchangeable Units by     Crumbs Holdings' members(3) 2,340,000  
Reserved for issuance to members upon exchange of Contingency Consideration that
could be paid to members if such Contingency Consideration were to vest(1)
(2)(3) 4,400,000

 

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

 

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

  

3 Class B Units are exchangeable for shares of Common Stock on a one-for-one
basis For each 1 Class B Unit that is exchanged, the Member must also surrender
0.1 share of Series A Stock.

 

4 Includes 1,594,584 shares held in treasury

 

 

 

 

Registration Rights Agreements

 

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

 

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

 

Other Rights to Acquire Securities

 

Pursuant that certain Exchange and Support Agreement, dated as of May 5, 2011,
by and among the Company, Holdings, and the other parties thereto, as modified
by that certain Accession Agreement, dated as of November 14, 2012, by and among
the Company, Holdings and Julian R. Geiger, (a) the Company is entitled to
receive New Crumbs Class A Voting Units upon the exchange of the New Crumbs
Class B Units by the holders thereof, (b) the holders of Common Stock will be
entitled to certain adjustments in respect of the Common Stock in the event of
certain dilutive actions, issuances or fundamental transactions described
therein by Holdings in respect of its New Crumbs Class B Units, and (c) the
holders of New Crumbs Class B Units of Holdings will be entitled to certain
adjustments in respect of the New Crumbs Class B Units in the event of certain
dilutive actions, issuances or fundamental transactions described therein by the
Company in respect of the Common Stock.

 

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

 

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

 

The Company’s Equity Incentive Plan contemplates that, in the event of any
change in the Company’s corporate capitalization, then the Compensation
Committee, in its sole discretion, may make substitutions or adjustments to the
number of shares reserved for issuance under the Amended Plan, the number of
shares covered by awards then outstanding under the Amended Plan, the
limitations on awards under the Amended Plan, the exercise price of outstanding
options and such other equitable substitution or adjustments as it may determine
appropriate the Compensation Committee may make substitutions or adjustments to
the number of shares of Common Stock reserved for issuance thereunder, the
number of shares covered by awards then outstanding thereunder, the limitations
on awards thereunder, the exercise price of outstanding options and such other
equitable substitution or adjustments as it may determine appropriate.

 

 

 

SCHEDULE 4.8 – MATERIAL ADVERSE CHANGES

 

 

None.

 

 

 

SCHEDULE 4.11 – TAX MATTERS

 

None.

 

 

 

SCHEDULE 4.15 – INTELLECTUAL PROPERTY MATTERS

 

The Company monitors trademark usage throughout the United States and
applications filed with the United States Patent & Trademark Office in an effort
to stop the use by Persons other than the Company and its Affiliates of
infringing trademarks. Independent bake shops and bakers occasionally adopt a
name that includes the word “crumbs.” When the Company believes that such
Person’s use is or may be confusing with the Company’s brand, the Company either
stops such Person’s use or causes such Person to confine its use to products
that are not confusing with the Company’s core products. Certain Persons who
began using the word “crumbs” in their brands prior to the Company’s existence
continue to use that name. The Company believes that no use of the “crumbs” name
by any of such Persons has had, or is reasonably likely to have, a Material
Adverse Effect.

 

 

 

SCHEDULE 4.17 - LITIGATION

 

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

 

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

 

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

 

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

 

 

 

SCHEDULE 4.18 – UNDISCLOSED LIABILITIES

 

None.

 

 

 

SCHEDULE 4.21 – FEES TO AGENTS

 

The Company is a party to a letter agreement, dated as of August 24, 2012, with
Janney Scott Montgomery LLC (“Janney”) pursuant to which the Company appointed
Janney as its lead financial advisor and, in connection with the transactions
contemplated by this Agreement, agreed to (a) pay Janney a non-refundable
retainer fee of $50,000, which shall be credited toward the advisory fee, (b)
pay Janney an advisory fee of 7.00% of the gross proceeds raised in these
transactions, subject to certain exclusions, (c) reimburse Janney for its
expenses, up to $50,000, and (c) indemnify Janney and its affiliates, the
directors, officers, employees and agents of Janney and its affiliates, and each
other person or entity, if any, controlling Janney or any of its affiliates
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
from certain losses they suffer in connection with the transactions. In
addition, the Company agreed to pay Janney the advisory fee described above in
the event the Company sells, within 12 months following the termination of the
letter agreement, securities similar to the securities covered by this Agreement
to a person who was introduced to the Company by Janney.

 

The Company is a party to a letter agreement, dated as of August 24, 2012, with
Susman Partners LLC d/b/a Threadstone Advisors (“Threadstone”) pursuant to which
the Company agreed to reimburse Threadstone for its expenses, up to $10,000,
incurred in acting as a co-advisor to the Company in connection with these
transactions.