Exhibit 10.1

 

 

Debt Conversion and purchase and sale AGREEMENT

 

by and Among

 

bebe stores, inc.,

 

the manny mashouf living trust

 

and

 

B. Riley Financial, Inc.

 

Dated as of January 12, 2018

 

 

 

 

 

TABLE OF CONTENTS

  

  Page ARTICLE I

Conversion; purchase and sale; Closing 1.1       Conversion; Purchase and Sale 2
1.2       Time and Place of Closing 2 1.3       Right to Future Purchase 2
ARTICLE II

Representations and Warranties of the Company 2.1       Organization, Good
Standing and Qualification 3 2.2       Capital Structure 5 2.3       Corporate
Authority; Approval and Fairness 5 2.4       Issuance; Private Placement 6
2.5       Governmental Filings; No Violations; Certain Contracts 6
2.6       Company Reports; Financial Statements 7 2.7       Absence of Certain
Changes 9 2.8       Litigation and Liabilities 9 2.9       Compliance with Laws;
Licenses 10 2.10     Material Contracts 10 2.11     Real Property 11
2.12     Takeover Statutes 12 2.13     Taxes 12 2.14     Intellectual Property
14 2.15     Brokers and Finders 15 2.16     Joint Venture 16 2.17     No Other
Representations or Warranties 16 2.18     Disclaimer of Other Representations
and Warranties 16 ARTICLE III

Representations and Warranties of Purchaser 3.1       Organization, Good
Standing and Qualification 16 3.2       Authority 17 3.3       Governmental
Filings; No Violations; Etc. 17 3.4       Litigation and Liabilities 17
3.5       Investment Representations 18 3.6       Ownership 18 3.7       Brokers
and Finders 19 3.8       No Other Representations or Warranties 19
3.9       Disclaimer of Other Representations and Warranties 19

 

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ARTICLE IV

Representations and Warranties of seller 4.1       Ownership of Shares 19
4.2       Organization, Good Standing and Qualification 20 4.3       Authority
20 4.4       Governmental Filings; No Violations; Etc. 20 4.5       Litigation
and Liabilities 21 4.6       Brokers and Finders 21 4.7       No Other
Representations or Warranties 21 4.8       Disclaimer of Other Representations
and Warranties 21 ARTICLE V

Covenants 5.1       Stock Exchange Deregistration 21 5.2       Expenses 22
5.3       Taxes 22 5.4       Publicity 22 5.5       Takeover Statutes 22
5.6       Information Rights 22 5.7       Joint Venture Distributions 22 ARTICLE
VI

CLOSING DELIVERABLES 6.1       Company’s Deliverables 23 6.2       Purchaser’s
Deliverables 23 6.3       Seller’s Deliverables 24 ARTICLE VII

Miscellaneous and General 7.1       Survival of Representations, Warranties and
Covenants 24 7.2       Modification or Amendment 24 7.3       Waiver of
Conditions 24 7.4       Counterparts 24 7.5       GOVERNING LAW AND VENUE;
SPECIFIC PERFORMANCE 25 7.6       Notices 26

 

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7.7       Entire Agreement 27 7.8       No Third Party Beneficiaries 27
7.9       Obligations of Purchaser and of the Company 27 7.10     Definitions 28
7.11     Severability 28 7.12     Interpretation; Construction 28
7.13     Assignment 29

 

Annex A: Definitions     Exhibit A: Tax Benefit Preservation Plan Exhibit B:
Investor Agreement

 

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Debt Conversion and purchase and sale AGREEMENT

 

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

 

RECITALS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

ARTICLE I

Conversion; purchase and sale; Closing

 

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

 

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

 

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

 

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

 

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

 

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

 

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ARTICLE II

Representations and Warranties of the Company

 

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

 

2.1           Organization, Good Standing and Qualification.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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2.2           Capital Structure.

 

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

 

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

 

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

 

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

 

2.3           Corporate Authority; Approval and Fairness.

 

(a)           The Company has all requisite corporate power and authority and
has taken all corporate action necessary in order to execute, deliver and
perform its obligations under this Agreement and to consummate the Conversion,
the Issuance and the other transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Company and, assuming due authorization,
execution and delivery by Purchaser, constitutes a valid and binding agreement
of the Company enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar Laws of general applicability relating to or affecting
creditors’ rights and to general equity principles (the “Bankruptcy and Equity
Exception”).

 

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

 

2.4           Issuance; Private Placement.

 

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

 

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

 

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

 

2.5           Governmental Filings; No Violations; Certain Contracts.

 

(a)           Other than (i) reports and filings under, and compliance with, the
Securities Act or the Exchange Act of 1934, as amended (the “Exchange Act”), as
may be required in connection with this Agreement and the transactions
contemplated hereby, (ii) the filings under the rules and regulations of OTCQB
in connection with the Issuance and the Conversion and (iii) such filings and
approvals as may be required under the California securities Laws, no notices,
reports or other filings are required to be made by the Company with, nor are
any consents, registrations, approvals, permits or authorizations required to be
obtained by the Company from, any domestic or foreign governmental or regulatory
authority, agency, commission, body, court or other legislative, executive or
judicial governmental entity (each, a “Governmental Entity”) in connection with
the execution, delivery and performance of this Agreement by the Company and the
consummation of the Issuance, the Conversion and the other transactions
contemplated hereby, or in connection with the continuing operation of the
business of the Company and its Subsidiaries following the Closing, except those
that the failure to make or obtain would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or prevent, materially
delay or materially impair the consummation of the transactions contemplated by
this Agreement.

 

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

 

2.6           Company Reports; Financial Statements.

 

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

 

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

 

(c)           The Company maintains disclosure controls and procedures required
by Rule 13a-15 or 15d-15 under the Exchange Act. Such disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company is recorded and reported on a timely basis to the individuals
responsible for the preparation of the Company’s filings with the SEC and other
public disclosure documents. The Company maintains internal control over
financial reporting (as defined in Rule 13a-15 or 15d-15, as applicable, under
the Exchange Act). Such internal control over financial reporting is effective
in providing reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with GAAP and includes policies and procedures that (i) pertain to
the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the asset of the Company, (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company, and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on its financial statements. The Company has disclosed, based on
the most recent evaluation of its chief executive officer and its chief
financial officer prior to the date of this Agreement, to the Company’s auditors
and the audit committee of the Company’s board of directors (A) any significant
deficiencies in the design or operation of its internal controls over financial
reporting that are reasonably likely to adversely affect the Company’s ability
to record, process, summarize and report financial information and has
identified for the Company’s auditors and audit committee of the Company’s board
of directors any material weaknesses in internal control over financial
reporting and (B) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company’s internal control
over financial reporting. The Company has provided to Purchaser prior to the
date of this Agreement (i) a summary of any such disclosure made by management
to the Company’s auditors and audit committee since the Applicable Date and (ii)
any material communication since the Applicable Date made by management or the
Company’s auditors to the audit committee required or contemplated by listing
standards of the NASDAQ Global Select Market (prior to the de-listing from the
NASDAQ Global Select Market) or the OTCQB (following the de-listing from the
NASDAQ Global Select Market), the audit committee’s charter or professional
standards of the Public Company Accounting Oversight Board. Since the Applicable
Date, no material complaints from any source regarding accounting, internal
accounting controls or auditing matters, and no concerns from Company employees
regarding questionable accounting or auditing matters, have been received by the
Company. The Company has provided to Purchaser prior to the date of this
Agreement a summary of all material complaints or concerns relating to other
matters made since the Applicable Date through the Company’s whistleblower hot
line or equivalent system for receipt of employee concerns regarding possible
violations of Laws. To the Knowledge of the Company, there have been no reports
of evidence of a violation of securities Laws, breach of fiduciary duty or
similar violation by the Company or any of its officers, directors, employees or
agents to the Company’s chief legal officer, audit committee (or other committee
designated for the purpose) of the board of directors or the board of directors
pursuant to the rules adopted pursuant to Section 307 of the Sarbanes-Oxley Act
or any Company policy contemplating such reporting, including in instances not
required by those rules.

 

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

 

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

 

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

 

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

 

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

 

2.8           Litigation and Liabilities.

 

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

 

-9-

 

 

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

 

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

 

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

 

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

 

2.10        Material Contracts.

 

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

 

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

 

-10-

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2.11         Real Property.

 

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

 

-11-

 

 

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

 

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

 

2.13         Taxes.

 

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

 

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

 

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

 

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

 

-12-

 

 

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

 

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

 

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

 

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

 

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

 

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

 

-13-

 

 

2.14         Intellectual Property.

 

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

 

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

 

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

 

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

 

-14-

 

 

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

 

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

 

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

 

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

 

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

 

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

 

-15-

 

 

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

 

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

 

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

 

ARTICLE III

Representations and Warranties of Purchaser

 

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

 

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

 

-16-

 

 

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

 

3.3                   Governmental Filings; No Violations; Etc. 

 

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

 

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

 

3.4                   Litigation and Liabilities.

 

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

 

-17-

 

 

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

 

3.5                   Investment Representations 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

-18-

 

 

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

 

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

 

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

 

ARTICLE IV

Representations and Warranties of seller

 

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

 

4.1                   Ownership of Shares.

 

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

 

(b)               There are no preemptive or other outstanding rights, options,
warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights, agreements, arrangements or commitments of any character
under which such Seller is or may become obligated to sell, or giving any Person
a right to acquire, or in any way dispose of, any of such Seller’s Purchased
Shares or and the Subsequent Purchase Shares, or any securities or obligations
exercisable or exchangeable for, or convertible into, such Seller’s Purchased
Shares or the Subsequent Purchase Shares, or any “tag-along”, “drag-along” or
similar rights with respect to such Purchased Shares or Subsequent Purchase
Shares. Except for this Agreement and the Investor Agreement, such Seller is not
a party to any voting trusts, proxies, or other shareholder or similar
agreements or understandings with respect to the voting, purchase, repurchase or
transfer of the Common Stock.

 

-19-

 

 

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

 

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

 

4.4                   Governmental Filings; No Violations; Etc. 

 

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

 

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

 

-20-

 

 

4.5                   Litigation and Liabilities.

 

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

 

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

 

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

 

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

 

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

 

ARTICLE V

Covenants

 

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

 

-21-

 

 

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

 

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

 

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

 

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

 

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

 

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

 

-22-

 

 

ARTICLE VI

CLOSING DELIVERABLES

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

-23-

 

 

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

 

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

 

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

 

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

 

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

 

ARTICLE VII

Miscellaneous and General

 

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

 

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

 

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

 

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

 

-24-

 

 

7.5                   GOVERNING LAW AND VENUE; SPECIFIC PERFORMANCE.

 

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

 

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

 

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

 

-25-

 

 

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

 

If to Purchaser:

 

B. Riley Financial, Inc.

21255 Burbank Boulevard, Suite 400

Woodland Hills, California 91367
Attention:  Alan Forman
email: aforman@brileyfin.com

 

with a copy to Patrick S. Brown, Esq.,
Sullivan & Cromwell LLP
1888 Century Park East, Suite 2100
Los Angeles, California 90067
fax: (310) 407-2685
email: brownp@sullcrom.com

 

If to the Company:

 

400 Valley Drive,
Brisbane, CA 94005
Attention:  Gary Bosch
email: gbosch@bebe.com

 

with a copy to Tad J. Freese,
Latham & Watkins LLP
140 Scott Drive

Menlo Park, California 94025
fax:  (650) 463-2600
email: tad.freese@lw.com

 

If to Seller:

 

639 Huntsley Drive, #4,
West Hollywood, CA 90069.
Attention:  Manny Mashouf
email: mannymashouf@yahoo.com

 

with a copy to Tad J. Freese,
Latham & Watkins LLP
140 Scott Drive

Menlo Park, California 94025
fax:  (650) 463-2600
email: tad.freese@lw.com

 

-26-

 

 

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

 

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

 

7.8                   No Third Party Beneficiaries.

 

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

 

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

 

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

 

-27-

 

 

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

 

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

 

7.12               Interpretation; Construction.

 

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

 

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

 

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

 

-28-

 

 

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

 

[Signature Page Follows]

 

-29-

 

 

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

 

  bebe stores, inc.           By: /s/ MANNY MASHOUF     Name: Manny Mashouf    
Title: Chief Executive Officer           B. Riley Financial, Inc.           By:
/s/ BRYANT RILEY     Name: Bryant Riley     Title: Chairman and Chief Executive
Officer           The Manny Mashouf Living Trust           By: /s/ MANNY MASHOUF
    Name: Manny Mashouf     Title: Trustee

 

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

 

 

 

Annex A

 

Defined Terms

 

Terms Section     Action 2.8(a) Affiliate 2.6(b) Affiliated Group 2.13(j)
Agreement Preamble Applicable Date 2.6(a) Assignment Agreement Recitals
Bankruptcy and Equity Exception 2.3(a) business day 1.2 Closing 1.2 Closing Date
1.2 Code 2.13(i) Common Stock Recitals Company Preamble Company Disclosure
Letter ARTICLE II Company Intellectual Property 2.14(b) Company Reports 2.6(a)
Contract 2.5(b) Conversion 1.1(a) Conversion Shares 1.1(a) Exchange Act 2.5(a)
Expiration Date 7.1 GAAP 2.1(b)(iii) Governmental Entity 2.5(a) Intellectual
Property 2.14(e)(i) Intellectual Property Contracts 2.14(e)(ii) Investor
Agreement 1.1(a) Issuance 1.1(c) Issued Shares Recitals Joint Venture 2.1(b)
Knowledge 2.8(c) Laws 2.9 Licenses 2.9 Lien 1.1(a) LSA Recitals Material Adverse
Effect 2.1(b) Material Contract 2.10(a) Off-the-Shelf Software 2.14(e)(iii)
OTCQB 2.1(b)(vii) Owned Intellectual Property 2.14(e)(iv) Owned Real Property
2.11(a) Permitted Lien 2.11(b)

 

 

 

 

Person 2.1(b) Price Per Share 1.1(a) Purchase 1.1(b) Purchased Shares Recitals
Purchaser Preamble Sarbanes-Oxley Act 2.6(a) SEC ARTICLE II Securities Act
2.4(b) Seller Preamble Shares 1.1(a) Subsequent Purchase 1.3 Subsequent Purchase
Shares 1.3 Subsidiary 2.1(b) Takeover Statute 2.12 Tax 2.13(j) Tax Return
2.13(j) Taxes 2.13(j) Transfer Agent 6.1(a) Treasury Regulations 2.13(j)

 

Annex A-2

 

 

Exhibit A

 

Tax Benefit Preservation Plan

 

 

 

 

 

BEBE STORES, INC.

 

and

 

COMPUTERSHARE TRUST COMPANY, N.A.

 

as Rights Agent

 

Tax Benefit Preservation Plan

 

Dated as of January 12, 2018  

 

 

 

 

 

TAX BENEFIT PRESERVATION PLAN

 

Tax Benefit Preservation Plan, dated as of January 12, 2018 (this “Plan”),
between BEBE STORES, INC., a California corporation (the “Company”), and
COMPUTERSHARE TRUST COMPANY, N.A., a federally chartered trust company, as
Rights Agent (the “Rights Agent”).

 

RECITALS

 

WHEREAS, on January 12, 2018, the Board of Directors (the “Board”) of the
Company adopted this Plan, and has authorized and declared a dividend of one
preferred stock purchase right (a “Right”) for each share of Common Stock (as
defined in Section 1.6) of the Company outstanding at the close of business on
January 26, 2018 (the “Record Date”) and has authorized and directed the
issuance of one Right (subject to adjustment as provided herein) with respect to
each share of Common Stock that shall become outstanding between the Record Date
and the earliest of the Distribution Date and the Expiration Date (as such terms
are defined in Sections 3.1 and 7.1, respectively), each Right initially
representing the right to purchase one-hundredth (subject to adjustment) of a
share of Series A Junior Participating Preferred Stock, par value $0.001 per
share (the “Series A Preferred”), of the Company having the rights, powers and
preferences set forth in the form of Certificate of Determination of Series A
Junior Participating Preferred Stock attached hereto as Exhibit A (as amended
from time to time), upon the terms and subject to the conditions hereinafter set
forth; provided, however, that Rights may be issued with respect to Common Stock
that shall become outstanding after the Distribution Date and prior to the
Expiration Date in accordance with Section 22;

 

WHEREAS, if the Company experiences an “ownership change,” as defined in Section
382 of the Internal Revenue Code of 1986, as amended, or any successor statute
(the “Code”), its ability to use Tax Benefits (as defined herein) for income tax
purposes could be substantially limited or lost altogether; and

 

WHEREAS, the Company views the Tax Benefits as highly valuable assets of the
Company, which are likely to inure to the benefit of the Company and its
stockholders, and the Company believes that it is in the best interests of the
Company and its stockholders that the Company provide for the protection of the
Tax Benefits on the terms and conditions set forth herein.

 

 

 

 

NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:

 

ARTICLE VIII Certain Definitions. For purposes of this Plan, the following terms
have the meanings indicated:

 

8.1            “Acquiring Person” shall mean any Person who or which, from and
after the date of this Plan, shall be the Beneficial Owner of 4.99% or more of
the Common Stock then outstanding, but shall not include (i) an Exempt Person or
(ii) any Existing Holder, unless and until such time as such Existing Holder
shall, after the first public announcement of this Plan, become the Beneficial
Owner of one or more additional shares of Common Stock (other than pursuant to a
dividend or distribution paid or made by the Company on the outstanding Common
Stock in Common Stock or pursuant to a split or subdivision of the outstanding
Common Stock), unless upon acquiring such Beneficial Ownership, such Existing
Holder does not Beneficially Own 4.99% or more of the Common Stock then
outstanding. Notwithstanding the foregoing, no Person shall become an “Acquiring
Person” as the result of an acquisition of Common Stock by the Company which, by
reducing the number of shares outstanding, increases the proportionate number of
shares Beneficially Owned by such Person to 4.99% or more of the Common Stock
then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of 4.99% or more of the Common Stock then outstanding solely by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of one or more additional shares of
Common Stock (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Stock in Common Stock or pursuant to a
split or subdivision of the outstanding Common Stock), then such Person shall be
deemed to be an “Acquiring Person” unless, upon becoming the Beneficial Owner of
such additional Common Stock, such Person does not Beneficially Own 4.99% or
more of the Common Stock then outstanding. Notwithstanding the foregoing, if the
Board determines, in its sole discretion, that a Person who would otherwise be
an “Acquiring Person,” as defined pursuant to the foregoing provisions of this
Section 1.1, has become such inadvertently (including, without limitation,
because (A) such Person was unaware that it Beneficially Owned a percentage of
Common Stock that would otherwise cause such Person to be an “Acquiring Person”
or (B) such Person was aware of the extent of its Beneficial Ownership of Common
Stock but had no actual knowledge of the consequences of such Beneficial
Ownership under this Plan), and such Person divests as promptly as practicable
(as determined by the Board in its sole discretion) a sufficient number of
shares of Common Stock so that such Person would no longer be an Acquiring
Person, as defined pursuant to the foregoing provisions of this Section 1.1,
then such Person shall not be deemed to be or have become an “Acquiring Person”
at any time for any purposes of this Plan. For all purposes of this Plan, any
calculation of the number of shares of Common Stock outstanding at any
particular time, including for purposes of determining the particular percentage
of such outstanding Common Stock of which any Person is the Beneficial Owner,
shall be made pursuant to and in accordance with Section 382 and the Treasury
Regulations promulgated thereunder.

 

8.2            “Affiliate” and “Associate” shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as in
effect on the date of this Plan and, to the extent not included within the
foregoing, shall also include, with respect to any Person, any other Person
whose Stock or other securities (i) would be deemed constructively owned by such
first Person for purposes of Section 382, (ii) would be deemed owned by a single
“entity” as defined in Treasury Regulation § 1.382-3(a)(1) in which both such
first Person and such other Person are included or (iii) otherwise would be
deemed aggregated with the Stock or other securities owned by such first Person
pursuant to the provisions of Section 382.

 

 2

 

 

A Person shall be deemed the “Beneficial Owner” of and shall be deemed to
“Beneficially Own” or have “Beneficial Ownership” of any securities:

 

(a)    which such Person, directly or indirectly, has the Right to Acquire;
provided, however, that a Person shall not be deemed the Beneficial Owner of, or
to Beneficially Own (i) securities (including rights, options or warrants) which
are convertible or exchangeable into or exercisable for Common Stock until such
time as such securities are converted or exchanged into or exercised for Common
Stock except to the extent the acquisition or transfer of securities (including
rights, options or warrants) would be treated as exercised on the date of its
acquisition or transfer under Section 1.382-4(d) of the Treasury Regulations
promulgated under Section 382; (ii) securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person, until such tendered
securities are accepted for purchase or exchange; (iii) securities which such
Person has a Right to Acquire upon the exercise of Rights at any time prior to
the time that any Person becomes an Acquiring Person or (iv) securities issuable
upon the exercise of Rights from and after the time that any Person becomes an
Acquiring Person if such Rights were acquired by such Person prior to the
Distribution Date or pursuant to Section 3.1 or Section 22 (“Original Rights”)
or pursuant to Section 11.9 or Section 11.15 with respect to an adjustment to
Original Rights;

 

(b)   which such Person, directly or indirectly, has or shares the right to vote
or dispose of, or otherwise has “beneficial ownership” of (as defined under
Rule 13d-3 of the General Rules and Regulations under the Exchange Act);
provided, however, that Beneficial Ownership arising solely as a result of any
such Person’s participation in a “group” (within the meaning of Rule 13d-5(b) of
the General Rules and Regulations under the Exchange Act) shall be determined
under Section 1.3.3 of this Plan and not under this Section 1.3.2; or

 

(c)    of which any other Person is the Beneficial Owner, if such Person has any
agreement, arrangement or understanding (whether or not in writing) with such
other Person with respect to acquiring, holding, voting or disposing of such
securities of the Company, but only if the effect of such agreement, arrangement
or understanding is to treat such Persons as an “entity” under
Section 1.382-3(a)(1) of the Treasury Regulations; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to Beneficially Own, any
security (A) if such Person has the right to vote such security pursuant to an
agreement, arrangement or understanding (whether or not in writing) which
(1) arises solely from a revocable proxy given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable rules and regulations of the Exchange Act and (2) is not also
then reportable on Schedule 13D or Schedule 13G under the Exchange Act (or any
comparable or successor report), or (B) if such beneficial ownership arises
solely as a result of such Person’s status as a “clearing agency,” as defined in
Section 3(a)(23) of the Exchange Act; provided, further, that nothing in this
Section 1.3.3 shall cause a Person engaged in business as an underwriter of
securities or member of a selling group to be the Beneficial Owner of, or to
Beneficially Own, any securities acquired through such Person’s participation in
good faith in an underwriting syndicate until the expiration of 40 calendar days
after the date of such acquisition, and then only if such securities continue to
be owned by such Person at the expiration of such 40 calendar days, or such
later date as the Board of the Company may determine in any specific case.

 

Notwithstanding anything herein to the contrary, to the extent not within the
foregoing provisions of this Section 1.3, a Person shall be deemed the
Beneficial Owner of, and shall be deemed to Beneficially Own, Stock held by any
other Person that such Person would be deemed to constructively own or that
otherwise would be aggregated with Stock owned by such Person pursuant to
Section 382, or any successor provision or replacement provision and the
Treasury Regulations thereunder.

 

 3

 

 

No Person who is an officer, director or employee of an Exempt Person shall be
deemed, solely by reason of such Person’s status or authority as such, to be the
“Beneficial Owner” of, to have “Beneficial Ownership” of or to “Beneficially
Own” any securities that are “Beneficially Owned” (as defined in this
Section 1.3), including, without limitation, in a fiduciary capacity, by an
Exempt Person or by any other such officer, director or employee of an Exempt
Person.

 

8.3            “Business Day” shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.

 

8.4            “close of business” on any given date shall mean 5:00 p.m., New
York time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 p.m., New York time, on the next succeeding Business Day.

 

8.5            “Common Stock” when used with reference to the Company shall mean
the Common Stock, par value $0.001 per share, of the Company. “Common Stock”
when used with reference to any Person other than the Company shall mean the
capital stock with the greatest voting power, or the equity securities or other
equity interest having power to control or direct the management of, such other
Person or, if such Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person, and which has
issued and outstanding such capital stock, equity securities or equity interest.

 

8.6            “Exempt Person” shall mean (i) the Company, any Subsidiary of the
Company, in each case including, without limitation, the officers and members of
the board of directors thereof acting in their fiduciary capacities, or any
employee benefit plan of the Company or of any Subsidiary of the Company or any
entity or trustee holding (or acting in a fiduciary capacity in respect of)
shares of capital stock of the Company for or pursuant to the terms of any such
plan, or for the purpose of funding other employee benefits for employees of the
Company or any Subsidiary of the Company, and (ii) any Person deemed to be an
“Exempt Person” in accordance with Section 28 or Section 29.

 

8.7            “Existing Holder” shall mean any Person who, immediately prior to
the first public announcement of the adoption of this Plan, is the Beneficial
Owner of 4.99% or more of the Common Stock then outstanding.

 

8.8            “Person” shall mean any individual, partnership, joint venture,
limited liability company, firm, corporation, unincorporated association or
organization, trust or other entity, or any group of such “Persons” having a
formal or informal understanding among themselves to make a “coordinated
acquisition” of shares within the meaning of Treasury Regulation § 1.382-3(a)(1)
or who are otherwise treated as an “entity” within the meaning of Treasury
Regulation § 1.382-3(a)(1), and shall include any successor (by merger or
otherwise) of any such entity or group.

 

 4

 

 

8.9            “Right to Acquire” shall mean a legal, equitable or contractual
right to acquire (whether directly or indirectly and whether exercisable
immediately, or only after the passage of time, compliance with regulatory
requirements, fulfillment of a condition or otherwise), pursuant to any
agreement, arrangement or understanding, whether or not in writing (excluding
customary agreements entered into in good faith with and between an underwriter
and selling group members in connection with a firm commitment underwriting
registered under the Securities Act of 1933, as amended (the “Securities Act”)),
or upon the exercise of any option, warrant or right, through conversion of a
security, pursuant to the power to revoke a trust, discretionary account or
similar arrangement, pursuant to the power to terminate a repurchase or similar
so-called “stock borrowing” agreement or arrangement, or pursuant to the
automatic termination of a trust, discretionary account or similar arrangement.

 

8.10          “Section 382” means Section 382 of the Code or any successor or
replacement provisions and the Treasury Regulation promulgated thereunder.

 

“Stock” means with respect to any Person, such Person’s (i) common stock, (ii)
preferred shares (other than preferred shares described in Section 1504(a)(4) of
the Code) and (iii) any other interest that would be treated as “stock” of such
Person pursuant to Treasury Regulation § 1.382-2T(f)(18).

 

8.11          “Stock Acquisition Date” shall mean the first date of public
announcement by the Company that an Acquiring Person has become such or that
discloses information which reveals the existence of an Acquiring Person.

 

8.12          “Subsidiary” of any Person shall mean any partnership, joint
venture, limited liability company, firm, corporation, unincorporated
association, trust or other entity of which a majority of the voting power of
the voting equity securities or equity interests is owned, of record or
beneficially, directly or indirectly, by such Person.

 

8.13          “Tax Benefits” shall mean net operating losses, capital loss
carryovers, general business credit carryovers, alternative minimum tax credit
carryovers, foreign tax credit carryovers, any loss or deduction attributable to
a “net unrealized built-in loss” within the meaning of Section 382, of the
Company or any of its Subsidiaries and any other tax attribute the benefit of
which is subject to possible limitation under Section 382.

 

8.14          “Treasury Regulations” means the final and temporary regulations
promulgated by the United States Department of the Treasury under the Code as
amended or superseded from time to time.

 

8.15          A “Trigger Event” shall be deemed to have occurred upon any Person
becoming an Acquiring Person.

 

 5

 

 

8.16          The following terms shall have the meanings defined for such terms
in the Sections set forth below:

  

Term Section     Adjustment Shares 11.1.2 Board Recitals Book Entry Shares 3.1
Code Recitals common stock equivalent 11.1.3 Company Preamble current per share
market price 11.4.1 Current Value 11.1.3 Distribution Date 3.1 equivalent
preferred stock 11.2 Exchange Act 1.2 Exchange Consideration 27.1 Exemption
Request 28 Expiration Date 7.1 Final Expiration Date 7.1 OTCQB 9 Original Rights
1.3.2 Plan Preamble Principal Party 13.2 Purchase Price 4 Record Date Recitals
Redemption Price 23.1 Requesting Person 28 Right Recitals Right Certificate 3.1
Rights Agent Preamble Securities Act 1.10 Security 11.4.1 Series A Preferred
Recitals Substitution Period 11.1.3 Summary of Rights 3.2 Trading Day 11.4.1
Trust 27.1 Trust Agreement 27.1 Waiver Request 29

 

ARTICLE IX Appointment of Rights Agent. The Company hereby appoints the Rights
Agent to act as rights agent for the Company in accordance with the express
terms and conditions (and no implied terms and conditions) hereof, and the
Rights Agent hereby accepts such appointment. The Company may from time to time
appoint such co-rights agents as it may deem necessary or desirable upon ten
(10) calendar days’ prior written notice to the Rights Agent. The Rights Agent
shall have no duty to supervise, and shall in no event be liable for, the act or
omission of any such co-Rights Agents. In the event the Company appoints one or
more co-rights agents, the respective duties of the Rights Agent and any such
other rights agents shall be as the Company shall reasonably determine, provided
that such duties and determination are consistent with the terms and provisions
of this Plan.

 

 6

 

 

ARTICLE X Issuance of Right Certificates.

 

10.1          Rights Evidenced by Stock Certificates. Until the earlier of (i)
the close of business on the tenth (10th) Business Day after the Stock
Acquisition Date or (ii) the close of business on the tenth (10th) Business Day
after the date of the commencement of, or first public announcement by the
Company of the intent of any Person (other than an Exempt Person) to commence, a
tender or exchange offer the consummation of which would result in any Person
becoming an Acquiring Person (the earlier of (i) and (ii) being herein referred
to as the “Distribution Date”), (x) the Rights (unless earlier expired, redeemed
or terminated) will be evidenced (subject to the provisions of Section 3.2) by
the certificates for Common Stock registered in the names of the holders thereof
or, in the case of uncertificated Common Stock registered in book entry form
(“Book Entry Shares”), by notation in book entry (which certificates for Common
Stock and Book Entry Shares shall also be deemed to be Right Certificates) and
not by separate certificates, and (y) the Rights (and the right to receive
certificates therefor) will be transferable only in connection with the transfer
of the underlying Common Stock. The preceding sentence notwithstanding, (A)
prior to the occurrence of a Distribution Date specified as a result of an event
described in clauses (i) or (ii) (or such later Distribution Date as the Board
may select pursuant to this sentence), the Board may postpone, one or more
times, the Distribution Date in order to make a determination pursuant to
Sections 7.1(v), 7.1(vi), 28 or 29 or (B) prior to the occurrence of a
Distribution Date specified as a result of an event described in clause (ii) (or
such later Distribution Date as the Board may select pursuant to this sentence),
the Board may postpone, one or more times, the Distribution Date which would
occur as a result of an event described in clause (ii) beyond the date set forth
in such clause (ii), provided that the Company shall provide prompt written
notice of any postponement under this sentence to the Rights Agent. As soon as
practicable after the Distribution Date, the Company will prepare and execute,
the Rights Agent will countersign and the Company (or, if requested, the Rights
Agent at the expense of the Company and upon receipt by the Rights Agent of all
relevant information) will send, by first-class, postage-prepaid mail, to each
record holder of Common Stock as of the close of business on the Distribution
Date (other than any Acquiring Person or any Affiliate or Associate of an
Acquiring Person), at the address of such holder shown on the records of the
Company or the transfer agent or registrar for the Common Stock, one or more
certificates for Rights, in substantially the form of Exhibit B hereto (a “Right
Certificate”), evidencing one Right (subject to adjustment as provided herein)
for each share of Common Stock so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates. The Company shall promptly
notify the Rights Agent in writing upon the occurrence of the Distribution Date.
Until such notice is received by the Rights Agent, the Rights Agent may presume
conclusively for all purposes that the Distribution Date has not occurred.

 

10.2          Summary of Rights. On the Record Date or as soon as practicable
thereafter, the Company will send or cause to be sent a copy of a Summary of
Rights to Purchase Series A Preferred, in substantially the form attached hereto
as Exhibit C (the “Summary of Rights”), by first-class, postage-prepaid mail, to
each record holder of Common Stock as of the close of business on the Record
Date (other than any Acquiring Person or any Affiliate or Associate of any
Acquiring Person) at the address of such holder shown on the records of the
Company or the transfer agent or registrar for the Common Stock. Any failure to
send a copy of the Summary of Rights shall not invalidate the Rights or affect
their transfer with the Common Stock. With respect to certificates representing
Common Stock and Book Entry Shares outstanding as of the close of business on
the Record Date, until the Distribution Date (or the earlier Expiration Date),
the Rights will be evidenced by such certificates for Common Stock registered in
the names of the holders thereof or Book Entry Shares, as applicable, together
with a copy of the Summary of Rights and the registered holders of the Common
Stock shall also be registered holders of the associated Rights. Until the
Distribution Date (or the earlier Expiration Date), the surrender for transfer
of any certificate for Common Stock or Book Entry Shares outstanding at the
close of business on the Record Date, with or without a copy of the Summary of
Rights, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby and the Book Entry Shares, as applicable.

 

 7

 

 

10.3          New Certificates and Uncertificated Shares After Record Date.
Certificates for Common Stock that become outstanding (whether upon issuance out
of authorized but unissued Common Stock, disposition out of treasury or transfer
or exchange of outstanding Common Stock) after the Record Date but prior to the
earliest of the Distribution Date or the Expiration Date, or in certain
circumstances provided in Section 22 hereof, after the Distribution Date, shall
have impressed, printed, stamped, written or otherwise affixed onto them a
legend in substantially the following form:

 

This certificate also evidences and entitles the holder hereof to certain rights
as set forth in a Tax Benefit Preservation Plan between bebe stores, inc. (the
“Company”) and Computershare Trust Company, N.A., as Rights Agent (or any
successor Rights Agent), dated as of January 12, 2018 as the same may be amended
from time to time (the “Plan”), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal executive
offices of the Company. Under certain circumstances, as set forth in the Plan,
such Rights (as defined in the Plan) will be evidenced by separate certificates
and will no longer be evidenced by this certificate. The Company will mail to
the holder of this certificate a copy of the Plan without charge after receipt
of a written request therefor. As described in the Plan, Rights which are owned
by, transferred to or have been owned by Acquiring Persons (as defined in the
Plan) or any Affiliate or Associate (as defined in the Plan) of any Acquiring
Person shall become null and void and will no longer be transferable.

 

With respect to any Book Entry Shares, such legend shall be included in a notice
to the record holder of such shares in accordance with applicable law. Until the
Distribution Date (or the earlier Expiration Date), the Rights associated with
the Common Stock represented by such certificates and such Book Entry Shares
shall be evidenced solely by such certificates or the Book Entry Shares alone,
and the surrender for transfer of any such certificates or Book Entry Shares,
except as otherwise provided herein, shall also constitute the transfer of the
Rights associated with the Common Stock represented thereby. In the event that
the Company purchases or otherwise acquires any Common Stock after the Record
Date but prior to the Distribution Date, any Rights associated with such Common
Stock shall be deemed canceled and retired so that the Company shall not be
entitled to exercise any Rights associated with the Common Stock that are no
longer outstanding.

 

 8

 

 

Notwithstanding this Section 3.3, neither the omission of the legend required
hereby, nor the failure to provide the notice thereof, shall affect the
enforceability of any part of this Plan or the rights of any holder of the
Rights.

 

ARTICLE XI Form of Right Certificates. The Right Certificates (and the forms of
election to purchase shares and assignment, including the certifications
therein, to be printed on the reverse thereof) shall each be substantially in
the form set forth in Exhibit B hereto and may have such marks of identification
or designation and such legends, summaries or endorsements printed thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Plan (but which do not affect the rights, duties, liabilities or
responsibilities of the Rights Agent), or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or trading system on which the Rights
may from time to time be listed or quoted, or to conform to usage. Subject to
the terms and conditions hereof, the Right Certificates, whenever issued, shall
be dated as of the Record Date, and shall show the date of countersignature by
the Rights Agent, and on their face shall entitle the holders thereof to
purchase such number of one-hundredths of a share of Series A Preferred as shall
be set forth therein at the price per one-hundredth of a share of Series A
Preferred set forth therein (the “Purchase Price”), but the number of such
one-hundredths of a share of Series A Preferred and the Purchase Price shall be
subject to adjustment as provided herein.

 

ARTICLE XII Countersignature and Registration. The Right Certificates shall be
executed on behalf of the Company by the President and Chief Executive Officer
or Managing Director and Treasurer of the Company, either manually or by
facsimile signature, and shall have affixed thereto the Company’s seal or a
facsimile thereof which shall be attested by the Secretary or any Assistant
Secretary of the Company or by such officers as the Board may designate, either
manually or by facsimile signature. The Right Certificates shall be
countersigned, either manually or by facsimile signature, by an authorized
signatory of the Rights Agent, but it shall not be necessary for the same
signatory to countersign all of the Right Certificates hereunder. No Right
Certificate shall be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Right Certificates shall
cease to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent, and issued and delivered
by the Company with the same force and effect as though the Person who signed
such Right Certificates had not ceased to be such officer of the Company; and
any Right Certificate may be signed on behalf of the Company by any Person who,
at the actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Plan any such Person was not such an officer.

 

Following the Distribution Date and the Receipt by the Rights Agent of the
written notice to that effect and all other relevant information referred to in
this Plan, the Rights Agent will keep or cause to be kept, at its office or
offices designated for such purpose, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates, the certificate
number of each of the Right Certificates and the date of each of the Right
Certificates.

 

 9

 

 

ARTICLE XIII Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the
provisions of this Plan, including, but not limited to, Section 11.1.2 and
Section 14, at any time after the close of business on the Distribution Date,
and at or prior to the close of business on the Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become null and void pursuant to Section 11.1.2 or that have
been exchanged pursuant to Section 27) may be transferred, split up, combined or
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one-hundredths of a share of
Series A Preferred as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate shall make such
request in writing delivered to the Rights Agent, and shall surrender, together
with any required form of assignment and certificate duly executed and properly
completed, the Right Certificate or Right Certificates to be transferred, split
up or combined or exchanged at the office of the Rights Agent designated for
such purpose accompanied by a signature guarantee and such other documentation
as the Rights Agent may reasonably request. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Right Certificate or Right Certificates until
the registered holder shall have properly completed and duly executed the
certificate contained in the form of assignment on the reverse side of such
Right Certificate or Right Certificates and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner)
thereof or any Affiliate or Associate of such registered holder or such
Beneficial Owner (or such former Beneficial Owner), in each case, as the Company
or the Rights Agent shall reasonably request. Thereupon, the Rights Agent shall
countersign and deliver to the Person entitled thereto a Right Certificate or
Right Certificates, as the case may be, as so requested. The Company or the
Rights Agent may require payment from the holders of Right Certificates of a sum
sufficient to cover any tax or charge that may be imposed in connection with any
transfer, split up or combination or exchange of such Right Certificates. The
Rights Agent shall not have any duty or obligation to take any action under any
section of this Plan that requires payment of taxes and/or charges unless and
until it is satisfied that all such payments have been made,

 

Subject to the provisions of Section 11.1.2, at any time after the Distribution
Date and prior to the Expiration Date, upon receipt by the Company and the
Rights Agent of evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Right Certificate, and, in case of loss, theft or
destruction, of indemnity or security satisfactory to them, and, at the
Company’s or the Rights Agent’s request, reimbursement to the Company and the
Rights Agent of all reasonable expenses incidental thereto, and upon surrender
to the Rights Agent and cancellation of the Right Certificate if mutilated, the
Company will make and deliver a new Right Certificate of like tenor to the
Rights Agent for countersignature and delivery to the registered owner in lieu
of the Right Certificate so lost, stolen, destroyed or mutilated.

 

 10

 

 

ARTICLE XIV Exercise of Rights; Purchase Price; Expiration Date of Rights.

 

14.1          Exercise of Rights. Subject to Section 11.1.2 and except as
otherwise provided herein, the registered holder of any Right Certificate may
exercise the Rights evidenced thereby in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase and certification on the reverse side thereof properly
completed and duly executed, to the Rights Agent at the office of the Rights
Agent designated for such purpose, accompanied by a signature guarantee and such
other documentation as the Rights Agent may reasonably request, together with
payment of the aggregate Purchase Price for the total number of one-hundredths
of a share of Series A Preferred (or other securities, cash or other assets) as
to which the Rights are exercised, at or prior to the time (the “Expiration
Date”) that is the earliest of (i) the close of business on January 12, 2028
(the “Final Expiration Date”), (ii) the time at which the Rights are redeemed as
provided in Section 23, (iii) the closing of any merger or other acquisition
transaction involving the Company pursuant to an agreement of the type described
in Section 13.3 at which time the Rights are deemed terminated, (iv) the time at
which the Rights are exchanged as provided in Section 27, (v) the close of
business on the effective date of the repeal of Section 382 if the Board
determines that this Plan is no longer necessary or desirable for the
preservation of the Tax Benefits, or (vi) the time at which the Board determines
that the Tax Benefits are fully utilized or no longer available under Section
382 or that an ownership change under Section 382 would not adversely impact in
any material respect the time period in which the Company could use the Tax
Benefits, or materially impair the amount of the Tax Benefits that could be used
by the Company in any particular time period, for applicable tax purposes.

 

14.2          Purchase. The Purchase Price for each one-hundredth of a share of
Series A Preferred pursuant to the exercise of a Right shall be initially
$10.88, shall be subject to adjustment from time to time as provided in Sections
11, 13 and 26 and shall be payable in lawful money of the United States of
America in accordance with Section 7.3.

 

14.3          Payment Procedures. Except as otherwise provided herein, upon
receipt of a Right Certificate representing exercisable Rights, with the form of
election to purchase and certification properly completed and duly executed,
accompanied by payment of the aggregate Purchase Price for the total number of
one-hundredths of a share of Series A Preferred to be purchased and an amount
equal to any applicable tax or charge required to be paid by the holder of such
Right Certificate in accordance with Section 9, in cash or by certified or
cashier’s check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i)(A) requisition from any transfer agent of the
Series A Preferred (or make available, if the Rights Agent is the transfer
agent) certificates for the number of shares of Series A Preferred to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company shall have elected to
deposit the total number of shares of Series A Preferred issuable upon exercise
of the Rights hereunder with a depositary agent, requisition from such
depositary agent depositary receipts representing interests in such number of
one-hundredths of a share of Series A Preferred as are to be purchased (in which
case certificates for the Series A Preferred represented by such receipts shall
be deposited by the transfer agent with such depositary agent) and the Company
hereby directs such depositary agent to comply with all such requests; (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of the issuance of fractional shares in accordance with Section 14 or otherwise
in accordance with Section 11.1.3; (iii) promptly after receipt of such
certificates or depositary receipts, cause the same to be delivered to the
registered holder of such Right Certificate, or upon the order of the registered
holder of such Right Certificate, registered in such name or names as may be
designated by such holder and (iv) when appropriate, after receipt, promptly
deliver such cash to the registered holder of such Right Certificate, or upon
the order of the registered holder of such Right Certificate, to such other
Person as designated in writing by such holder. In the event that the Company is
obligated to issue other securities of the Company, pay cash and/or distribute
other property pursuant to Section 11.1.3, the Company will make all
arrangements necessary so that such other securities, cash and/or other property
are available for distribution by the Rights Agent, if and when appropriate.

 

 11

 

 

14.4          Partial Exercise. In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced thereby, a new
Right Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent and delivered to the registered
holder of such Right Certificate or to his or her duly authorized assigns,
subject to the provisions of Section 14.

 

14.5          Full Information Concerning Ownership. Notwithstanding anything in
this Plan to the contrary, neither the Rights Agent nor the Company shall be
obligated to undertake any action with respect to a registered holder of Rights
upon the occurrence of any purported transfer or exercise of Rights pursuant to
Section 6 or as set forth in this Section 7 unless the certification contained
in the form of election to purchase set forth on the reverse side of the Right
Certificate surrendered for such exercise shall have been properly completed and
duly executed by the registered holder thereof and the Company shall have been
provided with such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) thereof or any Affiliate or Associate of such
registered holder or such Beneficial Owner (or such former Beneficial Owner), in
each case, as the Company or the Rights Agent shall reasonably request.

 

ARTICLE XV Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Plan. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. Subject to applicable law and
regulation, the Rights Agent shall maintain in a retrievable database electronic
records or physical records of all cancelled or destroyed Right Certificates
which have been cancelled or destroyed by the Rights Agent. The Rights Agent
shall maintain such electronic records or physical records for the time period
required by applicable law and regulation. Upon written request of the Company
(and at the expense of the Company), the Rights Agent shall provide to the
Company or its designee copies of such electronic records or physical records
relating to Right Certificates cancelled or destroyed by the Rights Agent. 

 

ARTICLE XVI Reservation and Availability of Capital Stock. The Company covenants
and agrees that, from and after the Distribution Date, it will cause to be
reserved and kept available out of its authorized and unissued Series A
Preferred (and, following the occurrence of a Trigger Event, out of its
authorized and unissued Common Stock or other securities or out of its shares
held in its treasury) the number of shares of Series A Preferred (and, following
the occurrence of a Trigger Event, Common Stock and/or other securities) that
will be sufficient to permit the exercise in full of all outstanding Rights.

 

 12

 

 

So long as the Series A Preferred (and, following the occurrence of a Trigger
Event, Common Stock and/or other securities) issuable upon the exercise of
Rights may be listed on the OTCQB Market (“OTCQB”) or any other national
securities exchange or traded in the over-the-counter market, the Company shall
use its best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed or admitted to
trading on the OTCQB or such other exchange or market upon official notice of
issuance upon such exercise.

 

The Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Series A Preferred (and, following the occurrence
of a Trigger Event, Common Stock and/or other securities) delivered upon
exercise of Rights shall, at the time of delivery of the certificates for such
shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.

 

From and after such time as the Rights become exercisable, the Company shall use
its best efforts, if then necessary, to permit the issuance of Series A
Preferred upon the exercise of Rights, to register and qualify such Series A
Preferred under the Securities Act and any applicable state securities or “Blue
Sky” laws (to the extent exemptions therefrom are not available), cause such
registration statement and qualifications to become effective as soon as
possible after such filing and keep such registration and qualifications
effective until the earlier of the date as of which the Rights are no longer
exercisable for such securities and the Expiration Date. The Company may
temporarily suspend, from time to time for a period of time not to exceed one
hundred twenty (120) days in any particular instance, the exercisability of the
Rights in order to prepare and file a registration statement under the
Securities Act and permit it to become effective or in order to prepare and file
any supplement or amendment to such registration statement that the Board
determines to be necessary and appropriate under applicable law. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. The Company
shall notify the Rights Agent whenever it makes a public announcement under this
Section 9 and provide a copy of such announcement to the Rights Agent.
Notwithstanding any provision of this Plan to the contrary, the Rights shall not
be exercisable in any jurisdiction unless the requisite qualification or
exemption in such jurisdiction shall have been obtained and until a registration
statement under the Securities Act (if required) shall have been declared
effective.

 

The Company further covenants and agrees that it will pay when due and payable
any and all taxes and charges which may be payable in respect of the issuance or
delivery of the Right Certificates or of any Series A Preferred (or Common Stock
and/or other securities, as the case may be) upon the exercise of Rights. The
Company shall not, however, be required to pay any tax or charge which may be
payable in respect of any transfer or delivery of Right Certificates to a Person
other than, or the issuance or delivery of certificates for the Series A
Preferred (or Common Stock and/or other securities, as the case may be) in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or to issue or deliver any
certificates for Series A Preferred (or Common Stock and/or other securities, as
the case may be) in a name other than that of the registered holder upon the
exercise of any Rights until any such tax or charge shall have been paid (any
such tax or charge being payable by the registered holder of such Right
Certificate at the time of surrender) or until it has been established to the
Company’s and the Rights Agent’s satisfaction that no such tax or charge is due.

 

 13

 

 

ARTICLE XVII Series A Preferred Record Date. Each Person in whose name any
certificate for Series A Preferred (or Common Stock and/or other securities, as
the case may be) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the Series A Preferred (or Common
Stock and/or other securities, as the case may be) represented thereby on, and
such certificate shall be dated, the date upon which the Right Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and any applicable taxes or charges) was duly made; provided, however, that if
the date of such surrender and payment is a date upon which the Series A
Preferred (or Common Stock and/or other securities, as the case may be) transfer
books of the Company are closed, such Person shall be deemed to have become the
record holder of such shares (fractional or otherwise) on, and such certificate
shall be dated, the next succeeding Business Day on which the Series A Preferred
(or Common Stock and/or other securities, as the case may be) transfer books of
the Company are open. Prior to the exercise of the Rights evidenced thereby (or
an exchange pursuant to Section 27), the holder of a Right Certificate shall not
be entitled to any rights of a holder of Series A Preferred (or Common Stock or
other securities, as the case may be) for which the Rights shall be exercisable,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.

 

ARTICLE XVIII Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of shares of Series A Preferred or other
securities or property purchasable upon exercise of each Right and the number of
Rights outstanding are subject to adjustment from time to time as provided in
this Section 11.

 

18.1          Post-Execution Events.

 

(a)    Corporate Dividends, Reclassifications, Etc. In the event the Company
shall, at any time after the date of this Plan, (A) declare and pay a dividend
on the Series A Preferred payable in Series A Preferred, (B) subdivide the
outstanding Series A Preferred, (C) combine the outstanding Series A Preferred
into a smaller number of shares of Series A Preferred or (D) issue any shares of
its capital stock in a reclassification of the Series A Preferred (including any
such reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), except as otherwise
provided in this Section 11.1.1, the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of capital
stock issuable on such date, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which, if such Right had
been exercised immediately prior to such date and at a time when the Series A
Preferred transfer books of the Company were open, such holder would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. If an event occurs which would require an
adjustment under both Section 11.1.1 and Section 11.1.2, the adjustment provided
for in this Section 11.1.1 shall be in addition to, and shall be made prior to,
the adjustment required pursuant to, Section 11.1.2.

 

 14

 

 

(b)   Acquiring Person Events; Triggering Events. Subject to Section 27, in the
event that a Trigger Event occurs, then, from and after the first occurrence of
such event, each holder of a Right, except as provided below, shall thereafter
have a right to receive, upon exercise thereof at a price per Right equal to the
then current Purchase Price multiplied by the number of one-hundredths of a
share of Series A Preferred for which a Right is then exercisable (without
giving effect to this Section 11.1.2), in accordance with the terms of this Plan
and in lieu of Series A Preferred, such number of shares of Common Stock as
shall equal the result obtained by (x) multiplying the then current Purchase
Price by the number of one-hundredths of a share of Series A Preferred for which
a Right is then exercisable (without giving effect to this Section 11.1.2) and
(y) dividing that product by 50% of the then-current per share market price of
the Common Stock (determined pursuant to Section 11.4) on the first of the date
of the occurrence of, or the date of the first public announcement of, a Trigger
Event (the “Adjustment Shares”); provided that the Purchase Price and the number
of Adjustment Shares shall thereafter be subject to further adjustment as
appropriate in accordance with Section 11.6. Notwithstanding the foregoing, upon
and after the occurrence of a Trigger Event, any Rights that are or were
acquired or Beneficially Owned by (1) any Acquiring Person or any Affiliate or
Associate of an Acquiring Person, (2) a transferee of any Acquiring Person (or
any Affiliate or Associate of an Acquiring Person) who becomes a transferee
after the Acquiring Person becomes such, or (3) a transferee of any Acquiring
Person (or any Affiliate or Associate of an Acquiring Person) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom the Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect avoidance
of this Section 11.1.2, and subsequent transferees, shall become void without
any further action, and any holder (whether or not such holder is an Acquiring
Person or an Affiliate or Associate of an Acquiring Person) of such Rights shall
thereafter have no right to exercise such Rights under any provision of this
Plan or otherwise. From and after the Trigger Event, no Right Certificate shall
be issued pursuant to Section 3 or Section 6 that represents Rights that are or
have become void pursuant to the provisions of this paragraph, and any Right
Certificate delivered to the Rights Agent that represents Rights that are or
have become void pursuant to the provisions of this paragraph shall be canceled.

 

The Company shall use all reasonable efforts to ensure that the provisions of
this Section 11.1.2 are complied with, but shall have no liability to any holder
of Right Certificates or any other Person as a result of its failure to make any
determinations with respect to any Acquiring Person or any Affiliate or
Associate of an Acquiring Person or transferees hereunder.

 

 15

 

 

From and after the occurrence of an event specified in Section 13.1, any Rights
that theretofore have not been exercised pursuant to this Section 11.1.2 shall
thereafter be exercisable only in accordance with Section 13 and not pursuant to
this Section 11.1.2.

 

(c)    Insufficient Shares. The Company may at its option substitute for Common
Stock issuable upon the exercise of Rights in accordance with the foregoing
Section 11.1.2, (1) cash, (2) a reduction in the Purchase Price, (3) Series A
Preferred, (4) other equity securities of the Company (including, without
limitation, shares, or fractions of shares, of preferred stock which, by virtue
of having dividend, voting and liquidation rights substantially comparable to
those of the Common Stock, the Board has deemed in good faith to have
substantially the same value as the Common Stock) (each such share of preferred
stock or fractions of shares of preferred stock constituting a “common stock
equivalent”)), (5) debt securities of the Company, (6) other assets or (7) any
combination of the foregoing having an aggregate value equal to the value of the
Adjustment Shares issuable upon the exercise of a Right (the “Current Value”),
where such aggregate value has been determined by the Board based upon the
advice of a nationally recognized investment banking firm selected in good faith
by the Board; provided, however, that if the Company shall not have made
adequate provision to deliver such value within thirty (30) days following the
occurrence of a Trigger Event, then the Company shall be obligated to deliver,
to the extent necessary and permitted by applicable law and any agreements or
instruments in effect on the date hereof to which it is a party, upon the
surrender for exercise of a Right and without requiring payment of the Purchase
Price, Common Stock (to the extent available) and then, if necessary, such
number or fractions of Series A Preferred (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal to the
excess of the Current Value over the Purchase Price. The Company shall provide
the Rights Agent with prompt reasonably detailed written notice of any
determination under the previous sentence. If, upon the occurrence of a Trigger
Event, the Board shall determine in good faith that it is likely that sufficient
additional shares of Common Stock could be authorized for issuance upon exercise
in full of the Rights, then, if the Board so elects, the thirty (30) day period
set forth above may be extended to the extent necessary, but not more than one
hundred twenty (120) days following the occurrence of a Trigger Event, in order
that the Company may seek stockholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be extended, is herein
called the “Substitution Period”). To the extent that the Company determines
that some actions need be taken pursuant to the second and/or third sentences of
this Section 11.1.3, the Company (x) shall provide that such action shall apply
uniformly to all outstanding Rights, and (y) may suspend the exercisability of
the Rights until the expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended as well as a public announcement at such time as the
suspension is no longer in effect. The Company shall promptly notify the Rights
Agent in writing whenever it temporarily suspends the exercisability of the
Rights or when any such suspension is no longer in effect, and shall provide a
copy any public announcement under this Section 11.1.3 to the Rights Agent. For
purposes of this Section 11.1.3, the value of a share of Common Stock shall be
the then current per share market price (as determined pursuant to Section 11.4)
on the date of the occurrence of a Trigger Event and the value of any “common
stock equivalent” shall be deemed to have the same value as the Common Stock on
such date. The Board may, but shall not be required to, establish procedures to
allocate the right to receive Common Stock upon the exercise of the Rights among
holders of Rights pursuant to this Section 11.1.3.

 

 16

 

 

18.2          Dilutive Rights Offering. In case the Company shall fix a record
date for the issuance of rights, options or warrants to all holders of Series A
Preferred entitling them (for a period expiring within forty-five (45) calendar
days after such record date) to subscribe for or purchase Series A Preferred (or
securities having the same rights, privileges and preferences as the Series A
Preferred (“equivalent preferred stock”)) or securities convertible into Series
A Preferred or equivalent preferred stock at a price per share of Series A
Preferred or per share of equivalent preferred stock (or having a conversion or
exercise price per share, if a security convertible into or exercisable for
Series A Preferred or equivalent preferred stock) less than the then current per
share market price of the Series A Preferred (as determined pursuant to Section
11.4) on such record date, the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of shares of Series A Preferred and shares of equivalent preferred stock
outstanding on such record date plus the number of shares of Series A Preferred
and shares of equivalent preferred stock which the aggregate offering price of
the total number of shares of Series A Preferred and/or shares of equivalent
preferred stock to be offered (and/or the aggregate initial conversion price of
the convertible securities so to be offered) would purchase at such then-current
per share market price and the denominator of which shall be the number of
shares of Series A Preferred and shares of equivalent preferred stock
outstanding on such record date plus the number of additional Series A Preferred
and/or shares of equivalent preferred stock to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights. Series A
Preferred and shares of equivalent preferred stock owned by or held for the
account of the Company or any Subsidiary of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event that
such rights or warrants are not so issued, the Purchase Price shall be adjusted
to be the Purchase Price which would then be in effect if such record date had
not been fixed.

 

18.3          Distributions. In case the Company shall fix a record date for the
making of a distribution to all holders of the Series A Preferred (including any
such distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness, cash, securities or assets (other than a regular periodic cash
dividend at a rate not in excess of 125% of the rate of the last regular
periodic cash dividend theretofore paid or, in case regular periodic cash
dividends have not theretofore been paid, at a rate not in excess of 50% of the
average net income per share of the Company for the four quarters ended
immediately prior to the payment of such dividend, or a dividend payable in
Series A Preferred (which dividend, for purposes of this Plan, shall be subject
to the provisions of Section 11.1.1(A))) or convertible securities, or
subscription rights or warrants (excluding those referred to in Section 11.2),
the Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the then current per share market
price of the Series A Preferred (as determined pursuant to Section 11.4) on such
record date, less the fair market value (as determined in good faith by the
Board, whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent) of the portion of the
cash, assets, securities or evidences of indebtedness so to be distributed or of
such subscription rights or warrants applicable to one share of Series A
Preferred and the denominator of which shall be such then-current per share
market price of the Series A Preferred (as determined pursuant to Section 11.4);
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company to be issued upon exercise of one Right. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price that would then be in effect if such
record date had not been fixed.

 

 17

 

 

18.4          Current Per Share Market Value.

 

(a)    General. For the purpose of any computation hereunder, the “current per
share market price” of any security (a “Security” for the purpose of this
Section 11.4.1) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the thirty (30) consecutive
Trading Days (as such term is hereinafter defined) immediately prior to, but not
including, such date; provided, however, that in the event that the then current
per share market price of the Security is determined during any period following
the announcement by the issuer of such Security of (i) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares or (ii) any subdivision, combination or
reclassification of such Security, and prior to the expiration of thirty (30)
Trading Days after the ex-dividend date for such dividend or distribution, or
the record date for such subdivision, combination or reclassification, then, and
in each such case, the “current per share market price” shall be appropriately
adjusted to reflect the then current market price per share equivalent of such
Security. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the OTCQB or, if the Security is not listed or
admitted to trading on the OTCQB, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Security is listed or admitted to
trading or, if the Security is not listed or admitted to trading on any national
securities exchange, the last quoted price or, if on such date the Security is
not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported thereby or such other system then in use,
or, if on any such date the Security is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board. If on any
such date no such market maker is making a market in the Security, the fair
value of the Security on such date as determined in good faith by the Board
shall be used. The term “Trading Day” shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a Business
Day. If the Security is not publicly held or not so listed or traded, or if on
any such date the Security is not so quoted and no such market maker is making a
market in the Security, “current per share market price” shall mean the fair
value per share as determined in good faith by the Board or, if at the time of
such determination there is an Acquiring Person, by a nationally recognized
investment banking firm selected by the Board, which shall have the duty to make
such determination in a reasonable and objective manner, whose determination
shall be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.

 

 18

 

 

(b)   Series A Preferred. Notwithstanding Section 11.4.1, for the purpose of any
computation hereunder, the “current per share market price” of the Series A
Preferred shall be determined in the same manner as set forth above in Section
11.4.1 (other than the last sentence thereof). If the then-current per share
market price of the Series A Preferred cannot be determined in the manner
described in Section 11.4.1, the “current per share market price” of the Series
A Preferred shall be conclusively deemed to be an amount equal to 100 (as such
number may be appropriately adjusted for such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock occurring after
the date of this Plan) multiplied by the then-current per share market price of
the Common Stock (as determined pursuant to Section 11.4.1). If neither the
Common Stock nor the Series A Preferred are publicly held or so listed or
traded, or if on any such date neither the Common Stock nor the Series A
Preferred are so quoted and no such market maker is making a market in either
the Common Stock or the Series A Preferred, “current per share market price” of
the Series A Preferred shall mean the fair value per share as determined in good
faith by the Board, or, if at the time of such determination there is an
Acquiring Person, by a nationally recognized investment banking firm selected by
the Board, which shall have the duty to make such determination in a reasonable
and objective manner, which determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes. For
purposes of this Plan, the “current per share market price” of one-hundredth of
a share of Series A Preferred shall be equal to the “current per share market
price” of one share of Series A Preferred divided by 100.

 

18.5          Insignificant Changes. No adjustment in the Purchase Price shall
be required unless such adjustment would require an increase or decrease of at
least 1% in the Purchase Price. Any adjustments which by reason of this Section
11.5 are not required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this Section 11 shall be
made to the nearest cent or to the nearest one-hundred thousandth of a share of
Series A Preferred or the nearest one-hundredth of a share of Common Stock or
other share or security, as the case may be.

 

18.6          Shares Other Than Series A Preferred. If as a result of an
adjustment made pursuant to Section 11.1, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock of the
Company other than Series A Preferred, thereafter the number of such other
shares so receivable upon exercise of any Right shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Series A Preferred contained in Sections
11.1, 11.2, 11.3, 11.5, 11.8, 11.9 and 11.13, and the provisions of Sections 7,
9, 10, 13 and 14 with respect to the Series A Preferred shall apply on like
terms to any such other shares.

 

 19

 

 

18.7          Rights Issued Subsequent to Adjustment. All Rights originally
issued by the Company subsequent to any adjustment made to the Purchase Price
hereunder shall evidence the right to purchase, at the adjusted Purchase Price,
the number of one-hundredths of a share of Series A Preferred and shares of
other capital stock or other securities, assets or cash of the Company, if any,
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.

 

18.8          Effect of Adjustments on Existing Rights. Unless the Company shall
have exercised its election as provided in Section 11.9, upon each adjustment of
the Purchase Price as a result of the calculations made in Sections 11.2 and
11.3, each Right outstanding immediately prior to the making of such adjustment
shall thereafter evidence the right to purchase, at the adjusted Purchase Price,
that number of one-hundredths of a share of Series A Preferred (calculated to
the nearest one-hundred thousandth of a share of Series A Preferred) obtained by
(i) multiplying (x) the number of one-hundredths of a share of Series A
Preferred covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.

 

18.9          Adjustment in Number of Rights. The Company may elect on or after
the date of any adjustment of the Purchase Price to adjust the number of Rights,
in substitution for any adjustment in the number of one-hundredths of a share of
Series A Preferred issuable upon the exercise of a Right. Each of the Rights
outstanding after such adjustment of the number of Rights shall be exercisable
for the number of one-hundredths of a share of Series A Preferred for which a
Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one-hundredth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement (with prompt written notice
to the Rights Agent) of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least ten (10) days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11.9, the Company may, as promptly
as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14, the additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.

 

18.10        Right Certificates Unchanged. Irrespective of any adjustment or
change in the Purchase Price or the number of one-hundredths of a share of
Series A Preferred issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express the
Purchase Price per share and the number of one-hundredths of a share of Series A
Preferred which were expressed in the initial Right Certificates issued
hereunder.

 

 20

 

 

18.11        Par Value Limitations. Before taking any action that would cause an
adjustment reducing the Purchase Price below one-hundredth of the then par
value, if any, of the Series A Preferred or other shares of capital stock
issuable upon exercise of the Rights, the Company shall take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable Series A
Preferred or other such shares at such adjusted Purchase Price.

 

18.12       Deferred Issuance. In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Right exercised after
such record date of that number of shares of Series A Preferred and shares of
other capital stock or securities of the Company, if any, issuable upon such
exercise over and above the Series A Preferred and shares of other capital stock
or other securities, assets or cash of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder’s right to receive such
additional shares upon the occurrence of the event requiring such adjustment.

 

18.13       Reduction in Purchase Price. Anything in this Section 11 to the
contrary notwithstanding, the Company shall be entitled to make such reductions
in the Purchase Price, in addition to those adjustments expressly required by
this Section 11, as and to the extent that it in its sole discretion shall
determine to be advisable in order that any consolidation or subdivision of the
Series A Preferred, issuance wholly for cash of any of the Series A Preferred at
less than the then-current market price, issuance wholly for cash of Series A
Preferred or securities which by their terms are convertible into or
exchangeable for Series A Preferred, dividends on Series A Preferred payable in
Series A Preferred or issuance of rights, options or warrants referred to
hereinabove in this Section 11, hereafter made by the Company to holders of its
Series A Preferred shall not be taxable to such stockholders.

 

18.14        Company Not to Diminish Benefits of Rights. The Company covenants
and agrees that after the earlier of the Stock Acquisition Date or Distribution
Date it will not, except as permitted by Section 23, Section 26 or Section 27,
take (or permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will substantially diminish
or otherwise eliminate the benefits intended to be afforded by the Rights.

 

 21

 

 

18.15        Adjustment of Rights Associated with Common Stock. Notwithstanding
anything contained in this Plan to the contrary, in the event that the Company
shall at any time after the date hereof and prior to the Distribution Date (i)
declare or pay any dividend on the outstanding Common Stock payable in shares of
Common Stock, (ii) effect a subdivision or consolidation of the outstanding
Common Stock (by reclassification or otherwise than by the payment of dividends
payable in shares of Common Stock), or (iii) combine the outstanding Common
Stock into a greater or lesser number of shares of Common Stock, then in any
such case, the number of Rights associated with each share of Common Stock then
outstanding, or issued or delivered thereafter but prior to the Distribution
Date or in accordance with Section 22 shall be proportionately adjusted so that
the number of Rights thereafter associated with each share of Common Stock
following any such event shall equal the result obtained by multiplying the
number of Rights associated with each share of Common Stock immediately prior to
such event by a fraction, the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior to the occurrence of the
event and the denominator of which shall be the total number of shares of Common
Stock outstanding immediately following the occurrence of such event. The
adjustments provided for in this Section 11.15 shall be made successively
whenever such a dividend is declared or paid or such a subdivision, combination
or consolidation is effected.

 

ARTICLE XIX Certificate of Adjusted Purchase Price or Number of Shares. Whenever
an adjustment is made as provided in Sections 11 or 13, the Company shall (a)
promptly prepare a certificate setting forth such adjustment, and a brief
statement of the facts accounting for such adjustment or describing such event,
(b) promptly file with the Rights Agent and with each transfer agent for the
Common Stock or the Series A Preferred a copy of such certificate and (c) mail a
brief, reasonably detailed summary thereof to each holder of a Right Certificate
(or, if before the Distribution Date, to each holder of a certificate
representing shares of Common Stock or Book Entry Shares in respect thereof) in
accordance with Section 25. The Rights Agent shall be fully protected in relying
on any such certificate and on any adjustment or statement therein contained and
shall have no duty or liability with respect to, and shall not be deemed to have
knowledge of any such adjustment unless and until it shall have received such
certificate.

 

 22

 

 

ARTICLE XX Consolidation, Merger or Sale or Transfer of Assets or Earning Power.

 

20.1          Certain Transactions. In the event that, from and after the first
occurrence of a Trigger Event, directly or indirectly, (A) the Company shall
consolidate with, or merge with and into, any other Person and the Company shall
not be the continuing or surviving corporation, (B) any Person shall consolidate
with the Company, or merge with and into the Company and the Company shall be
the continuing or surviving corporation of such merger and, in connection with
such merger, all or part of the Common Stock shall be changed into or exchanged
for stock or other securities of the Company or any other Person or cash or any
other property, or (C) the Company shall sell, exchange, mortgage or otherwise
transfer (or one or more of its Subsidiaries shall sell, exchange, mortgage or
otherwise transfer), in one or more transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company or one or more wholly-owned Subsidiaries of the Company in one or more
transactions each of which complies with Section 11.14), then, and in each such
case, proper provision shall be made so that (i) each holder of a Right (other
than Rights which have become null and void pursuant to Section 11.1.2) shall
thereafter have the right to receive, upon the exercise thereof at a price per
Right equal to the then current Purchase Price multiplied by the number of
one-hundredths of a share of Series A Preferred for which a Right was
exercisable immediately prior to the first occurrence of a Trigger Event (as
subsequently adjusted pursuant to Sections 11.1.1, 11.2, 11.3, 11.8, 11.9 and
11.12), in accordance with the terms of this Plan and in lieu of Series A
Preferred or Common Stock, such number of validly authorized and issued, fully
paid, non-assessable and freely tradable Common Stock of the Principal Party (as
such term is hereinafter defined) not subject to any liens, encumbrances, rights
of first refusal or other adverse claims, as shall be equal to the result
obtained by (x) multiplying the then current Purchase Price by the number of
one-hundredths of a share of Series A Preferred for which a Right was
exercisable immediately prior to the first occurrence of a Trigger Event (as
subsequently adjusted pursuant to Sections 11.1.1, 11.2, 11.3, 11.8, 11.9 and
11.12) and (y) dividing that product by 50% of the then current per share market
price of the Common Stock of such Principal Party (determined pursuant to
Section 11.4) on the date of consummation of such consolidation, merger, sale or
transfer; provided that the price per Right so payable and the number of shares
of Common Stock of such Principal Party so receivable upon exercise of a Right
shall thereafter be subject to further adjustment as appropriate in accordance
with Section 11.6 to reflect any events covered thereby occurring in respect of
the Common Stock of such Principal Party after the occurrence of such
consolidation, merger, sale or transfer; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all of the obligations and duties of the Company
pursuant to this Plan; (iii) the term “Company” shall thereafter be deemed to
refer to such Principal Party; and (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
shares of its Common Stock in accordance with Section 9) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
Common Stock thereafter deliverable upon the exercise of the Rights; provided
that, upon the subsequent occurrence of any consolidation, merger, sale or
transfer of assets or other extraordinary transaction in respect of such
Principal Party, each holder of a Right shall thereupon be entitled to receive,
upon exercise of a Right and payment of the Purchase Price as provided in this
Section 13.1, such cash, shares, rights, warrants and other property which such
holder would have been entitled to receive had such holder, at the time of such
transaction, owned the Common Stock of the Principal Party receivable upon the
exercise of a Right pursuant to this Section 13.1, and such Principal Party
shall take such steps (including, but not limited to, reservation of shares of
stock) as may be necessary to permit the subsequent exercise of the Rights in
accordance with the terms hereof for such cash, shares, rights, warrants and
other property. The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
confirming that the requirements of this Section 13.1 and Section 13.2 shall
promptly be performed in accordance with their terms and that such
consolidation, merger, sale or transfer of assets shall not result in a default
by the Principal Party under this Plan as the same shall have been assumed by
the Principal Party pursuant to this Section 13.1 and Section 13.2 and providing
that, as soon as practicable after executing such agreement pursuant to this
Section 13, the Principal Party, at its own expense, shall:

 

(A)           prepare and file a registration statement under the Securities
Act, if necessary, with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, use its best efforts to
cause such registration statement to become effective as soon as practicable
after such filing and use its best efforts to cause such registration statement
to remain effective (with a prospectus at all times meeting the requirements of
the Securities Act) until the Expiration Date and similarly comply with
applicable state securities laws;

 

 23

 

 

(B)          use its best efforts, if the Common Stock of the Principal Party
shall be listed or admitted to trading on the OTCQB or on another national
securities exchange, to list or admit to trading (or continue the listing of)
the Rights and the securities purchasable upon exercise of the Rights on the
OTCQB or such securities exchange;

 

(C)          deliver to holders of the Rights historical financial statements
for the Principal Party which comply in all respects with the requirements for
registration on Form 10 (or any successor form) under the Exchange Act; and

 

(D)          obtain waivers of any rights of first refusal or preemptive rights
in respect of the Common Stock of the Principal Party subject to purchase upon
exercise of outstanding Rights.

 

In case the Principal Party has a provision in any of its authorized securities
or in its articles or certificate of incorporation or by-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue (other than to holders of
Rights pursuant to this Section 13), in connection with, or as a consequence of,
the consummation of a transaction referred to in this Section 13, Common Stock
or common stock equivalents of such Principal Party at less than the then
current market price per share thereof (determined pursuant to Section 11.4) or
securities exercisable for, or convertible into, Common Stock or common stock
equivalents of such Principal Party at less than such then current market price
(other than to holders of Rights pursuant to this Section 13), or (ii) providing
for any special payment, taxes, charges or similar provision in connection with
the issuance of the Common Stock of such Principal Party pursuant to the
provision of Section 13, then, in such event, the Company hereby agrees with
each holder of Rights that it shall not consummate any such transaction unless
prior thereto the Company and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing that the
provision in question of such Principal Party shall have been canceled, waived
or amended, or that the authorized securities shall be redeemed, so that the
applicable provision will have no effect in connection with, or as a consequence
of, the consummation of the proposed transaction.

 

The Company covenants and agrees that it shall not, at any time after the
Trigger Event, enter into any transaction of the type described in clauses (A)
through (C) of this Section 13.1 if (i) at the time of or immediately after such
consolidation, merger, sale, transfer or other transaction there are any rights,
warrants or other instruments or securities outstanding or agreements in effect
which would substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights, (ii) prior to, simultaneously with or immediately
after such consolidation, merger, sale, transfer or other transaction, the
stockholders of the Person who constitutes, or would constitute, the Principal
Party for purposes of Section 13.2 shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates or (iii)
the form or nature of organization of the Principal Party would preclude or
limit the exercisability of the Rights. The provisions of this Section 13 shall
similarly apply to successive transactions of the type described in clauses (A)
through (C) of this Section 13.1.

 

24

 

 

20.2        Principal Party. “Principal Party” shall mean:

 

(i)          in the case of any transaction described in clauses (A) or (B) of
the first sentence of Section 13.1: (i) the Person that is the issuer of the
securities into which the Common Stock is converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer the Common
Stock of which has the greatest aggregate market value of shares outstanding, or
(ii) if no securities are so issued, (x) the Person that is the other party to
the merger, if such Person survives said merger, or, if there is more than one
such Person, the Person the Common Stock of which has the greatest aggregate
market value of shares outstanding or (y) if the Person that is the other party
to the merger does not survive the merger, the Person that does survive the
merger (including the Company if it survives) or (z) the Person resulting from
the consolidation; and

 

(ii)         in the case of any transaction described in clause (C) of the first
sentence in Section 13.1, the Person that is the party receiving the greatest
portion of the assets or earning power transferred pursuant to such transaction
or transactions, or, if each Person that is a party to such transaction or
transactions receives the same portion of the assets or earning power so
transferred or if the Person receiving the greatest portion of the assets or
earning power cannot be determined, whichever of such Persons is the issuer of
Common Stock having the greatest aggregate market value of shares outstanding;
provided, however, that in any such case described in the foregoing clause (i)
or (ii) of this Section 13.2, if the shares of Common Stock of such Person are
not at such time or have not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, then (1) if such
Person is a direct or indirect Subsidiary of another Person the shares of Common
Stock of which are and have been so registered, the term “Principal Party” shall
refer to such other Person, or (2) if such Person is a Subsidiary, directly or
indirectly, of more than one Person, the shares of Common Stock of all of which
are and have been so registered, the term “Principal Party” shall refer to
whichever of such Persons is the issuer of Common Stock having the greatest
aggregate market value of shares outstanding, or (3) if such Person is owned,
directly or indirectly, by a joint venture formed by two or more Persons that
are not owned, directly or indirectly, by the same Person, the rules set forth
in clauses (1) and (2) above shall apply to each of the owners having an
interest in the venture as if the Person owned by the joint venture was a
Subsidiary of both or all of such joint venturers, and the Principal Party in
each such case shall bear the obligations set forth in this Section 13 in the
same ratio as its interest in such Person bears to the total of such interests.

 

20.3        Approved Acquisitions. Notwithstanding anything contained herein to
the contrary, upon the consummation of any merger or other acquisition
transaction of the type described in clause (A), (B) or (C) of Section 13.1
involving the Company pursuant to a merger or other acquisition agreement
between the Company and any Person (or one or more of such Person’s Affiliates
or Associates) which agreement has been approved by the Board prior to any
Person becoming an Acquiring Person, this Plan and the rights of holders of
Rights hereunder shall be terminated in accordance with Section 7.1.

 

25

 

 

ARTICLE XXI Fractional Rights and Fractional Shares.

 

21.1        Cash in Lieu of Fractional Rights. The Company shall not be required
to issue fractions of Rights or to distribute Right Certificates which evidence
fractional Rights (except prior to the Distribution Date in accordance with
Section 11.15). In lieu of such fractional Rights, there shall be paid to the
registered holders of the Right Certificates with regard to which such
fractional Rights would otherwise be issuable an amount in cash equal to the
same fraction of the then-current market value of a whole Right. For the
purposes of this Section 14.1, the then-current market value of a whole Right
shall be the closing price of the Rights for the Trading Day immediately prior
to the date on which such fractional Rights would have been otherwise issuable.
The closing price for any day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the OTCQB or, if the Rights are not listed or admitted to
trading on the OTCQB, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
OTCQB or such other system then in use or, if on any such date the Rights are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the Rights
selected by the Board. If on any such date no such market maker is making a
market in the Rights, the then-current market value of the Rights on such date
shall be the fair value of the Rights as determined in good faith by the Board,
or, if at the time of such determination there is an Acquiring Person, by a
nationally recognized investment banking firm selected by the Board, which shall
have the duty to make such determination in a reasonable and objective manner,
which determination shall be described in a statement filed with the Rights
Agent and shall be conclusive for all purposes.

 

21.2        Cash in Lieu of Fractional Shares of Series A Preferred. The Company
shall not be required to issue fractions of shares of Series A Preferred (other
than fractions which are integral multiples of one-hundredth of a share of
Series A Preferred) upon exercise or exchange of the Rights or to distribute
certificates which evidence fractional shares of Series A Preferred (other than
fractions which are integral multiples of one-hundredth of a share of Series A
Preferred). Interests in fractions of shares of Series A Preferred in integral
multiples of one-hundredth of a share of Series A Preferred may, at the election
of the Company, be evidenced by depositary receipts, pursuant to an appropriate
agreement between the Company and a depositary selected by it; provided, that
such agreement shall provide that the holders of such depositary receipts shall
have all the rights, privileges and preferences to which they are entitled as
Beneficial Owners of the Series A Preferred represented by such depositary
receipts. In lieu of fractional shares of Series A Preferred that are not
integral multiples of one-hundredth of a share of Series A Preferred, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised or exchanged as herein provided an amount in cash
equal to the same fraction of the then-current per share market price of one
share of Series A Preferred (as determined in accordance with Section 14.1) for
the Trading Day immediately prior to the date of such exercise or exchange.

 

21.3        Cash in Lieu of Fractional Shares of Common Stock. The Company shall
not be required to issue fractions of shares of Common Stock or to distribute
certificates which evidence fractional shares of Common Stock upon the exercise
or exchange of Rights. In lieu of such fractional shares of Common Stock, the
Company shall pay to the registered holders of the Right Certificates with
regard to which such fractional shares of Common Stock would otherwise be
issuable an amount in cash equal to the same fraction of the current market
value of a whole share of Common Stock (as determined in accordance with Section
14.1) for the Trading Day immediately prior to the date of such exercise or
exchange.

 

26

 

 

21.4        Waiver of Right to Receive Fractional Rights or Shares. The holder
of a Right by the acceptance of the Rights expressly waives his right to receive
any fractional Rights or any fractional shares upon exercise or exchange of a
Right, except as permitted by this Section 14.

 

21.5        Reliance by Rights Agent. Whenever a payment for fractional Rights
or fractional shares is to be made by the Rights Agent under any section of this
Plan, the Company shall (i) promptly prepare and deliver to the Rights Agent a
certificate setting forth in reasonable detail the facts related to such
payments and the prices and formulas utilized in calculating such payments, and
(ii) provide sufficient monies to the Rights Agent in the form of fully
collected funds to make such payments. The Rights Agent shall be fully protected
in relying upon such a certificate and shall have no duty with respect to, and
shall not be deemed to have knowledge of, any payment for fractional Rights or
fractional shares under any section of this Plan relating to the payment of
fractional Rights or fractional shares unless and until the Rights Agent shall
have received such a certificate and sufficient monies.

 

ARTICLE XXII Rights of Action. All rights of action in respect of this Plan,
except the rights of action given to the Rights Agent under Section 18, are
vested in the respective registered holders of the Right Certificates (and,
prior to the Distribution Date, the registered holders of the Common Stock); and
any registered holder of any Right Certificate (or, prior to the Distribution
Date, of the Common Stock), without the consent of the Rights Agent or of the
holder of any other Right Certificate (or, prior to the Distribution Date, of
the Common Stock), may, in his own behalf and for his own benefit, enforce this
Plan, and may institute and maintain any suit, action or proceeding against the
Company to enforce this Plan, or otherwise enforce or act in respect of his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Stock) in the manner provided in such Right
Certificate and in this Plan. Without limiting the foregoing or any remedies
available to the holders of Rights, it is specifically acknowledged that the
holders of Rights would not have an adequate remedy at law for any breach of
this Plan and shall be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened violations of, the
obligations of any Person (including, without limitation, the Company) subject
to this Plan.

 

ARTICLE XXIII Agreement of Right Holders. Every holder of a Right by accepting
the same consents and agrees with the Company and the Rights Agent and with
every other holder of a Right that:

 

a.          prior to the Distribution Date, the Rights will not be evidenced by
a Right Certificate and will be transferable only in connection with the
transfer of the Common Stock;

 

b.          as of and after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purpose, duly endorsed or
accompanied by a proper instrument of transfer with all certifications required
by the Rights Agent properly completed and duly executed;

 

27

 

 

c.          the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate or Book Entry Share) is registered as the
absolute owner thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Right Certificates or the associated
Common Stock certificate or Book Entry Share made by anyone other than the
Company or the Rights Agent) for all purposes whatsoever, and neither the
Company nor the Rights Agent shall be affected by any notice to the contrary;
and

 

(d)        notwithstanding anything in this Plan to the contrary, neither the
Company nor the Rights Agent shall have any liability to any holder of a Right
or other Person as a result of the inability of the Company or the Rights Agent
to perform any of its or their obligations under this Plan by reason of any
preliminary or permanent injunction or other order, decree, judgment or ruling
issued by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority prohibiting
or otherwise restraining performance of such obligation.

 

ARTICLE XXIV Right Certificate Holder Not Deemed a Stockholder. No holder, as
such, of any Right Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the Series A Preferred or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 24), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions
hereof.

 

ARTICLE XXV Concerning the Rights Agent. The Company agrees to pay to the Rights
Agent reasonable compensation for all services rendered by it hereunder in
accordance with a fee schedule to be mutually agreed upon and, from time to
time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and other disbursements incurred in the preparation, delivery, negotiation,
amendment, administration and execution of this Plan and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, damage,
judgment, fine, penalty, claim, demand, settlement, cost or expense (including,
without limitation, the reasonable fees and expenses of legal counsel), incurred
without gross negligence, bad faith or willful misconduct on the part of the
Rights Agent (which gross negligence, bad faith or willful misconduct must be
determined by a final, non-appealable judgment of court of competent
jurisdiction), for anything done or omitted by the Rights Agent in connection
with the execution, acceptance, administration of and the exercise and
performance of its duties under this Plan, including the costs and expenses of
defending against any claim of liability arising therefrom, directly or
indirectly or enforcing its rights hereunder.

 

28

 

 

The Rights Agent shall be protected and shall incur no liability for or in
respect of any action taken, suffered or omitted by it in connection with its
administration of this Plan in reliance upon any Right Certificate or
certificate for the Series A Preferred or the Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, instruction, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons.

 

The provisions under this Section 18 and Section 20 below shall survive the
expiration of the Rights and the termination of this Plan and the resignation,
replacement or removal of the Rights Agent. The costs and expenses incurred in
enforcing this right of indemnification shall be paid by the Company.

 

ARTICLE XXVI Merger or Consolidation or Change of Name of Rights Agent. Any
corporation or limited liability company or other entity into which the Rights
Agent or any successor Rights Agent may be merged or with which it may be
consolidated, or any corporation or limited liability company or other entity
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation or limited liability
company succeeding to the corporate trust or stock transfer business of the
Rights Agent or any successor Rights Agent, shall be the successor to the Rights
Agent under this Plan without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation or limited liability company or other entity would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21. The
purchase of all or substantially all of the Rights Agent’s assets employed in
the performance of transfer agent activities shall be deemed a merger or
consolidation for purposes of this Section 19. In case at the time such
successor Rights Agent shall succeed to the agency created by this Plan, any of
the Right Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such Right Certificates so countersigned; and in case at that
time any of the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Plan.

 

In case at any time the name of the Rights Agent shall be changed and at such
time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Plan.

 

29

 

 

ARTICLE XXVII Rights and Duties of Rights Agent. The Rights Agent undertakes to
perform only the duties and obligations expressly set forth in this Plan and no
implied duties and obligations shall be read into this Plan against the Rights
Agent. The Rights Agent shall perform its duties and obligations upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:

 

27.1        Legal Counsel. The Rights Agent may consult with legal counsel
selected by it (who may be legal counsel for the Company), and the advice or
opinion of such counsel shall be full and complete authorization and protection
to the Rights Agent and the Rights Agent shall incur no liability for or in
respect of any action taken or omitted by it in the absence of bad faith and in
accordance with such advice or opinion.

 

27.2        Certificates as to Facts or Matters. Whenever in the performance of
its duties under this Plan the Rights Agent shall deem it necessary or desirable
that any fact or matter be proved or established by the Company prior to taking
or suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by either the
President and Chief Executive Officer or Managing Director and Treasurer of the
Company and delivered to the Rights Agent; and such certificate shall be full
authorization and protection to the Rights Agent for and the Rights Agent shall
not incur any liability for or in respect of any action taken or suffered by it
under the provisions of this Plan in reliance upon such certificate.

 

27.3        Standard of Care. The Rights Agent shall be liable hereunder only
for its own gross negligence, bad faith or willful misconduct (which gross
negligence, bad faith or willful misconduct must be determined by a final,
non-appealable judgment of a court of competent jurisdiction). Notwithstanding
anything in this Plan to the contrary, any liability of the Rights Agent under
this Plan will be limited to the amount of annual fees paid by the Company to
the Rights Agent during the twelve (12) months immediately preceding the event
for which recovery from the Rights Agent is being sought. Anything to the
contrary notwithstanding, in no event will the Rights Agent be liable for
special, punitive, indirect, incidental or consequential loss or damages of any
kind whatsoever (including, without limitation, lost profits), even if the
Rights Agent has been advised of the likelihood of such loss or damages, and
regardless of the form of action.

 

27.4        Reliance on Plan and Right Certificates. The Rights Agent shall not
be liable for or by reason of any of the statements of fact or recitals
contained in this Plan or in the Right Certificates (except as to its
countersignature thereof) or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the Company
only.

 

27.5        No Responsibility as to Certain Matters. The Rights Agent shall not
have any liability for or be under any responsibility in respect of the validity
of this Plan or the execution and delivery hereof (except the due execution
hereof by the Rights Agent) or in respect of the legality or validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Plan or in any Right Certificate; nor shall it be
liable or responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11.1.2) or any
adjustment required under the provisions of Sections 3, 11, 13, 23 or 27 or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after actual notice of any such change or adjustment); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Series A Preferred or other securities to be
issued pursuant to this Plan or any Right Certificate or as to whether any
Series A Preferred or other securities will, when so issued, be validly
authorized and issued, fully paid and nonassessable.

 

30

 

 

27.6        Further Assurance by Company. The Company agrees that it will
perform, execute, acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments and
assurances as may reasonably be required by the Rights Agent for the carrying
out or performing by the Rights Agent of the provisions of this Plan.

 

27.7        Authorized Company Officers. The Rights Agent is hereby authorized
and directed to accept instructions with respect to the performance of its
duties hereunder from either the President and Chief Executive Officer or
Managing Director and Treasurer of the Company, and to apply to such officers
for advice or instructions in connection with its duties under this Plan, and it
shall not be liable for any action taken or suffered to be taken by it in
accordance with instructions of any such officer or for any delay in acting
while waiting for these instructions. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent with respect to its duties or obligations under this Plan and the date on
and/or after which such action shall be taken or such omission shall be
effective. The Rights Agent shall not be liable to the Company for any action
taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified therein or the
most recent advice received from the officers of the Company in accordance with
this Section 20.7.

 

27.8        Freedom to Trade in Company Securities. The Rights Agent and any
stockholder, affiliate, director, officer, agent, representative or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Plan. Nothing herein shall preclude the Rights Agent or such stockholder,
affiliate, director, officer, agent, representative or employee from acting in
any other capacity for the Company or for any other Person.

 

27.9        Reliance on Attorneys and Agents. The Rights Agent may execute and
exercise any of the rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, omission, default,
neglect or misconduct of any such attorneys or agents or for any loss to the
Company or any other Person resulting from any such act, omission, default,
neglect or misconduct, absent gross negligence or bad faith in the selection and
continued employment thereof (which gross negligence or bad faith must be
determined by a final, non-appealable judgment of a court of competent
jurisdiction).

 

31

 

 

27.10      Incomplete Certificate. If, with respect to any Right Certificate
surrendered to the Rights Agent for exercise or transfer, the certificate
contained in the form of assignment or the form of election to purchase set
forth on the reverse thereof, as the case may be, has not been properly
completed to certify the holder is not an Acquiring Person (or an Affiliate or
Associate of an Acquiring Person), the Rights Agent shall not take any further
action with respect to such requested exercise or transfer without first
consulting with the Company. The Rights Agent shall not be liable for any delays
arising from the duties under this Section 20.10.

 

27.11      Rights Holders List. At any time and from time to time after the
Distribution Date, upon the request of the Company, the Rights Agent shall
promptly deliver to the Company a list, as of the most recent practicable date
(or as of such earlier date as may be specified by the Company), of the holders
of record of Rights.

 

27.12      No Risk of Own Funds. No provision of this Plan shall require the
Rights Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
any of its rights or powers if it believes that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.

 

27.13      No Notice. The Rights Agent shall not be required to take notice or
be deemed to have notice of any event or condition hereunder, including any
event or condition that may require action by the Rights Agent, unless the
Rights Agent shall be specifically notified in writing of such event or
condition by the Company, and all notices or other instruments required by this
Plan to be delivered to the Rights Agent must, in order to be effective, be
received by the Rights Agent as specified in Section 24 hereof, and in the
absence of such notice so delivered, the Rights Agent may conclusively assume no
such event or condition exists.

 

32

 

 

ARTICLE XXVIII Change of Rights Agent. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Plan upon thirty
(30) days’ notice in writing mailed to the Company and in the event that the
Rights Agent or one of its Affiliates is not also the transfer agent for the
Company, to each transfer agent of the Common Stock and/or Series A Preferred,
as applicable. In the event the transfer agency relationship in effect between
the Company and the Rights Agent terminates, the Rights Agent will be deemed to
have resigned automatically and be discharged from its duties under this Plan as
of the effective date of such termination, and the Company shall be responsible
for sending any required notice. Following the Distribution Date, the Company
shall promptly notify the holders of the Right Certificates by first-class mail
of any such resignation. The Company may remove the Rights Agent or any
successor Rights Agent upon thirty (30) days’ notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Stock and/or Series A Preferred, as applicable, by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the resigning, removed, or incapacitated
Rights Agent shall remit to the Company, or to any successor Rights Agent
designated by the Company, all books, records, funds, certificates or other
documents or instruments of any kind then in its possession which were acquired
by such resigning, removed or incapacitated Rights Agent in connection with its
services as Rights Agent hereunder, and shall thereafter be discharged from all
duties and obligations hereunder; provided that the Rights Agent may retain
copies of same in accordance with applicable law or its document retention
policies or conventions. Following notice of such removal, resignation or
incapacity, the Company shall appoint a successor to such Rights Agent. If the
Company shall fail to make such appointment within a period of thirty (30) days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Company), then the registered holder of
any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a Person organized and doing
business under the laws of the United States, in good standing, which is
authorized under such laws to exercise stock transfer or corporate trust powers
and is subject to supervision or examination by Federal or state authority and
which (a) has, along with its Affiliates, at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50 million or (b) is
the Affiliate of a Person described in clause (a) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose; provided, that, such predecessor Rights Agent
shall not be required to make any additional expenditure or assume any
additional liability in connection with the foregoing. Not later than the
effective date of any such appointment the Company shall file notice thereof in
writing with the predecessor Rights Agent and each transfer agent of the Common
Stock and/or Series A Preferred, as applicable, and, following the Distribution
Date, mail a notice thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.

 

33

 

 

ARTICLE XXIX  Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Plan or of the Rights to the contrary, the Company may, at
its option, issue new Right Certificates evidencing Rights in such form as may
be approved by its Board to reflect any adjustment or change in the Purchase
Price and the number or kind or class of shares or other securities or property
purchasable under the Right Certificates made in accordance with the provisions
of this Plan. In addition, in connection with the issuance or sale of Common
Stock following the Distribution Date and prior to the Expiration Date, the
Company shall, with respect to Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, granted or
awarded, or upon exercise, conversion or exchange of securities heretofore or
hereinafter issued by the Company, in each case existing prior to the
Distribution Date, issue Right Certificates representing the appropriate number
of Rights in connection with such issuance or sale; provided, however, that (i)
no such Right Certificate shall be issued if, and to the extent that, the
Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Right Certificate would be issued and (ii) no such Right
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.

 

ARTICLE XXX Redemption.

 

30.1        Right to Redeem. The Board may, at its option, at any time prior to
a Trigger Event, redeem all but not less than all of the then outstanding Rights
at a redemption price of $0.01 per Right, appropriately adjusted to reflect any
stock split, stock dividend, recapitalization or similar transaction occurring
after the date hereof (such redemption price being hereinafter referred to as
the “Redemption Price”), and the Company may, at its option, pay the Redemption
Price in Common Stock (based on the “current per share market price,” determined
pursuant to Section 11.4, of the Common Stock at the time of redemption), cash
or any other form of consideration deemed appropriate by the Board. The
redemption of the Rights by the Board may be made effective at such time, on
such basis and subject to such conditions as the Board in its sole discretion
may establish.

 

30.2        Redemption Procedures. Immediately upon the action of the Board
ordering the redemption of the Rights (or at such later time as the Board may
establish for the effectiveness of such redemption), and without any further
action and without any notice, the right to exercise the Rights will terminate
and the only right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. The Company shall promptly give public
notice of such redemption (with prompt written notice of same to the Rights
Agent); provided, however, that the failure to give, or any defect in, any such
notice shall not affect the validity of such redemption. The Company shall
promptly give, or cause the Rights Agent to give (at the Company’s expense),
notice of such redemption to the holders of the then outstanding Rights by
mailing such notice to all such holders at their last addresses as they appear
upon the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the transfer agent for the Common Stock. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of redemption shall state
the method by which the payment of the Redemption Price will be made. The
failure to give notice required by this Section 23.2 or any defect therein shall
not affect the validity of the action taken by the Company. Neither the Company
nor any of its Affiliates or Associates may redeem, acquire or purchase for
value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 27, and other than in connection with the
purchase, acquisition or redemption of Common Stock prior to the Distribution
Date.

 

34

 

 

ARTICLE XXXI Notice of Certain Events. In case the Company shall propose at any
time after the earlier of the Stock Acquisition Date and the Distribution Date
(a) to pay any dividend payable in stock of any class to the holders of Series A
Preferred or to make any other distribution to the holders of Series A Preferred
(other than a regular periodic cash dividend at a rate not in excess of 125% of
the rate of the last regular periodic cash dividend theretofore paid or, in case
regular periodic cash dividends have not theretofore been paid, at a rate not in
excess of 50% of the average net income per share of the Company for the four
quarters ended immediately prior to the payment of such dividends, or a stock
dividend on, or a subdivision, combination or reclassification of the Common
Stock), or (b) to offer to the holders of Series A Preferred rights or warrants
to subscribe for or to purchase any additional Series A Preferred or shares of
stock of any class or any other securities, rights or options, or (c) to effect
any reclassification of its Series A Preferred (other than a reclassification
involving only the subdivision of outstanding Series A Preferred), or (d) to
effect any consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or
other transfer), in one or more transactions, of 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person (other than pursuant to a merger or other acquisition agreement of
the type excluded from the definition of “Beneficial Ownership” in Section 1.3),
or (e) to effect the liquidation, dissolution or winding up of the Company, or
(f) to declare or pay any dividend on the Common Stock payable in Common Stock
or to effect a subdivision, combination or consolidation of the Common Stock (by
reclassification or otherwise than by payment of dividends in Common Stock),
then, in each such case, the Company shall give to the Rights Agent and to each
holder of a Right Certificate, in accordance with Section 25, a reasonably
detailed notice of such proposed action, which shall specify the record date for
the purposes of such stock dividend, distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the Series A Preferred and/or Common
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (a) or (b) above at least ten (10) days
prior to the record date for determining holders of the Series A Preferred for
purposes of such action, and in the case of any such other action, at least ten
(10) days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Series A Preferred and/or Common
Stock, whichever shall be the earlier.

 

In case any event set forth in Section 11.1.2 or Section 13 shall occur, then,
in any such case, (i) the Company shall as soon as practicable thereafter give
to the Rights Agent and to each holder of a Right Certificate, in accordance
with Section 25, a notice of the occurrence of such event, which notice shall
describe the event and the consequences of the event to holders of Rights under
Section 11.1.2 and Section 13, and (ii) all references in this Section 24 to
Series A Preferred shall be deemed thereafter to refer to Common Stock and/or,
if appropriate, other securities.

 

ARTICLE XXXII Notices. Notices or demands authorized by this Plan to be given or
made by the Rights Agent or by the holder of any Right Certificate to or on the
Company shall be sufficiently given or made if sent by overnight delivery
service or first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Rights Agent) as follows:

 

bebe stores, inc.

400 Valley Drive

Brisbane, California 94005

Attention: President and Chief Executive Officer

 

35

 

 

Subject to the provisions of Section 21 and Section 24, any notice or demand
authorized by this Plan to be given or made by the Company or by the holder of
any Right Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by overnight delivery service or first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:

 

Computershare Trust Company, N.A.

480 Washington Blvd.

Jersey City, NJ 07310

Attention: Client Services

Notices or demands authorized by this Plan to be given or made by the Company or
the Rights Agent to the holder of any Right Certificate (or, prior to the
Distribution Date, to the holder of any certificate representing Common Stock or
of any Book Entry Shares) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company or the transfer agent
or registrar for the Common Stock; provided that prior to the Distribution Date
a filing by the Company with the Securities and Exchange Commission shall
constitute sufficient notice to the holders of securities of the Company,
including the Rights, for purposes of this Plan and no other notice need be
given.

 

ARTICLE XXXIII Supplements and Amendments. For so long as the Rights are then
redeemable, the Company and the Rights Agent may in their sole and absolute
discretion, and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Plan in any respect without the approval of any
holders of Rights or Common Stock. From and after the time that the Rights are
no longer redeemable, the Company may, and the Rights Agent shall, if the
Company so directs, from time to time supplement or amend this Plan without the
approval of any holders of Rights (i) to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein or (ii) to make any other changes or provisions
in regard to matters or questions arising hereunder which the Company may deem
necessary or desirable, including but not limited to extending the Final
Expiration Date; provided, however, that no such supplement or amendment shall
adversely affect the interests of the holders of Rights as such (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person), and no
such supplement or amendment may cause the Rights again to become redeemable or
cause this Plan again to become amendable as to an Acquiring Person or an
Affiliate or Associate of an Acquiring Person, other than in accordance with
this sentence; provided further, that the right of the Board to extend the
Distribution Date shall not require any amendment or supplement hereunder. Upon
the delivery of a certificate from an appropriate officer of the Company, which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 26, the Rights Agent shall execute such supplement or amendment.
Notwithstanding anything in this Plan to the contrary, the Rights Agent shall
not be required to execute any supplement or amendment to this Plan that it has
determined would adversely affect its own rights, duties, obligations or
immunities under this Plan. No supplement or amendment to this Plan shall be
effective unless duly executed by the Rights Agent.

 

36

 

 

ARTICLE XXXIV Exchange.

 

34.1        Exchange of Common Stock for Rights. The Board may, at its option,
at any time after the occurrence of a Trigger Event, exchange Common Stock for
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of Section
11.1.2) by exchanging at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such amount per Right being
hereinafter referred to as the “Exchange Consideration”). Notwithstanding the
foregoing, the Board shall not be empowered to effect such exchange at any time
after any Acquiring Person shall have become the Beneficial Owner of 50% or more
of the Common Stock then outstanding. From and after the occurrence of an event
specified in Section 13.1, any Rights that theretofore have not been exchanged
pursuant to this Section 27.1 shall thereafter be exercisable only in accordance
with Section 13 and may not be exchanged pursuant to this Section 27.1. The
exchange of the Rights by the Board may be made effective at such time, on such
basis and with such conditions as the Board in its sole discretion may
establish. Without limiting the foregoing, prior to effecting an exchange
pursuant to this Section 27, the Board may direct the Company to enter into a
Trust Agreement in such form and with such terms as the Board shall then approve
(the “Trust Agreement”). If the Board so directs, the Company shall enter into
the Trust Agreement and shall issue to the trust created by such agreement (the
“Trust”) all of the Common Stock issuable pursuant to the exchange (or any
portion thereof that has not theretofore been issued in connection with the
exchange). From and after the time at which such shares are issued to the Trust,
all stockholders then entitled to receive shares pursuant to the exchange shall
be entitled to receive such shares (and any dividends or distributions made
thereon after the date on which such shares are deposited in the Trust) only
from the Trust and solely upon compliance with the relevant terms and provisions
of the Trust Agreement. Any Common Stock issued at the direction of the Board in
connection herewith shall be validly issued, fully paid and nonassessable Common
Stock or Series A Preferred (as the case may be), and the Company shall be
deemed to have received as consideration for such issuance a benefit having a
value that is at least equal to the aggregate par value of the shares so issued.

 

34.2        Exchange Procedures. Immediately upon the effectiveness of the
action of the Board ordering the exchange for any Rights pursuant to Section
27.1 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive the Exchange Consideration. The Company shall
promptly give public notice of any such exchange (with prompt written notice to
the Rights Agent); provided, however, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange shall state the method by which the exchange of the Common Stock for
Rights will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than the Rights that have become null and
void pursuant to the provisions of Section 11.1.2) held by each holder of
Rights.

 

37

 

 

34.3        Insufficient Shares. The Company may at its option substitute, for
each share of Common Stock that would otherwise be issuable upon exchange of a
Right, (i) a number of shares of Series A Preferred or fraction thereof (or
equivalent preferred stock, as such term is defined in Section 11.2), (ii) cash,
(iii) other equity securities of the Company or common stock equivalents, as
such term is defined in Section 11.1.3), (iv) debt securities of the Company,
(v) other assets or (vi) any combination of the foregoing, in each case having
an aggregate value equal to the current per share market price of one share of
Common Stock (determined pursuant to Section 11.4) as of the date of such
exchange. In the event that there shall not be sufficient shares of Common Stock
issued but not outstanding or authorized but unissued and otherwise available
for issuance to permit an exchange of Rights for Common Stock as contemplated in
accordance with this Section 27, the Company shall substitute to the extent of
such insufficiency, for each share of Common Stock that would otherwise be
issuable upon exchange of a Right, consideration of any type described in
Section 11.1.3(B)(1)-(7), which consideration shall have an aggregate current
per share market price (determined pursuant to Section 11.4 hereof) equal to the
current per share market price of one share of Common Stock (determined pursuant
to Section 11.4 hereof) as of the date of such exchange.

 

ARTICLE XXXV Process to Seek Exemption Prior to Trigger Event. Any Person who
desires to effect any acquisition of Common Stock that would, if consummated,
result in such Person beneficially owning 4.99% or more of the then outstanding
Common Stock (a “Requesting Person”) may, prior to the Stock Acquisition Date
and in accordance with this Section 28, request that the Board grant an
exemption with respect to such acquisition under this Plan so that such Person
would be deemed to be an “Exempt Person” under subsection (ii) of Section 1.7
hereof for purposes of this Plan (an “Exemption Request”). An Exemption Request
shall be in proper form and shall be delivered by overnight delivery service or
first-class mail, postage prepaid, to the Secretary of the Company at the
principal executive office of the Company. The Exemption Request shall be deemed
made upon receipt by the Secretary of the Company. To be in proper form, an
Exemption Request shall set forth (i) the name and address of the Requesting
Person, (ii) the number and percentage of shares of Common Stock then
Beneficially Owned by the Requesting Person, together with all Affiliates and
Associates of the Requesting Person, and (iii) a reasonably detailed description
of the transaction or transactions by which the Requesting Person would propose
to acquire Beneficial Ownership of Common Stock aggregating 4.99% or more of the
then outstanding Common Stock and the maximum number and percentage of shares of
Common Stock that the Requesting Person proposes to acquire. The Board shall
make a determination whether to grant an exemption in response to an Exemption
Request as promptly as practicable (and, in any event, within ten (10) Business
Days) after receipt thereof; provided, that the failure of the Board to make a
determination within such period shall be deemed to constitute the denial by the
Board of the Exemption Request. The Requesting Person shall respond promptly to
reasonable and appropriate requests for additional information from the Board
and its advisors to assist the Board in making its determination. For purposes
of considering the Exemption Request, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding Common Stock of which
any Person is the Beneficial Owner, shall be made pursuant to and in accordance
with Section 382. The Board shall only grant an exemption in response to an
Exemption Request if the Board determines in its sole discretion that the
acquisition of Beneficial Ownership of Common Stock by the Requesting Person (A)
will not adversely impact in any material respect the time period in which the
Company could use the Tax Benefits or limit or impair the availability to the
Company of the Tax Benefits or (B) is in the best interests of the Company
despite the fact that it may adversely impact in a material respect the time
period in which the Company could use the Tax Benefits or limit or impair the
availability to the Company of the Tax Benefits. Any exemption granted hereunder
may be granted in whole or in part, and may be subject to limitations or
conditions (including a requirement that the Requesting Person agree that it
will not acquire Beneficial Ownership of shares of Common Stock in excess of the
maximum number and percentage of shares approved by the Board), in each case as
and to the extent the Board shall determine necessary or desirable to provide
for the protection of the Tax Benefits. Any Exemption Request may be submitted
on a confidential basis and, except to the extent required by applicable law,
the Company shall maintain the confidentiality of such Exemption Request and the
Board’s determination with respect thereto, unless the information contained in
the Exemption Request or the Board’s determination with respect thereto
otherwise becomes publicly available. The Exemption Request shall be considered
and evaluated by directors serving on the Board, or a duly constituted committee
thereof, who are disinterested with respect to the Exemption Request, and the
action of a majority of such disinterested directors shall be deemed to be the
determination of the Board for purposes of such Exemption Request.

 

38

 

 

ARTICLE XXXVI Waiver Subsequent to Stock Acquisition Date. The Board may, of its
own accord or upon the request of a stockholder (a “Waiver Request”), subsequent
to a Stock Acquisition Date and prior to the Distribution Date, and in
accordance with this Section 29, grant an exemption with respect to any
Acquiring Person under this Plan so that such Acquiring Person would be deemed
to be an “Exempt Person” under subsection (ii) of Section 1.7 hereof for
purposes of this Plan. A Waiver Request shall be in proper form and shall be
delivered by overnight delivery service or first-class mail, postage prepaid, to
the Secretary of the Company at the principal executive office of the Company.
The Waiver Request shall be deemed made upon receipt by the Secretary of the
Company. To be in proper form, a Waiver Request shall set forth (i) the name and
address of the Acquiring Person, (ii) the number and percentage of shares of
Common Stock then Beneficially Owned by the Acquiring Person, together with all
Affiliates and Associates of the Acquiring Person, and (iii) a reasonably
detailed description of the transaction or transactions by which the Acquiring
Person acquired Beneficial Ownership of Common Stock aggregating 4.99% or more
of the then outstanding Common Stock and the maximum number and percentage of
shares of Common Stock that the Acquiring Person proposes to acquire. The Board
shall make a determination whether to grant an exemption in response to a Waiver
Request as promptly as practicable (and, in any event, within ten (10) Business
Days) after receipt thereof; provided, that the failure of the Board to make a
determination within such period shall be deemed to constitute the denial by the
Board of the Waiver Request. The Acquiring Person shall respond promptly to
reasonable and appropriate requests for additional information from the Board
and its advisors to assist the Board in making its determination. For purposes
of considering the Waiver Request, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding Common Stock of which
any Person is the Beneficial Owner, shall be made pursuant to and in accordance
with Section 382. The Board shall only grant an exemption for an Acquiring
Person if the Board determines in its sole discretion that the acquisition of
Beneficial Ownership of Common Stock by such Acquiring Person does not adversely
impact in any material respect the time period in which the Company could use
the Tax Benefits or limit or impair the availability to the Company of the Tax
Benefits. Any exemption granted hereunder may be granted in whole or in part,
and may be subject to limitations or conditions (including a requirement that
such Acquiring Person agree that it will not acquire Beneficial Ownership of
shares of Common Stock in excess of the maximum number and percentage of shares
approved by the Board), in each case as and to the extent the Board shall
determine necessary or desirable to provide for the protection of the Company’s
Tax Benefits. The facts and circumstances with respect to the Trigger Event,
including whether to grant an exemption, shall be considered and evaluated by
directors serving on the Board, or a duly constituted committee thereof, who are
disinterested with respect to the Trigger Event, and the action of a majority of
such disinterested directors shall be deemed to be the determination of the
Board for purposes of any exemption granted pursuant to this Section 29.

 

39

 

 

ARTICLE XXXVII Successors. All the covenants and provisions of this Plan by or
for the benefit of the Company or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.

 

ARTICLE XXXVIII Benefits of this Plan. Nothing in this Plan shall be construed
to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Stock) any legal or equitable right, remedy or claim under this
Plan; but this Plan shall be for the sole and exclusive benefit of the Company,
the Rights Agent and the registered holders of the Right Certificates (and,
prior to the Distribution Date, the Common Stock).

 

ARTICLE XXXIX Determination and Actions by the Board or Committee Thereof. The
Board, or a duly authorized committee thereof, shall have the exclusive power
and authority to administer this Plan and to exercise the rights and powers
specifically granted to the Board or to the Company, or as may be necessary or
advisable in the administration of this Plan, including, without limitation, the
right and power to (i) interpret the provisions of this Plan and (ii) make all
determinations deemed necessary or advisable for the administration of this Plan
(including, without limitation, a determination to redeem or not redeem the
Rights or amend this Plan). In administering this Plan and exercising the rights
and powers specifically granted to the Board and to the Company hereunder, and
in interpreting this Plan and making any determination hereunder, the Board, or
a duly authorized committee thereof, may consider any and all facts,
circumstances or information it deems to be necessary, useful or appropriate.
Without limiting the rights of the Rights Agent hereunder, all such actions,
calculations, interpretations and determinations that are done or made by the
Board, or a duly authorized committee thereof, in good faith shall be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights, as such, and all other parties to the fullest extent permitted by
applicable law. The Rights Agent shall be entitled to assume that Board acted in
good faith and shall be fully protected and incur no liability in reliance
thereon.

 

ARTICLE XL Severability. If any term, provision, covenant or restriction of this
Plan is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Plan shall remain in full force and effect
and shall in no way be affected, impaired or invalidated; provided, however,
that if such excluded provision shall affect the rights, immunities,
liabilities, duties or obligations of the Rights Agent, the Rights Agent shall
be entitled to resign immediately upon written notice to the Company.

 

ARTICLE XLI Governing Law. This Plan and each Right Certificate issued hereunder
shall be deemed to be a contract made under the internal laws of the State of
California and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State; provided, however, that all provisions regarding the
rights, duties and obligations of the Rights Agent shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State.

 

40

 

 

ARTICLE XLII Counterparts. This Plan may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument. A signature to this Plan transmitted electronically shall
have the same authority, effect and enforceability as an original signature.

 

ARTICLE XLIII Descriptive Headings. Descriptive headings of the several Sections
of this Plan are inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.

 

ARTICLE XLIV Force Majeure. Notwithstanding anything to the contrary contained
herein, the Rights Agent shall not be liable for any delays or failures in
performance resulting from acts beyond its reasonable control including, without
limitation, acts of God, terrorist acts, shortage of supply, breakdowns or
malfunctions, interruptions or malfunctions of any utilities, communications, or
computer facilities, or loss of data due to power failures or mechanical
difficulties with information storage or retrieval systems, labor difficulties,
war or civil unrest.

 

(Signature Page Follows)

 

41

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Plan to be duly
executed, as of the day and year first above written.

        bebe stores, inc.       By:       Name: Manny Mashouf     Title: Chief
Executive Officer         COMPUTERSHARE TRUST COMPANY, N.A.       By:      
Name: Dennis V. Moccia     Title: Manager, Contract Administration

 

(Signature Page to Tax Benefit Preservation Plan)

 

 

 

EXHIBIT A 

 

FORM OF

 

CERTIFICATE OF DETERMINATION OF

 

SERIES A JUNIOR PARTICIPATING PREFERRED SHARES OF

 

BEBE STORES, INC.

 

 

 

Pursuant to Section 401 of the Corporations Code of the State of California:

 

We, Manny Mashouf, President and Chief Executive Officer, and Gary Bosch, Vice
President, General Counsel and Secretary, of bebe stores, inc., a corporation
organized and existing under the laws of California (hereinafter called the
“Company”), do hereby certify as follows:

 

1.             On January 12, 2018, the Board of Directors of the Company
adopted a resolution designating 140,000 shares of Preferred Stock, par value
$0.001 per share (the “Preferred Stock”) as Series A Junior Participating
Preferred Stock.

 

2.             No shares of Series A Junior Participating Preferred Stock have
been issued.

 

3.             Pursuant to the authority conferred upon the Board of Directors
by the Fifth Amended and Restated Articles of Incorporation of the Company, as
amended, the following resolution was duly adopted by the Board of Directors on
January 12, 2018, creating the Series A Junior Participating Preferred Stock:

 

RESOLVED FURTHER, that pursuant to the authority expressly granted to and vested
in the Board in accordance with the provisions of the Company’s Fifth Amended
and Restated Articles of Incorporation, the Board hereby creates the Series A
Preferred and hereby states the designation and number of shares, and fixes the
relative rights, powers and preference, and qualifications, limitations and
restrictions thereof as contained in the Certificate of Determination of Series
A Junior Participating Preferred Stock of the Company as follows:

 

“Series A Junior Participating Preferred Stock:

 

Section 1.      Designation and Amount. The shares of such series shall be
designated as “Series A Junior Participating Preferred Stock” (the “Series A
Preferred”) and the number of shares constituting the Series A Preferred shall
be 140,000. Such number of shares may be increased or decreased by resolution of
the Board of Directors; provided, that no decrease shall reduce the number of
shares of Series A Preferred to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series A
Preferred.

 

A- 1

 

  

ARTICLE XLV Dividends and Distributions.

 

1.            Subject to the prior and superior rights of the holders of any
shares of any class or series of stock of this Corporation ranking prior and
superior to the Series A Preferred with respect to dividends, the holders of
shares of Series A Preferred, in preference to the holders of Common Stock, par
value $0.001 per share (the “Common Stock”), of the Corporation, and of any
other stock ranking junior to the Series A Preferred, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the first day
of March, June, September and December in each year (each such date being
referred to herein as a “Quarterly Dividend Payment Date”), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred, in an amount per share (rounded to
the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions, other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred. In the event
the Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series A Preferred were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

 

2.            The Corporation shall declare a dividend or distribution on the
Series A Preferred as provided in paragraph (A) of this Section 2 immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A
Preferred shall nevertheless be payable (with any such payment being within the
discretion of the Board) on such subsequent Quarterly Dividend Payment Date.

 

3.            Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be not more
than sixty (60) days prior to the date fixed for the payment thereof.

 

A- 2

 

 

ARTICLE XLVI Voting Rights. The holders of shares of Series A Preferred shall
have the following voting rights:

 

1.            Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

 

2.            Except as otherwise provided herein, in any other Certificate of
Determination creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred and the holders of shares of
Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.

 

3.            Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.

 

A- 3

 

 

4.            If, at the time of any annual meeting of stockholders for the
election of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred are in
default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two. In addition to voting together with the
holders of Common Stock for the election of other directors of the Corporation,
the holders of record of the Series A Preferred, voting separately as a class to
the exclusion of the holders of Common Stock, shall be entitled at such meeting
of stockholders (and at each subsequent annual meeting of stockholders), unless
all dividends in arrears on the Series A Preferred have been paid or declared
and set apart for payment prior thereto, to vote for the election of two
directors of the Corporation, the holders of any Series A Preferred being
entitled to cast a number of votes per share of Series A Preferred as is
specified in paragraph (A) of this Section 3. Each such additional director
shall serve until the next annual meeting of stockholders for the election of
directors, or until his successor shall be elected and shall qualify, or until
his right to hold such office terminates pursuant to the provisions of this
Section 3(D). Until the default in payments of all dividends which permitted the
election of said directors shall cease to exist, any director who shall have
been so elected pursuant to the provisions of this Section 3(D) may be removed
at any time, without cause, only by the affirmative vote of the holders of the
shares of Series A Preferred at the time entitled to cast a majority of the
votes entitled to be cast for the election of any such director at a special
meeting of such holders called for that purpose, and any vacancy thereby created
may be filled by the vote of such holders. If and when such default shall cease
to exist, the holders of the Series A Preferred shall be divested of the
foregoing special voting rights, subject to revesting in the event of each and
every subsequent like default in payments of dividends. Upon the termination of
the foregoing special voting rights, the terms of office of all persons who may
have been elected directors pursuant to said special voting rights shall
forthwith terminate, and the number of directors constituting the Board of
Directors shall be reduced by two. The voting rights granted by this Section
3(D) shall be in addition to any other voting rights granted to the holders of
the Series A Preferred in this Section 3.

 

ARTICLE XLVII Certain Restrictions.

 

1.            Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred outstanding shall have been
paid in full, the Corporation shall not:

 

declare or pay dividends, or make any other distributions, on any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred;

 

declare or pay dividends, or make any other distributions, on any shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred, except dividends paid
ratably on the Series A Preferred and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;

 

redeem or purchase or otherwise acquire for consideration shares of any stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior (both as to
dividends and upon dissolution, liquidation or winding up) to the Series A
Preferred; or

 

A- 4

 

 

redeem or purchase or otherwise acquire for consideration any shares of Series A
Preferred, or any shares of stock ranking on a parity with the Series A
Preferred, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.

 

2.            The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.

 

ARTICLE XLVIII Reacquired Shares. Any shares of Series A Preferred purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Fifth Amended
and Restated Articles of Incorporation or in any other Certificate of
Determination creating a series of Preferred Stock or any similar stock or as
otherwise required by law.

 

ARTICLE XLIX Liquidation, Dissolution or Winding Up.

 

(A) Upon any liquidation, dissolution or winding up of the Corporation,
voluntary or otherwise no distribution shall be made (i) to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred unless, prior thereto, the
holders of Series A Preferred shall have received an amount per share (the
“Series A Liquidation Preference”) equal to $100 per share, plus an amount equal
to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of shares of
Series A Preferred shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of Common
Stock, or (ii) to the holders of shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred, except distributions made ratably on the Series A Preferred and all
such parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of Series A Preferred were
entitled immediately prior to such event under the proviso in clause (i) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that are outstanding immediately prior to such event.

 

A- 5

 

 

(B)         In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other classes and series of stock of the
Corporation, if any, that rank on a parity with the Series A Preferred in
respect thereof, then the assets available for such distribution shall be
distributed ratably to the holders of the Series A Preferred and the holders of
such parity shares in proportion to their respective liquidation preferences.

 

1.            Neither the merger or consolidation of the Corporation into or
with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6.

 

ARTICLE L Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each share of Series A
Preferred shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Preferred shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

 

ARTICLE LI No Redemption. The Series A Preferred shall not be redeemable by the
Corporation.

 

ARTICLE LII Rank. The Series A Preferred shall rank, with respect to the payment
of dividends and the distribution of assets upon liquidation, dissolution or
winding up, junior to all series of any other class of the Corporation’s
Preferred Stock, except to the extent that any such other series specifically
provides that it shall rank on a parity with or junior to the Series A
Preferred.

 

ARTICLE LIII Amendment. At any time any shares of Series A Preferred are
outstanding, the Fifth Amended and Restated Articles of Incorporation of the
Corporation, as amended, shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred so as to affect them adversely without the affirmative vote
of the holders of at least two-thirds of the outstanding shares of Series A
Preferred, voting separately as a single class.

 

A- 6

 

 

ARTICLE LIV Fractional Shares. Series A Preferred may be issued in fractions of
a share that shall entitle the holder, in proportion to such holder’s fractional
shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of Series A
Preferred.

 

4.                       We further declare under penalty of perjury under the
laws of the State of California that the matters set forth in this certificate
are true and correct of our own knowledge.

 

(Signature Pages Follow)

 

A- 7

 

 

 

Executed on January 12, 2018, at Brisbane, California.

 

      Manny Mashouf   Chief Executive Officer           Gary Bosch   Secretary

   

(Signature Page to Certificate of Determination) 

 

 

 

 

EXHIBIT B 

 

[Form of Right Certificate]

 

Certificate No. R- _______ Rights

 

NOT EXERCISABLE AFTER January 12, 2028 OR EARLIER IF NOTICE OF REDEMPTION OR
EXCHANGE IS GIVEN, IF THE COMPANY IS MERGED OR ACQUIRED PURSUANT TO AN AGREEMENT
OF THE TYPE DESCRIBED IN SECTION 13.3 OF THE TAX BENEFIT PRESERVATION PLAN (THE
“PLAN”), IF SECTION 382 (AS DEFINED IN THE PLAN) OR ANY SUCCESSOR STATUTE IS
REPEALED AND THE BOARD OF DIRECTORS DETERMINES THAT THE PLAN IS NO LONGER
NECESSARY OR DESIRABLE FOR THE PRESERVATION OF THE TAX BENEFITS (AS DEFINED IN
THE PLAN) OR IF THE BOARD OF DIRECTORS DETERMINES THAT THE TAX BENEFITS ARE
FULLY UTILIZED OR NO LONGER AVAILABLE UNDER SECTION 382 (AS DEFINED IN THE PLAN)
OR THAT AN OWNERSHIP CHANGE UNDER SECTION 382 WOULD NOT ADVERSELY IMPACT IN ANY
MATERIAL RESPECT THE TIME PERIOD IN WHICH THE COMPANY COULD USE THE TAX
BENEFITS, OR MATERIALLY IMPAIR THE AMOUNT OF THE TAX BENEFITS THAT COULD BE USED
BY THE COMPANY IN ANY PARTICULAR TIME PERIOD, FOR APPLICABLE TAX PURPOSES. THE
RIGHTS ARE SUBJECT TO REDEMPTION AT $0.01 PER RIGHT, AND TO EXCHANGE ON THE
TERMS SET FORTH IN THE PLAN. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SECTION
11.1.2 OF THE PLAN), RIGHTS BENEFICIALLY OWNED BY OR TRANSFERRED TO AN ACQUIRING
PERSON (AS DEFINED IN THE PLAN), OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS, WILL
BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.

 

Right Certificate

 

BEBE STORES, INC.

 

This certifies that ________________, or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Tax Benefit
Preservation Plan, dated as of January 12, 2018, as the same may be amended from
time to time (the “Plan”), between bebe stores, inc., a California corporation
(the “Company”), and Computershare Trust Company, N.A., a federally chartered
trust company, as Rights Agent (the “Rights Agent”), to purchase from the
Company at any time after the Distribution Date and prior to 5:00 P.M. (New York
time) on January 12, 2028, at the offices of the Rights Agent, or its successors
as Rights Agent, designated for such purpose, one-hundredth of a fully paid,
nonassessable share of Series A Junior Participating Preferred Stock, par value
$0.001 per share (the “Series A Preferred”), of the Company, at a purchase price
of $10.88 per one-hundredth of a share of Series A Preferred, subject to
adjustment (the “Purchase Price”), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase and certification properly
completed and duly executed accompanied by such other documentation as the
Rights Agent may reasonably request. The number of Rights evidenced by this
Right Certificate (and the number of one-hundredths of a share of Series A
Preferred which may be purchased upon exercise thereof) set forth above, and the
Purchase Price set forth above, are the number and Purchase Price as of
[________, 201_], based on the Series A Preferred as constituted at such date.
Capitalized terms used in this Right Certificate without definition shall have
the meanings ascribed to them in the Plan. As provided in the Plan, the Purchase
Price and the number of shares of Series A Preferred which may be purchased upon
the exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.

 

B- 1

 

 

This Right Certificate is subject to all of the terms, provisions and conditions
of the Plan, which terms, provisions and conditions are hereby incorporated
herein by reference and made a part hereof and to which Plan reference is hereby
made for a full description of the rights, limitations of rights, obligations,
duties and immunities hereunder of the Rights Agent, the Company and the holders
of the Right Certificates. Copies of the Plan are on file at the principal
offices of the Company and the Rights Agent.

 

This Right Certificate, with or without other Right Certificates, upon surrender
at the offices of the Rights Agent designated for such purpose, may be exchanged
for another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
one-hundredths of a share of Series A Preferred as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.

 

Subject to the provisions of the Plan, the Board may, at its option, (i) redeem
the Rights evidenced by this Right Certificate at a redemption price of $0.01
per Right or (ii) exchange Common Stock for the Rights evidenced by this
Certificate, in whole or in part.

 

No fractional Series A Preferred will be issued upon the exercise of any Right
or Rights evidenced hereby (other than fractions of Series A Preferred which are
integral multiples of one-hundredth of a share of Series A Preferred, which may,
at the election of the Company, be evidenced by depository receipts), but in
lieu thereof a cash payment will be made, as provided in the Plan.

 

No holder of this Right Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Series A
Preferred or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Plan or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Plan), or to receive dividends or subscription rights, or otherwise, until the
Right or Rights evidenced by this Right Certificate shall have been exercised as
provided in the Plan.

 

B- 2

 

 

If any term, provision, covenant or restriction of the Plan is held by a court
of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of the Plan shall remain in full force and effect and shall in no
way be affected, impaired or invalidated; provided, however, that if such
excluded provision shall affect the rights, immunities, liabilities, duties or
obligations of the Rights Agent, the Rights Agent shall be entitled to resign
immediately upon written notice to the Company.

 

This Right Certificate shall not be valid or binding for any purpose until it
shall have been countersigned by the Rights Agent.

 

B- 3

 

 

WITNESS the facsimile signature of the proper officer of the Company and its
corporate seal. 

 

Dated as of __________, 20__. 

 

BEBE STORES, INC.  

 

By     Title:  

 

Countersigned:

 

COMPUTERSHARE TRUST COMPANY, N.A.,

as Rights Agent

 

By       Authorized Signature  

 

B- 4

 

 

Form of Reverse Side of Right Certificate

 

FORM OF ASSIGNMENT

 

(To be executed by the registered holder if such holder

desires to transfer the Right Certificate.)

 

FOR VALUE RECEIVED  

hereby sells, assigns and transfers unto  

   

   

 

(Please print name and address

of transferee)

 

Rights evidenced by this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
____________________ Attorney, to transfer the within Right Certificate on the
books of the within-named Company, with full power of substitution.

 

Dated: __________________

 

    Signature       Signature Medallion Guaranteed:          

 

Signatures must be guaranteed by an “eligible guarantor institution” as defined
in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934, as
amended, which is a member of a recognized Medallion Signature Guarantee
Program.

 

 B- 5

 

 

The undersigned hereby certifies that:

 

(A)            the Rights evidenced by this Right Certificate are not
Beneficially Owned by and are not being assigned to an Acquiring Person or an
Affiliate or Associate of an Acquiring Person; and

 

(B)             after due inquiry and to the best knowledge of the undersigned,
the undersigned did not acquire the Rights evidenced by this Right Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.

 

Dated: __________________

 

  Signature

 

 B- 6

 

 

 

FORM OF ELECTION TO PURCHASE

 

(To be executed if holder desires to
exercise the Right Certificate.)

 

To: bebe stores, inc.

 

The undersigned hereby irrevocably elects to exercise __________________ Rights
represented by this Right Certificate to purchase the Series A Preferred
issuable upon the exercise of such Rights (or such other securities or property
of the Company or of any other Person which may be issuable upon the exercise of
the Rights) and requests that certificates for such stock (or such other
securities or property of the Company or of any other Person which may be
issuable upon the exercise of the Rights) be issued in the name of (or to, as
the case may be):

 

(Please print name and address)          

  

If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:

 

Please insert social security or other identifying number           (Please
print name and address)      

  

Dated: __________________

 

    Signature       Signature Medallion Guaranteed:          

 

Signatures must be guaranteed by an “eligible guarantor institution” as defined
in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934, as
amended, which is a member of a recognized Medallion Signature Guarantee
Program.

 

 B- 7

 

 

The undersigned hereby certifies that:

 

(1)              the Rights evidenced by this Right Certificate are not
Beneficially Owned by and are not being assigned to an Acquiring Person or an
Affiliate or Associate of an Acquiring Person; and

 

(C)             after due inquiry and to the best knowledge of the undersigned,
the undersigned did not acquire the Rights evidenced by this Right Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.

 

Dated: __________________

 

  Signature

 

 

 

NOTICE

 

The signature in the foregoing Form of Assignment and Form of Election to
Purchase must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.

 

In the event the certification set forth above in the Form of Assignment or Form
of Election to Purchase is not completed, the Company will deem the Beneficial
Owner of the Rights evidenced by this Right Certificate to be an Acquiring
Person or an Affiliate or Associate of an Acquiring Person and such Assignment
or Election to Purchase will not be honored.

 

 B- 8

 

  

EXHIBIT C

 

As described in the Tax Benefit Preservation Plan, Rights which are held by or
have been held by an Acquiring Person or any Affiliate or Associate of an
Acquiring Person (as defined in the Tax Benefit Preservation Plan) and certain
transferees thereof shall become null and void and will no longer be
transferable.

 

SUMMARY OF RIGHTS TO PURCHASE

PREFERRED STOCK

 

On January 12, 2018, the Board of Directors of bebe stores, inc. (the “Company”)
declared a dividend of one preferred stock purchase right (a “Right”) for each
share of Common Stock, par value $0.001 (the “Common Stock”), of the Company
outstanding at the close of business on January 26, 2018 (the “Record Date”). As
long as the Rights are attached to the Common Stock, the Company will issue one
Right (subject to adjustment) with each new share of Common Stock so that all
such shares will have attached Rights. When exercisable, each Right will entitle
the registered holder to purchase from the Company one-hundredth of a share of
Series A Junior Participating Preferred Stock (the “Series A Preferred”), par
value $0.001 of the Company at a price of $10.88 per one-hundredth of a share of
Series A Preferred, subject to adjustment (the “Purchase Price”). The
description and terms of the Rights are set forth in a Tax Benefit Preservation
Plan, dated as of January 12, 2018, as the same may be amended from time to time
(the “Plan”), between the Company and Computershare Trust Company, N.A., as
Rights Agent (the “Rights Agent”).

 

By adopting the Plan, the Board of Directors is seeking to protect the Company’s
ability to use its net operating losses, any loss or deducting attributable to a
“net unrealized built-in loss” and other tax attributes (collectively, “Tax
Benefits”). The Company views its Tax Benefits as highly valuable assets of the
Company, which are likely to inure to the benefit of the Company and its
stockholders. However, if the Company experiences an “ownership change,” as
defined in Section 382 of the Internal Revenue Code (the “Code”), its ability to
use the Tax Benefits could be substantially limited, and the timing of the usage
of the Tax Benefits could be substantially delayed, which could significantly
impair the value of the Tax Benefits. Generally, an “ownership change” occurs if
the percentage of the Company’s stock owned by one or more “five percent
stockholders” increases by more than fifty percentage points over the lowest
percentage of stock owned by such stockholders at any time during the prior
three-year period or, if sooner, since the last “ownership change” experienced
by the Company. The Plan is intended to act as a deterrent to any person
acquiring 4.99% or more of the outstanding shares of Common Stock without the
approval of the Board of Directors. This would protect the Tax Benefits because
changes in ownership by a person owning less than 4.99% of the Common Stock are
not included in the calculation of “ownership change” for purposes of Section
382 of the Code. The Board of Directors believes it is in the best interest of
the Company and its stockholders that the Company provide for the protection of
the Tax Benefits by adopting the Plan.

 

 B- 1

 

 

Until the earlier to occur of (i) the close of business on the tenth (10th)
business day following a public announcement by the Company that a person or
group has acquired, or obtained the right to acquire, beneficial ownership of
4.99% or more of the Common Stock (an “Acquiring Person”) or (ii) the close of
business on the tenth (10th) business day (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group becomes an Acquiring Person) following the commencement of, or
announcement by the Company of an intention to make, a tender offer or exchange
offer the consummation of which would result in the beneficial ownership by a
person or group of 4.99% or more of the Common Stock (the earlier of (i) and
(ii) being called the “Distribution Date”), the Rights will be evidenced, with
respect to any of the Common Stock certificates outstanding as of the Record
Date, by such Common Stock certificates or, with respect to any uncertificated
Common Stock registered in book entry form, by notation in book entry, in either
case together with a copy of this Summary of Rights. The Board can postpone the
Distribution Date in certain circumstances. Shares held by persons participating
in a group are deemed to be beneficially owned by all persons treated as the
same entity for purposes of Section 382 of the Code. The Plan provides that any
person who beneficially owned 4.99% or more of the Common Stock immediately
prior to the first public announcement of the adoption of the Plan (each an
“Existing Holder”), shall not be deemed to be an “Acquiring Person” for purposes
of the Plan unless the Existing Holder becomes the beneficial owner of one or
more additional shares of Common Stock (other than pursuant to a dividend or
distribution paid or made by the Company on the outstanding Common Stock in
Common Stock or pursuant to a split or subdivision of the outstanding Common
Stock). However, if upon acquiring beneficial ownership of one or more
additional shares of Common Stock, the Existing Holder does not beneficially own
4.99% or more of the Common Stock then outstanding, the Existing Holder shall
not be deemed to be an “Acquiring Person” for purposes of the Plan. The Plan
includes a procedure whereby the Board of Directors will consider requests (a)
to exempt certain acquisitions of Common Stock of the Company from the
applicable ownership trigger if the Board determines that the acquisition will
not jeopardize or endanger the availability of the Tax Benefits to the Company
and (b) solely before a person beneficially owns shares of Common Stock equal to
or exceeding 4.99% of the Common Stock then outstanding, to exempt certain
acquisitions of Common Stock of the Company from the applicable ownership
trigger if the Board determines that the acquisition is in the best interests of
the Company even if it jeopardizes or endangers the availability of the Tax
Benefits.

 

The Plan provides that until the Distribution Date (or earlier redemption,
exchange, termination or expiration of the Rights), the Rights will be
transferred with and only with the Common Stock. Until the Distribution Date (or
earlier redemption, exchange, termination or expiration of the Rights), new
Common Stock certificates issued after the close of business on the Record Date
upon transfer or new issuance of the Common Stock will contain a notation
incorporating the Plan by reference, and the Company will deliver a notice to
that effect upon the transfer or new issuance of book entry shares. Until the
Distribution Date (or earlier redemption, exchange, termination or expiration of
the Rights), the surrender for transfer of any certificates for Common Stock,
with or without such notation or a copy of this Summary of Rights, will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate or the book entry shares. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
(“Right Certificates”) will be mailed to holders of record of the Common Stock
as of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.

 

 B- 2

 

 

The Rights are not exercisable until the Distribution Date. The Rights will
expire, unless earlier redeemed or exchanged by the Company or terminated, on
the earliest to occur of: (i) January 12, 2028, subject to the Company’s right
to extend such date, (ii) the close of business on the effective date of the
repeal of Section 382 or any successor statute if the Board determines that the
Plan is no longer necessary or desirable for the preservation of the Tax
Benefits or (iii) the time at which the Board of Directors determines that the
Tax Benefits are fully utilized or no longer available under Section 382 of the
Code or that an ownership change under Section 382 of the Code would not
adversely impact in any material respect the time period in which the Company
could use the Tax Benefits, or materially impair the amount of the Tax Benefits
that could be used by the Company in any particular time period, for applicable
tax purposes.

 

Each share of Series A Preferred purchasable upon exercise of the Rights will be
entitled, when, as and if declared, to a minimum preferential quarterly dividend
payment of $1.00 per share or, if greater, an aggregate dividend of 100 times
the dividend, if any, declared per share of Common Stock. In the event of
liquidation, dissolution or winding up of the Company, the holders of the Series
A Preferred will be entitled to a minimum preferential liquidation payment of
$100 per share (plus any accrued but unpaid dividends), provided that such
holders of the Series A Preferred will be entitled to an aggregate payment of
100 times the payment made per share of Common Stock. Each share of Series A
Preferred will have 100 votes and will vote together with the Common Stock.
Finally, in the event of any merger, consolidation or other transaction in which
shares of Common Stock are exchanged, each share of Series A Preferred will be
entitled to receive 100 times the amount received per share of Common Stock.
Series A Preferred will not be redeemable. These rights are protected by
customary antidilution provisions. Because of the nature of the Series A
Preferred’s dividend, liquidation and voting rights, the value of one-hundredth
of a share of Series A Preferred purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.

 

The Purchase Price payable, and the number of shares of Series A Preferred or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of the Series A
Preferred, (ii) upon the grant to holders of the Series A Preferred of certain
rights or warrants to subscribe for or purchase Series A Preferred or
convertible securities at less than the current market price of the Series A
Preferred or (iii) upon the distribution to holders of the Series A Preferred of
evidences of indebtedness, cash, securities or assets (excluding regular
periodic cash dividends at a rate not in excess of 125% of the rate of the last
regular periodic cash dividend theretofore paid or, in case regular periodic
cash dividends have not theretofore been paid, at a rate not in excess of 50% of
the average net income per share of the Company for the four quarters ended
immediately prior to the payment of such dividend, or dividends payable in
Series A Preferred (which dividends will be subject to the adjustment described
in clause (i) above)) or of subscription rights or warrants (other than those
referred to above).

 

 B- 3

 

 

In the event that a Person becomes an Acquiring Person or if the Company were
the surviving corporation in a merger with an Acquiring Person or any affiliate
or associate of an Acquiring Person and shares of the Common Stock were not
changed or exchanged, each holder of a Right, other than Rights that are or were
acquired or beneficially owned by the Acquiring Person (which Rights will
thereafter be null and void), will thereafter have the right to receive upon
exercise that number of shares of Common Stock having a market value of two
times the then current Purchase Price of the Right. In the event that, after a
Person has become an Acquiring Person, the Company were acquired in a merger or
other business combination transaction or more than 50% of its assets or earning
power were sold, proper provision shall be made so that each holder of a Right
shall thereafter have the right to receive, upon the exercise thereof at the
then current Purchase Price of the Right, that number of shares of common stock
of the acquiring company which at the time of such transaction would have a
market value of two times the then current Purchase Price of the Right.

 

At any time after a Person becomes an Acquiring Person and prior to the earlier
of one of the events described in the last sentence of the previous paragraph or
the acquisition by such Acquiring Person of 50% or more of the outstanding
Common Stock, the Board of Directors may cause the Company to exchange the
Rights (other than Rights owned by an Acquiring Person which will have become
null and void), in whole or in part, for Common Stock at an exchange rate of one
share of Common Stock per Right (subject to adjustment).

 

No adjustment in the Purchase Price will be required until cumulative
adjustments require an adjustment of at least 1% in such Purchase Price. No
fractional Series A Preferred or Common Stock will be issued (other than
fractions of Series A Preferred which are integral multiples of one-hundredth of
a share of Series A Preferred, which may, at the election of the Company, be
evidenced by depository receipts), and in lieu thereof, a payment in cash will
be made based on the market price of the Series A Preferred or Common Stock on
the last trading date prior to the date of exercise.

 

The Rights may be redeemed in whole, but not in part, at a price of $0.01 per
Right (the “Redemption Price”) by the Board of Directors at any time prior to
the time that an Acquiring Person has become such. The redemption of the Rights
may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.

 

Until a Right is exercised, the holder thereof, as such, will have no rights as
a stockholder of the Company beyond those as an existing stockholder, including,
without limitation, the right to vote or to receive dividends.

 

Any of the provisions of the Plan may be amended by the Board of Directors, or a
duly authorized committee thereof, for so long as the Rights are then
redeemable, and after the Rights are no longer redeemable, the Company may amend
or supplement the Plan in any manner that does not adversely affect the
interests of the holders of the Rights (other than an Acquiring Person or any
affiliate or associate of an Acquiring Person).

 

A copy of the Plan has been filed with the Securities and Exchange Commission as
an Exhibit to a Current Report on Form 8-K. A copy of the Plan is available free
of charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Plan, which is incorporated herein by reference.

 

 B- 4

 

 

Exhibit B

 

Investor Agreement 

 

 

 

INVESTOR AGREEMENT

 

This INVESTOR AGREEMENT (this “Agreement”) is made and entered into as of
January 12, 2018, by and among bebe stores, inc., a California corporation (the
“Company”), and each investor listed on Schedule A hereto (each, an “Investor”
and collectively, the “Investors”).

 

RECITALS

 

WHEREAS, the Company, B. Riley Financial, Inc., a Delaware corporation
(“Purchaser”), and Manny Mashouf Living Trust (“Seller”) are entering into that
certain Debt Conversion and Purchase and Sale Agreement, dated as of the date
hereof (the “Acquisition Agreement”), pursuant to which Purchaser is thereby
purchasing shares of common stock, par value $0.001 per share, of the Company
(“Common Stock”) from the Company and Seller and converting certain indebtedness
of the Company held by Purchaser into shares of Common Stock; and

 

WHEREAS, (a) the Company has certain net operating losses for U.S. federal
income tax purposes that the Company desires to preserve, (b) the parties hereto
desire to avoid an “ownership change” within the meaning of Section 382 of the
Internal Revenue Code of 1986, as amended (the “Code”) and (c) in furtherance of
such objectives and, with respect to the Company and Seller, as a condition to
the willingness of Purchaser to enter into the Acquisition Agreement and as an
inducement and in consideration therefor, concurrently with the execution of the
Acquisition Agreement, the parties hereto are entering into this Agreement and
the Company is entering into a tax benefits preservation plan, dated as of the
date hereof.

 

NOW THEREFORE, the parties hereto desire and agree to enter into this Agreement
on the terms and conditions set forth as follows:

 

ARTICLE I
Definitions

 

1.1              Agreement Definitions. The following capitalized terms as used
in this Agreement shall have the meanings set forth below:

 

(a)           “Acquisition” means the acquisition by means of any transfer,
sale, assignment, pledge, hypothecation or otherwise of any Shares, whether
directly or indirectly (including in connection with any direct or indirect
merger, consolidation, sale of all or substantially all assets or otherwise),
including by entry into any transaction that has or would reasonably be expected
to have the same effect, or entry into any swap, hedge or other arrangement that
would result in the acquisition, in whole or in part, of any of the economic or
voting consequences of, ownership of any Shares, whether settleable in such
securities in cash or otherwise (including as the result of any conveyance or
act of conveying of tax ownership (applying applicable attribution rules for
purposes of Section 382 of the Code) of such Shares).

 

 

 

 

(b)           “Acquisition Agreement” has the meaning set forth in the recitals.

 

(c)           “Agreement” has the meaning set forth in the preamble.

 

(d)           “Approved Instrument” has the meaning set forth in Section 3.2.

 

(e)           “Board” means the board of directors of the Company and any duly
authorized committee thereof.

 

(f)           “Code” has the meaning set forth in the recitals.

 

(g)           “Common Stock” has the meaning set forth in the recitals.

 

(h)           “Company” has the meaning set forth in the preamble.

 

(i)            “Investors” has the meaning set forth in the preamble.

 

(j)            “Lead Investor” has the meaning set forth in Section 3.3(c)(i).

 

(k)           “Lead Shares” has the meaning set forth in Section 3.3(c)(i).

 

(l)            “Maximum Number” has the meaning set forth in Section 3.3(a).

 

(m)          “Ownership Change” means an “ownership change” pursuant to Section
382 of the Code.

 

(n)           “Participating Investor” has the meaning set forth in
Section 3.3(c)(ii).

 

(o)           “Participation Notice” has the meaning set forth in
Section 3.3(c)(i).

 

(p)           “Person” means any individual, corporation (including
not-for-profit), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, governmental entity or
other entity of any kind or nature.

 

(q)           “Purchaser” has the meaning set forth in the recitals.

 

(r)            “Seller” has the meaning set forth in the recitals.

 

-3- 

 

 

(s)           “Shares” means shares of Common Stock.

 

(t)            “Tagging Shares” has the meaning set forth in Section 3.3(c)(ii).

 

(u)           “Tax Benefit” means the net operating loss carryovers, capital
loss carryovers, general business credit carryovers, alternative minimum tax
credit carryovers and foreign tax credit carryovers, as well as any potential
loss or deduction attributable to an existing “net unrealized built-in loss”
within the meaning of Section 382 of the Code to which the Company (or any other
member of the consolidated group of which the Company is common parent for
federal income tax purposes) is or may reasonably be entitled as of the date
hereof pursuant to the Code and the regulations promulgated thereunder.

 

(v)          “Transfer” means any transfer, sale, assignment, pledge,
hypothecation or other disposition of any Shares, whether directly or indirectly
(including by direct or indirect merger, consolidation, sale of all or
substantially all assets or otherwise), including by entry into any transaction
that has or would reasonably be expected to have the same effect, or entry into
any swap, hedge or other arrangement that transfers, in whole or in part, any of
the economic or voting consequences of, ownership of such Shares, whether
settleable in such securities in cash or otherwise (including any conveyance or
act of conveying of tax ownership (applying applicable attribution rules for
purposes of Section 382 of the Code) of such Shares).

 

(w)          “Transferee” means any Person to whom any Share is Transferred.

 

1.2              Definitions by Reference. Capitalized terms used but not
otherwise defined herein shall have the meanings set forth in the Acquisition
Agreement.

 

ARTICLE II
Representations and Warranties

 

Each party hereto hereby represents and warrants as of the date hereof to each
other party as follows:

 

2.1              Authorization; Due Execution and Delivery; Enforceability. Such
party has the requisite legal capacity, power and authority to execute and
deliver this Agreement, and to perform its obligations hereunder. Such party
warrants that this Agreement has been duly and validly executed and delivered by
such party. Assuming the due authorization, execution and delivery by the other
parties hereto, this Agreement will constitute, upon such execution and delivery
hereof, the valid and binding obligations of such party, enforceable in
accordance with its terms subject to the Bankruptcy and Equity Exception.

 

-4- 

 

 

2.2              No Conflict. Neither the execution nor delivery of this
Agreement by such party, nor the performance of such party’s obligations
hereunder, will directly or indirectly contravene, conflict with, or result in
(with or without notice or lapse of time) a violation or breach of any Law or
Contract to which such party may be subject to or bound.

 

2.3              No Consent Required. No authorization, consent, approval,
notification to, or declaration, filing or registration with, any Person is
required to be made or obtained by such party in connection with the
authorization, execution or delivery of this Agreement by such party.

 

ARTICLE III
Covenants

 

3.1              Restrictions on Acquisitions and Transfers. No Investor may
effect any Acquisition or Transfer of any Shares without the prior written
approval of the Board, such approval not to be unreasonably withheld or delayed;
provided that the Board’s disapproval shall be deemed reasonable in the event
that the Board is advised by outside counsel that any proposed Acquisition or
Transfer would be reasonably likely to result in an Ownership Change, and
provided further, that the Board shall have the right to condition its approval
upon any proposed Transferee agreeing to be subject to the terms and conditions
set forth in this Agreement. Without limiting the generality of this
Section 3.1, the additional procedures of Section 3.3 shall apply to any
proposed Acquisition or Transfer for value.

 

3.2              Certain Permitted Transfers. Notwithstanding Section 3.1 and
Section 3.3, any Transfer may be effected pursuant the terms of any estate
planning instrument approved by the Board (an “Approved Instrument”); provided
that each potential Transferee under such Approved Instrument executes a joinder
to this Agreement. Prior to the modification or amendment of any Approved
Instrument, the Investor seeking to make such modification or amendment shall
(a) first notify the Board of such proposed modification or amendment,
(b) respond to all reasonable requests for information by the Board and
(c) refrain from effecting any such modification or amendment to the Approved
Instrument if the Board is advised by outside counsel that any such modification
or amendment, or any Transfer pursuant to such instrument as so modified or
amended, would be reasonably likely to result in an Ownership Change.

 

3.3              Additional Procedures.

 

(a)           In connection with any proposed Acquisition or Transfer for value
approved by the Board pursuant to Section 3.1, the Board shall determine the
maximum number of Shares that may be Acquired or Transferred such that the
proposed Acquisition or Transfer would not be reasonably likely to result in an
Ownership Change (such number of Shares, the “Maximum Number”); it being
understood that for purposes of the foregoing, the Board shall in its reasonable
discretion establish a minimum aggregate ownership interest in the Common Stock
to be held by the direct public group, as defined in Treasury Regulations
Section 1.382-2T(j)(2)(ii).

 

-5- 

 

 

(b)           If a proposed Acquisition or Transfer for value approved by the
Board pursuant to Section 3.1 is to be effected through ordinary brokerage
activities, the following provisions shall apply:

 

(i)            the Board shall (A) notify each Investor of the proposed
Acquisition or Transfer and (B) instruct each Investor to notify the Board in
writing of the maximum number of Shares that such Investor proposes to Acquire
or Transfer, as applicable, pursuant to this Section 3.3(b) within ten (10) days
of receiving such notice. The failure of any Investor to notify the Board in
writing in accordance with this Section 3.3(b)(i) shall be conclusively deemed
to constitute the election by such Investor not to effect an Acquisition or
Transfer, as applicable, pursuant to this Section 3.3(b).

 

(ii)           In the event the aggregate number of Shares proposed to be
Acquired or Transferred, as applicable, by all Investors pursuant to this
Section 3.3(b) exceeds the Maximum Number, the aggregate number of Shares
permitted to be Acquired or Transferred, as applicable, by such Investors shall
be reduced to be equal to the Maximum Number and the number of Shares permitted
to be Acquired or Transferred, as applicable, by each such Investor shall be
allocated pro rata based on the Shares held by each such Investor as of the date
of the notice provided by the Board pursuant to Section 3.3(b)(i). The Board
shall promptly notify each Investor of the maximum number of Shares such
Investor may Acquire or Transfer, as applicable, pursuant to this
Section 3.3(b).

 

(iii)          For a period of thirty (30) days following the date of the notice
provided by the Board pursuant to Section 3.3(b)(i), each Investor may Acquire
or Transfer, as applicable, through ordinary brokerage activities a number of
Shares up to the maximum number of Shares indicated in such notice. If an
Investor desires to Acquire or Transfer, as applicable, additional Shares or any
Shares following such thirty (30)-day period, such Investor must propose such
Acquisition or Transfer, as applicable, in accordance with Section 3.1.

 

-6- 

 

 

(c)           If a proposed Acquisition or Transfer for value approved by the
Board pursuant to Section 3.1 is to be effected other than through ordinary
brokerage activities, the following provisions shall apply:

 

(i)            The Investor proposing such Acquisition or Transfer (the “Lead
Investor”) shall deliver a written notice (the “Participation Notice”) to the
Board and each other Investor, which Participation Notice shall (i) identify the
proposed seller of Shares or Transferee (as applicable), (ii) indicate the
proposed purchase price per Share proposed to be Acquired or Transferred (as
applicable), the proposed date of the Acquisition or Transfer (as applicable)
and any other material information in connection therewith and (iii) notify each
of the other Investors of its right to participate in such Acquisition or
Transfer (as applicable) on a pro rata basis with the Lead Investor in
accordance with the terms of this Agreement. The Lead Investor shall also notify
the Board of the maximum number of Shares proposed to be Acquired or Transferred
by the Lead Investor pursuant to the proposed Acquisition or Transfer (the “Lead
Shares”).

 

(ii)           Any Investor that desires to participate in the Acquisition or
Transfer, as applicable (a “Participating Investor”) shall, within ten (10) days
following receipt of the Participation Notice, notify the Board in writing of
the maximum number of Shares that such Participating Investor proposes to
include in such Acquisition or Transfer (its “Tagging Shares”). The failure of
any Investor to notify the Board in writing in accordance with this
Section 3.3(c)(ii) shall be conclusively deemed to constitute the election by
such Investor not to participate in such Acquisition or Transfer by the Lead
Investor.

 

(iii)          In the event the sum of the Lead Shares and the Tagging Shares
exceeds the Maximum Number, the aggregate number of Shares to be Acquired or
Transferred (as applicable) shall be reduced to be equal to the Maximum Number,
and the number of Lead Shares and Tagging Shares to be Acquired or Transferred
(as applicable) by the Lead Investor and each Participating Investor,
respectively, shall be allocated pro rata based on Shares held by each such
Investor as of the date of the Participation Notice.

 

(iv)          The Acquisition or Transfer (as applicable) of the Tagging Shares
shall be on the same terms and conditions, including with respect to the
purchase price thereof and the date of Acquisition or Transfer, as those
applicable to the Lead Shares. The purchase price with respect to the Lead
Shares may not be more favorable to the Lead Investor than that which was set
forth in the Participation Notice unless the Lead Investor delivers a
Participation Notice in accordance with Section 3.3(c)(i) reflecting the more
favorable purchase price.

 

(v)           Each Participating Investor shall promptly execute and deliver
such other agreements as may be reasonably requested to and necessary to effect
the Acquisition or Transfer (as applicable) of the Tagging Shares of such
Investor from the proposed seller of Shares or to the proposed Transferee (as
applicable) pursuant to the provisions of this Section 3.3(c).

 

-7- 

 

 

ARTICLE IV
Miscellaneous

 

4.1              Termination. The term of this Agreement shall continue until
such time as the Board determines in its reasonable discretion that the
restrictions on Acquisitions and Transfers in Section 3.1 are no longer
reasonably necessary to preserve the value of the Tax Benefits; provided,
however, that the provisions of this Agreement shall terminate (subject to
Section 4.2) with respect to a given Investor at such time as the Board
determines in its reasonable discretion that any Acquisition or Transfer by such
Persons is no longer reasonably likely to materially affect the value of the Tax
Benefits.

 

4.2              Survival of Representations and Warranties. All representations
and warranties contained herein shall survive the execution and delivery of this
Agreement.

 

4.3              Limitation of Liability. No party shall be liable for any claim
under this Agreement for any (i) special, punitive or exemplary damages except
to the extent actually paid in respect of a third-party claim, (ii) any loss of
enterprise value, diminution in value of any business, damage to reputation or
loss of goodwill, (iii) any lost profits, consequential, indirect or incidental
damages, or (iv) any damages calculated based on a multiple of profits, revenue
or any other financial metric, except in the case of clauses (ii) through (iv)
to the extent such damages would be permissible under applicable law, including
any consequential damages that would be reasonably foreseeable.

 

4.4              Indemnification by Investors. Each Investor shall severally and
not jointly indemnify the Company in respect of any and all damages, losses,
liabilities, taxes, diminutions in value and costs and expenses sustained,
incurred or suffered by the Company as a direct or indirect result of the loss
of any Tax Benefits to the extent such losses are caused, directly or
indirectly, by reason of (a) the breach or inaccuracy of any representation or
warranty made by such Investor in this Agreement or (b) the breach of any
covenant or agreement made by such Investor in this Agreement unless pursuant to
a transaction approved by the Board.

 

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

 

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

 

-8- 

 

 

4.7              GOVERNING LAW AND VENUE; SPECIFIC PERFORMANCE.

 

(a)           THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS
SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW
OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES
THEREOF TO THE EXTENT THAT SUCH PRINCIPLES WOULD DIRECT A MATTER TO ANOTHER
JURISDICTION. The parties hereby irrevocably submit to the personal jurisdiction
of the courts of the State of Delaware and the Federal courts of the United
States of America located in the State of Delaware solely in respect of the
interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert, as a defense in
any action, suit or proceeding for the interpretation or enforcement hereof or
of any such document, that it is not subject thereto or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims relating to such action, proceeding or
transactions shall be heard and determined in such a State or Federal court. The
parties hereby consent to and grant any such court jurisdiction over the person
of such parties and, to the extent permitted by law, over the subject matter of
such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 4.8 or in
such other manner as may be permitted by Law shall be valid and sufficient
service thereof.

 

(b)           EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION
HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (II) IT
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (III) IT MAKES
SUCH WAIVERS VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 4.7(b).

 

-9- 

 

 

(c)           The parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in any court identified in Section 4.7(a), and each party
hereby agrees to waive the defense in any such suit that the other parties to
this Agreement have an adequate remedy at law and to interpose no opposition,
legal or otherwise, as to the propriety of injunction as a remedy, and hereby
agrees to waive any requirement to post any bond in connection with obtaining
such relief. The equitable remedies described in this Section 4.7(c) shall be in
addition to, and not in lieu of, any other remedy to which such party is
entitled at law or in equity.

 

4.8              Notices. Any notice, request, instruction or other document to
be given hereunder by any party to the others shall be in writing and delivered
personally or sent by overnight courier, by facsimile or by e-mail of a pdf
attachment to Investors at the addresses listed on Schedule A, to the Company at
Gary Bosch, 400 Valley Drive, Brisbane, CA 94005, email: gbosch@bebe.com with a
copy to Tad J. Freese, Latham & Watkins LLP, 140 Scott Drive, Menlo Park,
California 94025, email: tad.freese@lw.com, or to such other persons or
addresses as may be designated in writing by the party to receive such notice.
Any notice, request, instruction or other document given as provided above shall
be deemed given to the receiving party upon actual receipt, if delivered
personally; when sent if sent by facsimile or email of a .pdf attachment
(provided, that if given by facsimile or email of a .pdf attachment, such
notice, request, instruction or other document shall be followed up within one
business day by dispatch pursuant to another method described herein; which, for
the avoidance of doubt, may include by email of a .pdf attachment if the initial
notice is given by facsimile or by facsimile in the initial notice is given by
email of a .pdf attachment); or on the next business day after deposit with an
overnight courier, if sent by an overnight courier.

 

4.9              No Third Party Beneficiaries. The parties hereto agree that
their respective representations, warranties and covenants set forth herein are
solely for the benefit of the other parties hereto, in accordance with and
subject to the terms of this Agreement, and this Agreement is not intended to,
and does not, confer upon any Person other than the parties hereto any rights or
remedies hereunder, including the right to rely upon the representations and
warranties set forth herein.

 

4.10            Obligations of 5-Percent Shareholders. Whenever this Agreement
requires an Investor to take or refrain from any action, such requirement shall
be deemed to include, with respect to each Investor that is a 5-percent
shareholder, as defined by Section 382(k)(7) of the Code, of the Company, an
undertaking on the part of such Investor (or its estate or legal representative,
as applicable) to cause each Person who is controlled by such Investor and to
whom the Shares of such Investor would be attributed pursuant to Section 382 of
the Code to take or refrain from such action.

 

-10- 

 

 

4.11            Further Assurances. Subject to the conditions of this Agreement,
from and after the date hereof, without additional consideration, each of the
parties hereto will execute and deliver, or cause to be executed and delivered,
such further documents and other instruments and take, or cause to be taken,
such other action as may be reasonably necessary to make effective the
provisions of this Agreement and the transactions contemplated thereby.

 

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

 

4.13            Assignment. No party hereto may assign any of its rights or
delegate any of its obligations under this Agreement, by operation of law or
otherwise, without the prior written consent of the other parties hereto.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties hereto and their respective
heirs, successors, assigns and legal representatives. Any purported assignment
in violation of this Agreement is void.

 

4.14            Entire Agreement. This Agreement (including the exhibit hereto)
constitutes the entire agreement and supersedes all other prior agreements,
understandings, representations and warranties both written and oral, among the
parties hereto with respect to the subject matter of this Agreement. This
Agreement, the Acquisition Agreement, the Company Disclosure Letter, the LSA and
documents relating thereto shall constitute the entire agreement and supersede
all other prior agreements, understandings, representations and warranties both
written and oral, among Seller, Purchaser and the Company with respect to the
subject matter of this Agreement.

 

(Signature pages follow.)

 

-11- 

 

  

IN WITNESS WHEREOF, the parties have caused this Investor Agreement to be duly
executed and delivered as of the date first above written.

 

  bebe stores, inc.       By:       Name: Manny Mashouf       Title: Chief
Executive Officer  

 

(Signature Page to Investor Rights Agreement)

 

 

 

 

  B. Riley Financial, Inc.       By:       Name: Bryant Riley     Title:
Chairman and Chief Executive Officer

 

(Signature Page to Investor Rights Agreement)

 

 

 

 

  Manny Mashouf       By:                  

 

(Signature Page to Investor Rights Agreement)

 

 

 

 

  The Manny Mashouf Living Trust       By:       Name: Manny Mashouf     Title:
Trustee

 

(Signature Page to Investor Rights Agreement)

 

 

 

 

  Manny Mashouf Foundation       By:       Name: Manny Mashouf     Title:
Trustee

 

(Signature Page to Investor Rights Agreement)

 

 

 

 

  The Manny Mashouf Charitable Remainder UniTrust       By:       Name: Manny
Mashouf     Title: Trustee

 

(Signature Page to Investor Rights Agreement)

 

 

 

 

  The Manny Mashouf Charitable Remainder Trust       By:       Name: Manny
Mashouf     Title: Trustee

 

(Signature Page to Investor Rights Agreement)

 

 

 

 

Schedule A

Investors

 

 

B. Riley Financial, Inc.

 

21255 Burbank Boulevard, Suite 400

Woodland Hills, California 91367
Attention: Alan Forman
E-Mail: aforman@brileyfin.com

 

with a copy to:

 

Patrick S. Brown, Esq.
Sullivan & Cromwell LLP
1888 Century Park East, Suite 2100
Los Angeles, California 90067
Fax: (310) 407-2685
E-mail: brownp@sullcrom.com

 

The Manny Mashouf Living Trust

 

639 Huntsley Drive, #4,

West Hollywood, CA 90069
Attention: Manny Mashouf
E-Mail: mannymashouf@yahoo.com

 

Manny Mashouf Foundation

 

639 Huntsley Drive, #4,

West Hollywood, CA 90069
Attention: Manny Mashouf
E-Mail: mannymashouf@yahoo.com

  

The Manny Mashouf Charitable Remainder UniTrust

 

639 Huntsley Drive, #4,

West Hollywood, CA 90069
Attention: Manny Mashouf
E-Mail: mannymashouf@yahoo.com

  

The Manny Mashouf Charitable Remainder Trust

 

639 Huntsley Drive, #4,

West Hollywood, CA 90069
Attention: Manny Mashouf
E-Mail: mannymashouf@yahoo.com

  

Manny Mashouf

 

639 Huntsley Drive, #4,

West Hollywood, CA 90069
E-Mail: mannymashouf@yahoo.com