Exhibit 10.3

SECURITIES PURCHASE AGREEMENT

INSTRUCTION SHEET FOR INVESTOR

(to be read in conjunction with the entire Securities Purchase Agreement and
Investor Questionnaire)

A. Complete the following items in the Securities Purchase Agreement and in the
Investor Questionnaire:

 

  1. Provide the information regarding the investor requested on the signature
pages (pages 3 and 23). Please submit a separate Securities Purchase Agreement
and Investor Questionnaire for each individual fund/entity that will hold the
Securities. The Securities Purchase Agreement and the Investor Questionnaire
must be executed by an individual authorized to bind the investor.

 

  2. Return the signed Securities Purchase Agreement and Investor Questionnaire
to:

Cygne Designs, Inc.

11 W. 42nd Street, Ninth Floor

New York, NY10036

Attn: Roy Green, Chief Financial Officer

Phone: (212) 997-7767

Fax: (212) 997-7758

 

B. Resales of the Securities after the Registration Statement covering the
Securities is effective shall be made in accordance with the provisions of the
Securities Purchase Agreement.

 

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SECURITIES PURCHASE AGREEMENT

Cygne Designs, Inc.

11 W. 42nd Street, Ninth Floor

New York, NY 20036

Ladies & Gentlemen:

The undersigned,                     , (the “Investor”), hereby confirms its
agreement with you as follows:

1. This Securities Purchase Agreement (the “Agreement”) is made as of July 30,
2007 by and between Cygne Designs, Inc., a Delaware corporation (the “Company”),
and the Investor.

2. The Company has authorized the sale and issuance of (x) up to 3,780,000
shares of common stock (the “Issued Shares”) of the Company, $0.01 par value per
share (the “Common Stock”), and (y) warrants (the “Warrants”), in the form
attached hereto as Annex II, to purchase up to 1,512,000 shares of Common Stock
(the “Warrant Shares”), to certain investors in a private placement (the
“Offering”).

3. The Company and the Investor agree that the Investor will purchase from the
Company and the Company will issue and sell to the Investor                     
shares, for a purchase price of $1.38 per share, or an aggregate purchase price
of $             pursuant to the Terms and Conditions for Purchase of Securities
attached hereto as Annex I and incorporated herein by reference as if fully set
forth herein (the “Terms and Conditions”) and the Warrant to purchase
            Warrant Shares attached as Annex II. Certificates representing the
Issued Shares and Warrants purchased by the Investor will be registered in the
Investor’s name and address as set forth below.

4. The Investor represents that, except as set forth below, (a) it has had no
position, office or other relationship within the past three years or are to be
performed in the future with the Company or persons known to it to be affiliates
of the Company, (b) neither it, nor any group of which it is a member or to
which it is related, beneficially owns (including the right to acquire or vote)
any securities of the Company, (c) it has no direct or indirect affiliation or
association with any NASD member as of the date hereof, and (d) it has had no
relationship or arrangement within the past three years or are to be performed
in the future between with any other Investor, any persons known to it to be an
affiliate of any other Investor. Exceptions:

 

(If no exceptions, write “none.” If left blank, response will be deemed to be
“none.”)

Please confirm that the foregoing correctly sets forth the agreement between us
by signing in the space provided below for that purpose. By executing this
Agreement, you acknowledge that the Company may use the information in paragraph
4 above and the name and address information below in preparation of the
Registration Statement (as defined in Annex I).

 

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AGREED AND ACCEPTED:         Cygne Designs, Inc.      Investor:   

 

     By:   

 

 

     Print Name:   

 

By: Bernard Manuel         Title: Chief Executive Officer      Title:   
Authorized Signatory      Address:   

 

     Tax ID No.:   

 

     Contact name:   

 

     Telephone:   

 

     Name in which shares and warrant should be registered      (if different):
     N/A

 

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ANNEX I

TERMS AND CONDITIONS FOR PURCHASE OF SECURITIES

1. Authorization and Sale of the Securities. Subject to these Terms and
Conditions, the Company has authorized the sale of (x) up to 3,780,000 shares of
Common Stock (the “Issued Shares”), and (y) warrants, in the form attached
hereto as Annex II (the “Warrants”), to purchase up to 1,512,000 shares of
Common Stock (the “Warrant Shares”).

2. Agreement to Sell and Purchase the Securities; Subscription Date.

2.1 At the Closing (as defined in Section 3), the Company will sell to the
Investor, and the Investor will purchase from the Company, upon the terms and
conditions hereinafter set forth, (x) the number of Issued Shares set forth in
Section 3 of the Securities Purchase Agreement to which these Terms and
Conditions are attached, and (y) a Warrant to purchase up to the number of
Warrant Shares set forth in Section 3 of the Securities Purchase Agreement to
which these Terms and Conditions are attached, at the aggregate purchase price
set forth thereon.

2.2 The Company may enter into the same form of Securities Purchase Agreement,
including these Terms and Conditions, with certain other investors (the “Other
Investors”) and expects to complete sales of Issued Shares and Warrants
(collectively, “Securities”) to them. (The Investor and the Other Investors are
hereinafter sometimes collectively referred to as the “Investors,” and the
Securities Purchase Agreement to which these Terms and Conditions are attached
and the Securities Purchase Agreements (including attached Terms and Conditions)
executed by the Other Investors are hereinafter sometimes collectively referred
to as the “Agreements.”)

3. Delivery of the Securities at Closing. The completion of the purchase and
sale of the Securities (the “Closing”) shall occur on July 31, 2007 (the
“Closing Date”), at the offices of the Company or as otherwise mutually agreed
to by the Company and the Investor. At the Closing, the Company shall deliver to
the Investor a Warrant, in the form attached hereto as Annex II, for the
purchase of the number of Warrant Shares set forth in Section 3 of the
Securities Purchase Agreement, such Warrant to be registered by the Company in
the name of the Investor. As soon as practicable after the Closing Date, the
Company shall deliver to the Investor one or more stock certificates
representing the number of Issued Shares set forth in Section 3 of the
Securities Purchase Agreement, each such certificate to be registered in the
name of the Investor.

The Company’s obligation to issue the Securities to the Investor shall be
subject to the following conditions, any one or more of which may be waived by
the Company: (a) receipt by the Company of a certified or official bank check or
wire transfer of funds in the full amount of the purchase price for the
Securities being purchased hereunder as set forth in Section 3 of the Securities
Purchase Agreement; and (b) the accuracy of the representations and warranties
made by the Investors and the fulfillment of those undertakings of the Investors
to be fulfilled prior to the Closing. For purposes hereof, the wire instructions
for transferring funds to the Company are as follows:

 

Account No.:    1892847532 Account Name:   

Cygne Designs, Inc.

5804 E. Slauson Ave.

Commerce, CA 90040

Bank Name:    Comerica Bank Bank Routing No.:    121137522

The Investor’s obligation to purchase the Securities shall be subject to the
following conditions, any one or more of which may be waived by the Investor:
(a) the Company shall have executed an Agreement with such Investor for the
purchase of Securities (including the Warrants), (b) the representations and
warranties of the Company set forth herein shall be true and correct as of the
Closing Date in all material respects (except for representations and warranties
that speak as of a specific date, which representations and warranties shall be
true and correct as of such date) and (c) the Investor shall have received such
documents as such Investor shall reasonably have requested.

 

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4. Representations, Warranties and Covenants of the Company. The Company hereby
represents and warrants to, and covenants with, the Investor, as follows:

4.1 Organization. The Company is duly organized and validly existing in good
standing under the laws of the jurisdiction of its organization. Each of the
Company and its Subsidiaries (as defined in Rule 405 under the Securities Act)
has full corporate power and authority to own, operate and occupy its properties
and to conduct its business as presently conducted and as described in the
documents filed by the Company under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), including, without limitation, its report and any
amendments thereto on Form 10-K for the fiscal year ended January 31, 2007, its
report on Form 10-Q for the fiscal quarter ended April 30, 2007, as amended, its
proxy statement for the annual meeting to be held on August 9, 2007 and all
Current Reports on Form 8-K (collectively, the “SEC Documents”) and is
registered or qualified to do business and in good standing in each jurisdiction
in which the nature of the business conducted by it or the location of the
properties owned or leased by it requires such qualification and where the
failure to be so qualified would have a material adverse effect upon the
condition (financial or otherwise), earnings, business or business prospects,
properties or operations of the Company and its Subsidiaries, considered as one
enterprise (a “Material Adverse Effect”), and no proceeding has been instituted
in any such jurisdiction, revoking, limiting or curtailing, or seeking to
revoke, limit or curtail, such power and authority or qualification.

4.2 Due Authorization and Valid Issuance.

(a) The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Agreements and the Warrants, and
the Agreements and Warrants have been duly authorized and validly executed and
delivered by the Company and constitute legal, valid and binding agreements of
the Company enforceable against the Company in accordance with their terms,
except as rights to indemnity and contribution may be limited by state or
federal securities laws or the public policy underlying such laws, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law). The Company has all requisite corporate power
and authority to (x) issue, sell and deliver the Issued Shares to be issued,
sold and delivered to the Investor at Closing, (y) sell and deliver the Warrants
to be sold and delivered to the Investor at Closing and (z) issue, sell and
deliver the Warrant Shares upon exercise of the Warrants in accordance with the
terms thereof.

(b) The issuance, sale and delivery of the Issued Shares at the Closing has been
duly authorized by all necessary corporate action on the part of the Company,
and all such Issued Shares have been duly reserved for issuance. The Issued
Shares when so issued and delivered at the Closing in accordance with the terms
of this Agreement will be duly and validly issued, fully paid and
non-assessable, and free and clear of all liens, encumbrances, security
interests, right of first refusals, and preemptive rights (collectively,
“Liens”), other than Liens created by the Investor. The issuance, sale and
delivery of the Warrants at the Closing, and the issuance and delivery of the
Warrant Shares issuable upon exercise of the Warrants, has been duly authorized
by all necessary corporate action on the part of the Company, and all such
Warrant Shares have been duly reserved for issuance. The Warrants when so issued
and delivered at the Closing in accordance with the terms of this Agreement, and
the Warrant Shares issuable upon exercise of the Warrants when so issued, sold
and delivered against payment therefor in accordance with the provisions of the
Warrants, will be duly and validly issued, fully paid and non-assessable, and
free and clear of all Liens, other than Liens created by the Investor.

4.3 Non-Contravention. The execution and delivery of the Agreements and
Warrants, the issuance and sale of the Issued Shares and Warrants under the
Agreements, the issuance and sale of the Warrant Shares in accordance with the
terms of the Warrants, the fulfillment of the terms of the Agreements and
Warrants and the consummation of the transactions contemplated hereby and
thereby will not (A) conflict with or constitute a violation of, or default
(with the passage of time or otherwise) under, (i) any bond, debenture, note or
other evidence of indebtedness, lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement

 

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or instrument to which the Company or any Subsidiary is a party or by which it
or its Subsidiaries or their respective properties are bound, (ii) the charter,
bylaws or other organizational documents of the Company or its Subsidiaries, or
(iii) any law, administrative regulation, ordinance or order of any court or
governmental agency, arbitration panel or authority applicable to the Company or
its Subsidiaries or their respective properties, except in the case of clauses
(i) and (iii) for any such conflicts, violations or defaults which are not
reasonably likely to have a Material Adverse Effect or (B) result in the
creation or imposition of any Lien whatsoever upon any of the material
properties or assets of the Company or its Subsidiaries or an acceleration of
indebtedness pursuant to any obligation, agreement or condition contained in any
material bond, debenture, note or any other evidence of indebtedness or any
material indenture, mortgage, deed of trust or any other agreement or instrument
to which the Company or its Subsidiaries are a party or by which any of them is
bound or to which any of the material property or assets of the Company or any
Subsidiary is subject. No consent, approval, authorization or other order of, or
registration, qualification or filing with, any regulatory body, administrative
agency, or other federal, state or local governmental body or any other person
is required for the execution and delivery of the Agreements and the Warrants,
the valid issuance and sale of the Issued Shares and Warrants to be sold
pursuant to the Agreements and the valid issuance and sale of the Warrant Shares
issuable upon exercise of the Warrants, other than such as have been made or
obtained, and except for (i) any post-closing securities filings required by
state securities laws, and (ii) the filing of a Notice of Sale of Securities on
Form D with the SEC as required under Regulation D of the Securities Act of
1933, as amended (the “Securities Act”).

4.4 Capitalization. The outstanding shares of capital stock of the Company have
been duly and validly issued and are fully paid and nonassessable, have been
issued in compliance in all material respects with all federal and state
securities laws, and were not issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. Except as set forth in
the SEC Documents, there are no outstanding rights (including, without
limitation, preemptive rights), warrants or options to acquire, or instruments
convertible into or exchangeable for, any unissued shares of capital stock or
other equity interest in the Company or any Subsidiary, or any contract,
commitment, agreement, understanding or arrangement of any kind to which the
Company is a party or of which the Company has knowledge and relating to the
issuance or sale of any capital stock of the Company or any Subsidiary, any such
convertible or exchangeable securities or any such rights, warrants or options.
Without limiting the foregoing or as otherwise set forth in the Agreements, no
preemptive right, co-sale right, right of first refusal, registration right, or
other similar right exists with respect to the Issued Shares, the Warrants or
the Warrant Shares or the issuance and sale thereof. No further approval or
authorization of any stockholder or the Board of Directors of the Company is
required for the issuance and sale of the Issued Shares and Warrants at the
Closing or the issuance of the Warrant Shares upon the exercise of the Warrants.
The Company owns the entire equity interest in each of its Subsidiaries, free
and clear of any Lien, other than as described in the SEC Documents. Except as
disclosed in the SEC Documents, there are no stockholders agreements, voting
agreements or other similar agreements with respect to the Common Stock to which
the Company is a party or, to the knowledge of the Company, between or among any
of the Company’s stockholders.

4.5 Legal Proceedings. There is no material legal or governmental proceeding,
claim, action or arbitration (each, an “Action”) pending or, to the knowledge of
the Company, threatened to which the Company or any Subsidiary is or may be a
party or of which the business or property of the Company or its Subsidiaries is
subject that is not disclosed in the SEC Documents. Except as disclosed in the
SEC Documents, there is no Action pending or, to the knowledge of the Company,
threatened to which the Company or its Subsidiaries is or may be a party to or
of which the business or property of the Company or its Subsidiaries is subject
which could adversely affect or challenge the legality, validity or
enforceability of any of the Agreements or Warrants. The Company has not
received any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or its Subsidiaries under the
Exchange Act or the Securities Act.

4.6 No Violations. Except as disclosed in the SEC Documents, neither the Company
nor its Subsidiaries is (x) in violation of its charter, bylaws, or other
organizational document, or (y) in violation of any law, administrative
regulation, ordinance or order of any court or governmental agency, arbitration
panel or authority applicable to the Company or any Subsidiary, which, in the
case of clause (y) only, violation, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect, or (z) is in default (and
there exists no condition which, with the passage of time or otherwise, would
constitute a default) in any respect in the performance of any bond, debenture,
note or any other evidence of indebtedness in any indenture, mortgage, deed of
trust or any other agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or its Subsidiaries is bound or by
which the properties of the Company or its Subsidiaries are bound, which would
be reasonably likely to have a Material Adverse Effect.

 

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4.7 Governmental Permits, Etc. With the exception of the matters which are dealt
with separately in Sections 4.1, 4.12, 4.13, and 4.14, each of the Company and
its Subsidiaries has all necessary franchises, licenses, certificates and other
authorizations from any foreign, federal, state or local government or
governmental agency, department, or body that are currently necessary for the
operation of the business of the Company and its Subsidiaries as currently
conducted and as described in the SEC Documents except where the failure to
currently possess could not reasonably be expected to have a Material Adverse
Effect.

4.8 Intellectual Property. Except as disclosed in the SEC Documents (i) each of
the Company and its Subsidiaries owns or possesses sufficient rights to use all
patents, patent rights, trademarks, copyrights, licenses, inventions,
manufacturing processes, design process, logos, trade names, hardware designs,
programming processes, software, trade secrets, trade names and know-how
(collectively, “Intellectual Property”) described or referred to in the SEC
Documents as owned or possessed by it or that are necessary for the conduct of
its business as now conducted or as proposed to be conducted except where the
failure to currently own or possess would not have a Material Adverse Effect,
(ii) neither the Company nor any of its Subsidiaries is infringing or has
received any notice of, or has any knowledge of, any asserted infringement by
the Company or any of its Subsidiaries of, any rights of a third party with
respect to any Intellectual Property that, individually or in the aggregate,
would have a Material Adverse Effect and (iii) neither the Company nor any of
its Subsidiaries has received any notice of, or has any knowledge of,
infringement by a third party with respect to any Intellectual Property rights
of the Company or of any Subsidiary that, individually or in the aggregate,
would have a Material Adverse Effect.

4.9 Financial Statements. The financial statements of the Company and the
related notes contained in the SEC Documents present fairly in all material
respects, in accordance with generally accepted accounting principles, the
financial position of the Company and its Subsidiaries as of the dates
indicated, and the results of its operations and cash flows for the periods
therein specified consistent with the books and records of the Company and its
Subsidiaries except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments. Such financial statements
(including the related notes) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods therein specified, except as may be disclosed in the notes to such
financial statements, or in the case of unaudited statements, as may be
permitted by the Securities and Exchange Commission (the “SEC”) on Form 10-Q
under the Exchange Act and except as disclosed in the SEC Documents. The other
financial information contained in the SEC Documents has been prepared on a
basis consistent with the financial statements of the Company.

4.10 No Material Adverse Change. Except as disclosed in the SEC Documents and as
set forth on Schedule 4.10 hereto, since the date of the latest audited
financial statements included in the Company’s most recent Annual Report on Form
10-K, there has not been (i) any material adverse change in the financial
condition or earnings of the Company and its Subsidiaries considered as one
enterprise, (ii) any material adverse event affecting the Company or its
Subsidiaries, (iii) any obligation, direct or contingent, that is material to
the Company and its Subsidiaries considered as one enterprise, incurred by the
Company, except obligations incurred in the ordinary course of business,
(iv) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its Subsidiaries, (v) any loss or damage
(whether or not insured) to the physical property of the Company or any of its
Subsidiaries which has been sustained which has a Material Adverse Effect, or
(vi) any event, occurrence or development that has had or that could reasonably
be expected to have a Material Adverse Effect.

4.11 Intentionally Omitted

4.12 Nasdaq Compliance. Except as otherwise disclosed in the SEC Documents, the
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act and is listed on The Nasdaq Stock Market, Inc. Capital Market (the “Nasdaq
Capital Market”), and the Company has taken no action designed to, or likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act or de-listing the Common Stock from the Nasdaq Capital Market, nor
has the Company received any notification that the SEC or the National
Association of Securities Dealers, Inc. (“NASD”) is contemplating terminating
such registration or listing.

 

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4.13 Reporting Status. The Company believes that it has filed with the SEC in a
timely manner all reports and documents that the Company was required to file
under the Exchange Act during the 12 months preceding the date of this
Agreement. The Company believes that it is eligible to use Form S-3 to register
the resale of the Issued Shares and Warrant Shares by the Investors under the
Securities Act in accordance with this Agreement, and if not, the Company shall
file a resale registration statement on Form S-1. As of their respective dates,
the SEC Documents complied as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the SEC promulgated thereunder, and none of the SEC Documents,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Company does not have pending before the SEC any
request for confidential treatment of information or documents.

4.14 Listing. The Company shall comply with all requirements of the National
Association of Securities Dealers, Inc. (or any other securities exchange,
interdealer quotation system or other market on which the Common Stock is then
listed) with respect to the issuance of the Issued Shares, the Warrants and the
Warrant Shares and the listing of Issued Shares and Warrant Shares on the Nasdaq
Capital Market (or any other securities exchange, interdealer quotation system
or other market on which the Common Stock is then listed).

4.15 No Manipulation of Stock. The Company has not taken and will not, in
violation of applicable law, take, any action designed to or that could
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Issued
Shares or Warrant Shares.

4.16 Company not an “Investment Company”. The Company has been advised of the
rules and requirements under the Investment Company Act of 1940, as amended (the
“Investment Company Act”). The Company is not, and immediately after receipt of
payment for the Securities will not be, an “investment company” or an entity
“controlled” by an “investment company” within the meaning of the Investment
Company Act and shall conduct its business in a manner so that it will not
become subject to the Investment Company Act.

4.17 Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has
(i) directly or indirectly, used any corrupt funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

4.19 Contracts. Except as disclosed in the SEC Documents or on Schedule 4.10
hereto, the contracts described in the SEC Documents that are material to the
Company are in full force and effect on the date hereof, and neither the Company
nor, to the Company’s knowledge, any other party to such contracts is in breach
of or default under any of such contracts which would have a Material Adverse
Effect.

4.20 Taxes. The Company and its Subsidiaries have filed all foreign, federal,
state and local income, excise or franchise tax returns, real estate and
personal property tax returns, sales and use tax returns and other tax returns
required to be filed by it and has paid all taxes shown thereon, except taxes
which have not yet accrued or otherwise become due. The provision for taxes of
the Company included in the provision for accrued liabilities in the Company’s
financial statements is adequate for taxes due or accrued as of the dates
thereof. All taxes and other assessments and levies which the Company or any of
its Subsidiaries is required to withhold or collect have been withheld and
collected in a timely manner and have been paid over to the proper governmental
authorities to the extent required to be so paid. Except as disclosed in the SEC
Documents, with regard to the income tax returns of the Company and its
Subsidiaries, neither the Company nor its Subsidiaries has received notice of
any audit or of any proposed deficiencies from any taxing authority, and no
controversy with respect to

 

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taxes of the Company or its Subsidiaries of any type is pending or, to the
Company’s knowledge, threatened. There are in effect no waivers of applicable
statutes of limitations with respect to any taxes owed by the Company or its
Subsidiaries for any year.

4.21 Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income taxes) which are required to be paid in connection with the
sale and transfer of the Securities to be sold to the Investor hereunder will
be, or will have been, fully paid or provided for by the Company and all laws
imposing such taxes will be or will have been fully complied with.

4.22 Private Offering. Assuming the correctness of the representations and
warranties of the Investors set forth in Section 5 hereof, (i) the offer and
sale of Issued Shares and Warrants hereunder is exempt from registration under
the Securities Act and (ii) upon the exercise of the Warrants in accordance with
the terms thereof, the issuance and sale of the Warrant Shares will be exempt
from registration under the Securities Act. The Company has not distributed and
will not distribute prior to the Closing Date any offering material in
connection with this Offering and sale of the Securities other than the
documents of which this Agreement is a part or the SEC Documents. The Company
has not in the past nor will it hereafter take any action to sell, offer for
sale or solicit offers to buy any securities of the Company which would bring
the offer, issuance or sale of the Issued Shares, the Warrants or the Warrant
Shares as contemplated by this Agreement, within the provisions of Section 5 of
the Securities Act, unless such offer, issuance or sale was or shall be within
the exemptions of Section 4 of the Securities Act.

4.23 Use of Proceeds. The proceeds from the sale of the Securities hereunder
shall be used solely for general working capital purposes.

4.24. Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them that is material to their
respective businesses and good and marketable title in all personal property
owned by them that is material to their respective businesses, in each case free
and clear of all Liens, except for Liens disclosed in the SEC Documents and
except as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and its Subsidiaries. Any real property and facilities or
personal property held under lease by the Company and its Subsidiaries are held
by them under valid, subsisting and enforceable leases of which the Company and
its Subsidiaries are in compliance, except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

4.25 Transactions With Affiliates. Except as set forth in the SEC Documents,
none of the officers or directors of the Company or its Subsidiaries is
presently a party to any transaction with the Company or its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer or director has a
substantial interest or is an officer, director, trustee or partner, in each
case that would be required to be disclosed now or in the future in an SEC
Document pursuant to the requirements of Item 404 of Regulation S-K.

4.26 Environmental Compliance. Except as set forth in the SEC Documents or as
would not have a Material Adverse Effect, to the knowledge of the Company,
neither the Company nor any Subsidiary (a) is presently in noncompliance with,
any federal, state, and local environmental and health and safety laws, rules,
regulations, ordinances, guidelines, codes, orders, approvals and similar items
(“Environmental Laws”) applicable to its business and properties; (b) has
generated, manufactured, used, refined, transported, treated, stored, handled,
disposed of, transferred, produced, or processed any pollutant, toxic substance,
hazardous waste, hazardous substance, hazardous material, oil, or petroleum
product other than ordinary cleaning and other similar products (“Hazardous
Materials”) as defined under any Environmental Law, or any solid waste, other
than such instances and Hazardous Materials as are normally consumed by
businesses engaged in operations substantially similar to those conducted by the
Company, and has any knowledge of the release or threat of release of any
Hazardous Materials from its products, properties or facilities except in
compliance with law; or (c) has entered into or been subject to any consent
decree, compliance order, or administrative order with respect to any
environmental or health and safety matter relating to its business or any of its
properties or facilities.

 

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4.27 Brokerage. Except as set forth on Schedule 4.27, there are no claims for
and no person or entity is entitled to any brokerage commissions, finder’s fees
or similar compensation in connection with the transactions contemplated by this
Agreement from the Company or its Subsidiaries or based on any arrangement or
agreement made by or on behalf of the Company or its Subsidiaries. The Investor
shall have no direct obligation with respect to any fees or with respect to any
claims made by or on behalf of other persons or entities for fees of a type
contemplated in this Section that may be due in connection with the transactions
contemplated by this Agreement.

4.28 Employee Benefit Plans. Except as set forth in the SEC Documents, neither
the Company nor its Subsidiaries maintains or contributes to any employee
benefit plans. The Company and its Subsidiaries are in material compliance with
the provisions of all laws or rules or regulations applicable to any employee
benefit plan maintained or contributed to by the Company or its Subsidiaries for
the benefit of its employees and, to the Company’s knowledge, there are no
claims (other than routine claims for benefits) pending or threatened with
respect to any of such employee benefit plans. Neither the Company nor its
Subsidiaries has any retirement, pension or deferred compensation plans or
programs. For purposes of this Section 4.28, the term “Company” includes all
entities that have controlled, have been under the control of, or have been
under common control with, the Company.

4.29 Employees. Except as set forth in the SEC Documents, no officer or key
employee of the Company or its Subsidiaries (orally or in writing) has notified
the Company that he or she intends to terminate employment with the Company or
its Subsidiaries.

4.30 Insurance. The Company and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as the Company’s Board of Directors has determined are prudent in light
of the business risks faced by the Company and its financial condition. Neither
the Company nor its Subsidiaries has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.

4.31 Registration Rights. Except as disclosed in the SEC Documents, the Company
has not granted or agreed to grant to any person or entity any rights (including
“piggyback” registration rights) to have any securities of the Company
registered with the SEC or any other governmental authority on any registration
statement on which the Shares and Warrant Shares for the Investors (and for the
finder’s fee, if any) will be registered pursuant to the terms of this
Agreement.

5. Representations, Warranties and Covenants of the Investor.

5.1 The Investor represents and warrants to, and covenants with, the Company
that: (i) the Investor is an “accredited investor” as defined in Regulation D
under the Securities Act and the Investor is also knowledgeable, sophisticated
and experienced in making, and is qualified to make, decisions with respect to
investments in shares presenting an investment decision like that involved in
the purchase of the Securities, including investments in securities issued by
the Company and investments in comparable companies, and has requested,
received, reviewed and considered all information it deemed relevant in making
an informed decision to purchase the Securities; (ii) the Investor is acquiring
the number of Securities set forth in Section 3 of the Securities Purchase
Agreement in the ordinary course of its business and for its own account for
investment only and with no present intention of distributing any of such
Securities or any arrangement or understanding with any other persons regarding
the distribution of such Securities; (iii) the Investor will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of the
Securities except in compliance with the Securities Act, applicable state
securities laws and the respective rules and regulations promulgated thereunder;
(iv) the Investor has answered all questions on the Investor Questionnaire for
use in preparation of the Registration Statement and the answers thereto are
true, correct and complete as of the date hereof and will be true, correct and
complete as of the Closing Date and at all times thereafter until the Investor
has sold all of its Securities or until the Company is no longer required to
keep the Registration Statement effective ; (v) the Investor will notify the
Company immediately of any change in any of such information until such time as
the Investor has sold all of its Securities or until the Company is no longer

 

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required to keep the Registration Statement effective; (vi) the Investor has
carefully read and understands the SEC Documents and has had answered by the
Company all questions that such Investor asked and (vii) the Investor has, in
connection with its decision to purchase the number of Securities set forth in
Section 3 of the Securities Purchase Agreement, relied only upon the SEC
Documents and the representations and warranties of the Company contained
herein. The Investor understands that its acquisition of the Securities has not
been registered under the Securities Act or registered or qualified under any
state securities law in reliance on specific exemptions therefrom, which
exemptions may depend upon, among other things, the bona fide nature of the
Investor’s investment intent as expressed herein. The Investor has completed or
caused to be completed and delivered to the Company the Investor Questionnaire,
which questionnaire is true, correct and complete.

5.2 The Investor acknowledges that there may occasionally be times when the
Company determines that it must suspend the use of the Prospectus forming a part
of the Registration Statement, as set forth in Section 7.2 of this Agreement.
The Investor is aware that, in such event, the Securities will not be subject to
ready liquidation, and that any Securities purchased by the Investor would have
to be held during such suspension. The overall commitment of the undersigned to
investments which are not readily marketable is not excessive in view of the
Investor’s net worth and financial circumstances, and any purchase of the
Securities will not cause such commitment to become excessive. The undersigned
is able to bear the economic risk of an investment in the Securities.

5.3 The Investor has carefully considered the potential risks relating to the
Company and a purchase of the Securities, and fully understands that the
Securities are speculative investments which involve a high degree of risk of
loss of the undersigned’s entire investment. Among others, the undersigned has
carefully considered each of the risks identified in the SEC Documents.

5.4 The Investor recognizes that an investment in the Company involves certain
risks and it has taken full cognizance of and understands all of the risk
factors relating to the purchase of Securities. The Investor has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment in the Company and making an
informed investment decision with respect thereto. The Investor is able to bear
the substantial economic risks related to an investment in the Company for an
indefinite period of time, has no need for liquidity in such investment, and, at
the present time, can afford a complete loss of such investment.

5.5 The Investor is not subscribing for Securities as a result of or subsequent
to any advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio, or
presented at any investment seminar or meeting open to the public.

5.6 If the Investor is a partnership, corporation, limited liability company or
trust, such partnership, corporation, limited liability company or trust has not
been formed for the specific purpose of acquiring such Securities, unless each
beneficial owner of such entity is qualified as an accredited investor within
the meaning of Rule 501(a) of Regulation D and has submitted information
substantiating such individual qualification.

5.7 The Investor acknowledges, represents and agrees that no action has been or
will be taken in any jurisdiction outside the United States by the Company that
would permit an offering of the Securities, or possession or distribution of
offering materials in connection with the issue of the Securities, in any
jurisdiction outside the United States where legal action by the Company for
that purpose is required. Each Investor outside the United States will comply
with all applicable laws and regulations in each foreign jurisdiction in which
it purchases, offers, sells or delivers Securities or has in its possession or
distributes any offering material, in all cases at its own expense.

5.8 The Investor further represents and warrants to, and covenants with, the
Company that (i) the Investor has full right, power, authority and capacity to
enter into this Agreement and to consummate the transactions contemplated hereby
and has taken all necessary action to authorize the execution, delivery and
performance of this Agreement, and (ii) this Agreement constitutes a valid and
binding obligation of the Investor enforceable against the Investor in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ and contracting parties’ rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as the indemnification agreements of the Investors herein may be
legally unenforceable.

 

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5.9 The Investor understands that nothing in the SEC Documents, this Agreement
or any other materials presented to the Investor in connection with the purchase
and sale of the Securities constitutes legal, tax or investment advice. The
Investor has consulted such legal, tax and investment advisors as it, in its
sole discretion, has deemed necessary or appropriate in connection with its
purchase of Securities.

5.10 The Investor represents and warrants that Investor (either alone or as part
of a “group” within the meaning of the Securities Act) shall not acquire or
shall not have the right to acquire Securities as a result of the Agreements
such that, on a pro forma basis for the purchase of Securities and Warrant
Shares under this Agreement, the Investor or group would beneficially own 20% or
more of the voting power or total shares outstanding of the Company.

5.11 The Investor understands that the Securities and Warrant Shares have not
been registered under the Securities Act, that that the certificates evidencing
the Securities and Warrant Shares will be imprinted with a legend that prohibits
their transfer except in accordance therewith and will not sell, offer to sell,
assign, pledge, hypothecate or otherwise transfer any of the Securities or
Warrant Shares unless (i) pursuant to an effective registration statement under
the Securities Act, (ii) the Investor provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a sale, assignment
or transfer of the Securities or Warrant Shares may be made without registration
under the Securities Act and the transferee agrees to be bound by the terms and
conditions of this Agreement, (iii) the Investor provides the Company with
reasonable assurances (in the form of seller and broker representation letters)
that the Issued Shares, Warrants or the Warrant Shares, as the case may be, can
be sold pursuant to Rule 144 promulgated under the Securities Act (“Rule 144”)
or (iv) pursuant to Rule 144(k) promulgated under the Securities Act following
the applicable holding period.

6. Survival of Representations, Warranties and Agreements. Notwithstanding any
investigation made by any party to this Agreement, all covenants, agreements,
representations and warranties made by the Company and the Investor herein shall
survive the execution of this Agreement, the delivery to the Investor of the
Securities being purchased and the payment therefor.

7. Registration of the Securities; Compliance with the Securities Act.

7.1 Registration Procedures and Other Matters. The Company shall:

(a) prepare and file with the SEC, within 60 calendar days after the Closing
Date (the “Registration Statement Filing Date”), a registration statement on
Form S-3, or other appropriate form if the Company is not then eligible to use
Form S-3, (the “Registration Statement”), to enable the resale of the
Registrable Securities by the Investors through the automated quotation system
of the Nasdaq Capital Market (or any other securities exchange, interdealer
quotation system or other market on which the Common Stock is traded) or in
privately-negotiated transactions pursuant to Rule 415 of the Securities Act;

(b) use its commercially reasonable efforts to cause the Registration Statement
to become effective within 150 days after the Closing Date (unless the
Registration Statement is reviewed by the SEC, then within 180 days) (such 150
or 180 day period, as applicable, the “Registration Statement Effectiveness
Date”), such efforts to include, without limiting the generality of the
foregoing, preparing and filing with the SEC prior to the Registration Statement
Effectiveness Date, any financial statements that are required to be filed prior
to the effectiveness of such Registration Statement;

(c) use its commercially reasonable efforts to prepare and file with the SEC
such amendments and supplements to the Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep the Registration
Statement current, continuously effective and free from any material
misstatement or omission to state a material fact for a period (the
“Effectiveness Period”) not exceeding, with respect to each Investor’s
Registrable Securities, the earlier of (i) the second anniversary of the Closing
Date, (ii) the date on which the Investor may sell all Registrable Securities
then held by the Investor without restriction by the volume limitations of Rule
144(e) of the Securities Act, or (iii) such time as all Registrable Securities
held by such Investor have been sold pursuant to a registration statement;

 

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(d) Intentionally Omitted

(e) furnish to the Investor with respect to the Registrable Securities
registered under the Registration Statement such number of copies of the
Registration Statement, Prospectuses and Preliminary Prospectuses in conformity
with the requirements of the Securities Act and such other documents as the
Investor may reasonably request, in order to facilitate the public sale or other
disposition of all or any of the Registrable Securities by the Investor;
provided, however, that the obligation of the Company to deliver copies of
Prospectuses or Preliminary Prospectuses to the Investor shall be subject to the
receipt by the Company of reasonable assurances from the Investor that the
Investor will comply with the applicable provisions of the Securities Act and of
such other securities or blue sky laws as may be applicable in connection with
any use of such Prospectuses or Preliminary Prospectuses;

(f) file documents required of the Company for normal blue sky clearance in
states specified in writing by the Investor and use its commercially reasonable
efforts to maintain such blue sky qualifications during the period the Company
is required to maintain the effectiveness of the Registration Statement pursuant
to Section 7.1(c); provided, however, that the Company shall not be required to
qualify to do business or consent to service of process in any jurisdiction in
which it is not now so qualified or has not so consented;

(g) use its commercially reasonable efforts to comply in all material respects
with the provisions of the Securities Act and the Exchange Act, together with
the rules and regulations promulgated thereunder, with respect to the
Registration Statement and the disposition of all Registrable Securities covered
thereby;

(h) use its commercially reasonable efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any stop order or other order suspending
the effectiveness of a Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment;

(i) provide a transfer agent and registrar for all Registrable Securities
subject to a Registration Statement.

(j) if requested by the Investors, cooperate with the Investors to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to the Registration
Statements, which certificates shall be free of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and registered in
such names as any such Investors may request.

(k) provide a copy of any Registration Statement and any amendments or
supplements thereto and the Company shall notify the Holders’ Counsel and each
seller of Registrable Securities of any stop order issued or threatened by the
SEC;

(l) Intentionally Omitted;

(m) bear all expenses in connection with the procedures in paragraph (a) through
(l) of this Section 7.1 and the registration of the Securities pursuant to the
Registration Statement; and

(n) in the event that (i) the Company fails to file the Registration Statement
pursuant to clause (a) above on or before the Registration Statement Filing
Date, (ii) the Registration Statement required to be filed pursuant to clause
(a) above is not declared effective on or before the Registration Statement
Effectiveness Date, or (ii) after a Registration Statement has been declared
effective, either (x) such Registration Statement ceases to be effective or
available for any reason or (y) the occurrence of any Suspension, other than, in
the case of clause (x) or (y) a suspension by the Company of the use of the
Prospectus forming a part of Registration Statement for not more than 60 days in
any period of 365 consecutive days solely to the extent it is suspended in
reliance on an ability to do so due to the existence of a development that, in
the good faith discretion of the Company’s Board of

 

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Directors, makes it appropriate to so suspend or which renders the Company
unable to comply with SEC requirements (any such failure or event described in
the foregoing clauses (i) through (vi), an “Event”, and the date on which such
Event occurs being referred to as an “Event Date”) then, on each monthly
anniversary of each such Event Date and until such time as all then continuing
Events shall have been cured, the Company shall pay to each Investor in cash in
immediately available funds, as partial liquidated damages and not as a penalty,
an amount equal to 1% of the aggregate purchase price of the Registrable
Securities purchased by the Investors pursuant to this Agreement (not to exceed
15% total) (the “Registration Penalty”) for each month, or pro rata from any
portion thereof, following such Event Date. The Registration Penalty shall
accrue on a daily basis and shall be payable in arrears by the Company within 10
days of the end of each monthly anniversary of the Event Date until such time as
all then continuing Events shall have been cured.

7.2 Transfer of Securities After Registration; Suspension.

(a) The Investor agrees that it will not effect any disposition of the
Registrable Securities or its right to purchase the Issued Shares or Warrants
that would constitute a sale within the meaning of the Securities Act except as
contemplated in a Registration Statement referred to in Section 7.1 and as
described below or as otherwise permitted by law, and that it will promptly
notify the Company of any changes in the information set forth in the
Registration Statement regarding the Investor or its plan of distribution.

(b) Except in the event that paragraph (c) or (d) below applies, the Company
shall (i) if deemed necessary by the Company, prepare and file from time to time
with the SEC a post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or a supplement or amendment to any
document incorporated therein by reference or file any other required document
so that such Registration Statement will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and so that, as thereafter delivered to
purchasers of the Registrable Securities being sold thereunder, such Prospectus
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; (ii) provide the Investor copies of any documents filed pursuant to
Section 7.2(b)(i); and (iii) inform each Investor that the Company has complied
with its obligations in Section 7.2(b)(i) (or that, if the Company has filed a
post-effective amendment to a Registration Statement which has not yet been
declared effective, the Company will notify the Investor to that effect, will
use its commercially reasonable efforts to secure the effectiveness of such
post-effective amendment as promptly as possible and will promptly notify the
Investor pursuant to Section 7.2(b)(i) hereof when the amendment has become
effective).

(c) In addition to any suspension rights under paragraph (d) below, upon the
happening of any pending corporate development, public filing with the SEC or
similar event, that, in the judgment of the Board, renders it advisable to
suspend use of the Prospectus or upon the request by an underwriter in
connection with an underwritten public offering of the Company’s securities, the
Company may suspend use of the Prospectus, on written notice to each Purchaser
(which notice will not disclose the content of any material non-public
information and will indicate the date of the beginning and end of the intended
period of suspension, if known), in which case the Investor shall discontinue
disposition of Registrable Shares covered by the Registration Statement or
Prospectus until copies of a supplemented or amended Prospectus are distributed
to the Investor or until the Investor is advised in writing by the Company that
sales of Registrable Securities under the applicable Prospectus may be resumed
and have received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in any such Prospectus.
Notwithstanding the foregoing, in no event shall such suspension be for a period
of more than ninety (90) consecutive days in any twelve month period from the
giving of the suspension notice. The suspension and notice thereof described in
this Section 7.2(c) shall be held in strictest confidence and shall not be
disclosed by the Investor.

(d) Subject to paragraph (e) below, in the event (i) of any request by the SEC
or any other federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or supplements to a
Registration Statement or related Prospectus or for additional information;
(ii) of the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose; (iii) of the
receipt by

 

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the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; or (iv) of any event or circumstance which, upon the advice of its
counsel, necessitates the making of any changes in a Registration Statement or
Prospectus, or any document incorporated or deemed to be incorporated therein by
reference, so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or any omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or any omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; then the Company shall deliver, via Federal Express or other
overnight delivery service, a certificate in writing to the Investor (the
“Suspension Notice”) to the effect of the foregoing and, upon receipt of such
Suspension Notice, the Investor will refrain from selling any Registrable
Securities pursuant to the Registration Statement (a “Suspension”) until the
Investor’s receipt of copies of a supplemented or amended Prospectus prepared
and filed by the Company, or until it is advised in writing by the Company that
the current Prospectus may be used, and has received copies of any additional or
supplemental filings that are incorporated or deemed incorporated by reference
in any such Prospectus. In the event of any Suspension, the Company will use its
commercially reasonable efforts to cause the use of the Prospectus so suspended
to be resumed as soon as reasonably practicable within 60 days after the
delivery of a Suspension Notice to the Investor. In addition to and without
limiting any other remedies (including, without limitation, at law or at equity)
available to the Investor, the Investor shall be entitled to specific
performance in the event that the Company fails to comply with the provisions of
this Section 7.2(c).

(e) The Investor hereby covenants not to sell any of the Registrable Securities
during any Suspension then in effect.

(f) Provided that a Suspension is not then in effect, the Investor may sell
Registrable Securities under the Registration Statement or in any other manner
permitted by law. Upon receipt of a request therefor, the Company has agreed to
provide an adequate number of current Prospectuses to the Investor and to supply
copies to any other parties requiring such Prospectuses.

7.3 Indemnification. For the purpose of this Section 7.3:

(i) the term “Registration Statement” shall include (a) any Registration
Statement referred to in Section 7.1, (b) the Prospectus in the form first filed
with the SEC pursuant to Rule 424(b) of the Securities Act or filed as part of a
Registration Statement at the time of effectiveness if no Rule 424(b) filing is
required, and (c) any exhibit, supplement or amendment included in or relating
to a Registration Statement referred to in Section 7.1; and

(ii) the term “untrue statement” shall include any untrue statement or alleged
untrue statement of a material fact, or any omission or alleged omission to
state in a Registration Statement a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

(a) The Company agrees to indemnify and hold harmless each Investor, the
officers, directors, investment advisors, partners, members, attorneys, and
employees of each Investor, each person or entity who controls any such Investor
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, investment advisors, partners,
members, attorneys, and employees of each such controlling person or entity
(collectively, the “Investor Indemnitees”) from and against any losses, claims,
damages or liabilities to which such Investor Indemnitee may become subject
(under the Securities Act or otherwise) insofar as such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) arise out of, or
are based upon (i) any untrue statement of a material fact contained in the
Registration Statement as amended at the time of effectiveness, or (ii) any
failure by the Company to fulfill any undertaking included in the Registration
Statement as amended at the time of effectiveness, and the Company will
reimburse such Investor Indemnitee for any reasonable legal or other expenses
reasonably incurred in investigating, defending or preparing to defend any such
action, proceeding or claim, or preparing to defend any such action, proceeding
or claim, provided, however, that the Company shall not be liable in any such
case to the extent that such loss, claim, damage or liability arises out of, or
is based upon, an untrue statement made in such Registration Statement or any
omission

 

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of a material fact required to be stated therein or necessary to make the
statements therein not misleading in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the applicable
Investor specifically for use in preparation of the Registration Statement or
the failure of the applicable Investor to comply with its covenants and
agreements contained in Section 7.2 hereof respecting sale of the Registrable
Securities or any statement or omission in any Prospectus that is corrected in
any subsequent Prospectus that was delivered to the Investor at a reasonable
time prior to the pertinent sale or sales by the Investor. The Company shall
reimburse each Investor Indemnitee for the amounts provided for herein on demand
as such expenses are incurred.

(b) The Investor agrees to indemnify and hold harmless the Company (and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act, each officer of the Company who signs the Registration Statement
and each director of the Company) from and against any losses, claims, damages
or liabilities to which the Company (or any such officer, director or
controlling person) may become subject (under the Securities Act or otherwise),
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, (i) any failure
by such Investor to comply with the covenants and agreements contained in
Section 7.2 hereof respecting sale of the Registrable Securities, or (ii) any
untrue statement of a material fact contained in the Registration Statement if
such untrue statement was made in reliance upon and in conformity with written
information furnished by or on behalf of the Investor specifically for use in
preparation of the Registration Statement, and the Investor will reimburse the
Company (or such officer, director or controlling person, as the case may be)
for any legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim; provided that the
Investor’s obligation to indemnify the Company shall be limited to the net
proceeds received by the Investor from the sale of Registrable Securities giving
rise to such liability.

(c) Promptly after receipt by any indemnified person of a notice of a claim or
the beginning of any action in respect of which indemnity is to be sought
against an indemnifying person pursuant to this Section 7.3, such indemnified
person shall notify the indemnifying person in writing of such claim or of the
commencement of such action, but the omission to so notify the indemnifying
person will not relieve it from any liability which it may have to any
indemnified person under this Section 7.3 (except to the extent that such
omission materially and adversely affects the indemnifying person’s ability to
defend such action) or from any liability otherwise than under this Section 7.3.
Subject to the provisions hereinafter stated, in case any such action shall be
brought against an indemnified person, the indemnifying person shall be entitled
to participate therein, and, to the extent that it shall elect by written notice
delivered to the indemnified person promptly after receiving the aforesaid
notice from such indemnified person, shall be entitled to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified person. After
notice from the indemnifying person to such indemnified person of its election
to assume the defense thereof, such indemnifying person shall not be liable to
such indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof, provided, however,
that (x) if there exists or shall exist a conflict of interest that would make
it inappropriate, in the opinion of counsel to the indemnified person, for the
same counsel to represent both the indemnified person and such indemnifying
person or any affiliate or associate thereof or (y) the indemnifying party shall
have failed promptly to assume the defense of such action or to employ counsel
reasonably satisfactory to such indemnified party in any such action, then, in
the case of either clause (x) or (y), the indemnified person shall be entitled
to retain its own counsel at the expense of such indemnifying person; provided,
however, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel (together with appropriate local
counsel) for all indemnified parties. In no event shall any indemnifying person
be liable in respect of any amounts paid in settlement of any action unless the
indemnifying person shall have approved the terms of such settlement; provided
that such consent shall not be unreasonably withheld. No indemnifying person
shall, without the prior written consent of the indemnified person, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified person is or could have been a party and indemnification could have
been sought hereunder by such indemnified person, unless such settlement
includes an unconditional release of such indemnified person from all liability
on claims that are the subject matter of such proceeding.

(d) If the indemnification provided for in this Section 7.3 is unavailable to or
insufficient to hold harmless an indemnified person under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to therein, then each indemnifying
person shall contribute to the amount paid or payable by such indemnified person
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the

 

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relative fault of the Company on the one hand and the Investor on the other in
connection with the statements or omissions or other matters which resulted in
such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, in the case of an untrue
statement, whether the untrue statement relates to information supplied by the
Company on the one hand or the Investor on the other and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement. The Company and the Investor agree that it would not be
just and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation (even if the Investor and other selling
shareholders were treated as one entity for such purpose) or by any other method
of allocation which does not take into account the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified person as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), the Investor
shall not be required to contribute any amount in excess of the amount by which
the net proceeds received by the Investor from the sale of Registrable
Securities giving rise to such liability exceeds the amount of any damages which
such Investor has otherwise been required to pay by reason of such untrue
statement. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Investor’s obligations in this subsection to contribute shall be in proportion
to its sale of Registrable Securities to which such loss relates and shall not
be joined with any other selling shareholders.

(e) The parties to this Agreement hereby acknowledge that they are sophisticated
business persons who were represented by counsel during the negotiations
regarding the provisions hereof including, without limitation, the provisions of
this Section 7.3, and are fully informed regarding said provisions. They further
acknowledge that the provisions of this Section 7.3 fairly allocate the risks in
light of the ability of the parties to investigate the Company and its business
in order to assure that adequate disclosure is made in the Registration
Statement as required by the Act and the Exchange Act. The parties are advised
that federal or state public policy as interpreted by the courts in certain
jurisdictions may be contrary to certain of the provisions of this Section 7.3,
and the parties hereto hereby expressly waive and relinquish any right or
ability to assert such public policy as a defense to a claim under this
Section 7.3 and further agree not to attempt to assert any such defense.

7.4 Termination of Conditions and Obligations. The conditions precedent imposed
by Section 5 or this Section 7 upon the transferability of the Securities shall
cease and terminate as to any particular number of the Securities when such
Securities shall have been effectively registered under the Securities Act and
sold or otherwise disposed of in accordance with the intended method of
disposition set forth in the Registration Statement covering such Securities or
at such time as an opinion of counsel reasonably satisfactory to the Company
shall have been rendered to the effect that such conditions are not necessary in
order to comply with the Securities Act.

7.5 Information Available. So long as the Registration Statement is effective
covering the resale of Securities owned by the Investor, the Company will
furnish to the Investor upon the reasonable request of the Investor, an adequate
number of copies of the Prospectuses to supply to any other party requiring such
Prospectuses; and upon the reasonable request of the Investor, the Chief
Executive Officer or the Chief Financial Officer of the Company (or an
appropriate designee thereof) will meet with the Investor or a representative
thereof during normal business hours at the Company’s headquarters to discuss
all information relevant for disclosure in the Registration Statement covering
the Securities and will otherwise use its commercially reasonable best efforts
to cooperate with any Investor conducting an investigation for the purpose of
reducing or eliminating such Investor’s exposure to liability under the
Securities Act, including the reasonable production of information at the
Company’s headquarters; provided, that the Company shall not be required to
disclose any confidential information to or meet at its headquarters with any
Investor until and unless the Investor shall have entered into a confidentiality
agreement in form and substance reasonably satisfactory to the Company with the
Company with respect thereto and, provided, further, that such investigation
shall not interfere with the normal business operations of the Company.

7.6 Registrable Securities. As used herein, the term “Registrable Securities”
shall mean (i) the Issued Shares, (ii) the Warrant Shares, and (iii) any shares
of Common Stock issued or issuable directly or indirectly with respect to the
securities referred to in clauses (i) and (ii) by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.

 

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8. Notices. All notices, requests, consents and other communications hereunder
shall be in writing, shall be mailed (A) if within the United States by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, or by facsimile, or (B) if delivered from
outside the United States, by International Federal Express or facsimile, and
shall be deemed given (i) if delivered by first-class registered or certified
mail, three business days after so mailed, (ii) if delivered by nationally
recognized overnight carrier, one business day after so mailed, (iii) if
delivered by International Federal Express, two business days after so mailed,
(iv) if delivered by facsimile, upon electronic confirmation of receipt and
shall be delivered as addressed as follows:

 

  (a) if to the Company, to:

Cygne Designs, Inc.

11 W. 42nd Street, Ninth Floor

New York, NY 10036

Fax: (212) 997-7758

Attn: Bernard Manuel

 

  (b) if to the Investor, at its address on the signature page hereto, or at
such other address or addresses as may have been furnished to the Company in
writing.

9. Changes. This Agreement may not be modified or amended except pursuant to an
instrument in writing signed by the Company and the Investor.

10. Headings. The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.

11. Severability. In case any provision contained in this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.

12. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware.

13. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument, and shall become effective when
one or more counterparts have been signed by each party hereto and delivered to
the other parties.

14. Rule 144. The Company covenants that it will timely file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Investor holding
Registrable Securities, make publicly available such information as necessary to
permit sales pursuant to Rule 144 under the Securities Act), and it will take
such further action as any such Investor may reasonably request, all to the
extent required from time to time to enable such Investor to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of the Investor, the Company will
deliver to such holder a written statement as to whether it has complied with
such information and requirements.

15. Non-Public Information.

15.1 The Investor represents to the Company that, at all times during the
Company’s offering of the Securities, the Investor has maintained in confidence
all non-public information regarding the Company received by the Investor from
the Company or its agents, and covenants that it will continue to maintain in
confidence such information until such information (a) becomes generally
publicly available other than through a violation of this provision by the
Investor or its agents or (b) is required to be disclosed in legal proceedings
(such as

 

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by deposition, interrogatory, request for documents, subpoena, civil
investigation demand, filing with any governmental authority or similar
process), provided, however, that before making any use or disclosure in
reliance on this subparagraph (b) the Investor shall give the Company at least
fifteen (15) days prior written notice (or such shorter period as required by
law) specifying the circumstances giving rise thereto and will furnish only that
portion of the non-public information which is legally required and will
exercise its best efforts at the sole expense of the Company to obtain reliable
assurance that confidential treatment will be accorded any non-public
information so furnished.

15.2 The Company shall on the Closing Date issue a press release (the “Closing
Date Press Release”) disclosing the material terms of the transactions
contemplated hereby (including at least the number of Securities sold and
proceeds therefrom).

15.3 The Investor acknowledges and agrees that federal and state securities laws
prohibit such Investor from buying or selling any Securities while in the
possession of material non-public information.

16. Intentionally Omitted.

17. Intentionally Omitted.

18. Expenses. Each of the Company and the Investors shall bear its own costs and
expenses related to preparation and execution of the Agreements, including, but
not limited to, due diligence expenses, accounting expenses, other incidental
costs and expenses and reasonable attorney’s fees.

 

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Schedule 4.10

The Company has not yet entered into a credit arrangement to replace its
factoring arrangement with Milberg Factors that expires on July 31, 2007, and
there can be no assurance that the Company will be successful in entering into a
new credit arrangement on satisfactory terms or at all. The failure of the
Company to enter into a new credit arrangement within the next several days will
have a Material Adverse Effect, including a material adverse effect on the
Company’s stock price.

 

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CYGNE DESIGNS, INC.

INVESTOR QUESTIONNAIRE

(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)

 

To: Cygne Designs, Inc.

11 W. 42nd Street, Ninth Floor

New York, NY 10036

This Investor Questionnaire (“Questionnaire”) must be completed by each
potential investor in connection with the offer and sale of the shares of the
common stock, par value $0.01 per share, of Cygne Designs, Inc. (the “Common
Stock”) and warrants to purchase shares of Common Stock (the “Warrants” and
together with the Common Stock, the “Securities”). The Securities are being
offered and sold by Cygne Designs, Inc. (the “Company”) without registration
under the Securities Act of 1933, as amended (the “Act”), and the securities
laws of certain states, in reliance on the exemptions contained in Section 4(2)
of the Act and on Regulation D promulgated thereunder and in reliance on similar
exemptions under applicable state laws. The Company must determine that a
potential investor meets certain suitability requirements before offering or
selling Securities to such investor. The purpose of this Questionnaire is to
assure the Company that each investor will meet the applicable suitability
requirements. The information supplied by you will be used in determining
whether you meet such criteria, and reliance upon the private offering exemption
from registration is based in part on the information herein supplied.

This Questionnaire does not constitute an offer to sell or a solicitation of an
offer to buy any security. Your answers will be kept strictly confidential.
However, by signing this Questionnaire you will be authorizing the Company to
provide a completed copy of this Questionnaire to such parties as the Company
deems appropriate in order to ensure that the offer and sale of the Securities
will not result in a violation of the Act or the securities laws of any state
and that you otherwise satisfy the suitability standards applicable to
purchasers of the Securities. All potential investors must answer all applicable
questions and complete, date and sign this Questionnaire. Please print or type
your responses and attach additional sheets of paper if necessary to complete
your answers to any item.

A. BACKGROUND INFORMATION

 

Name:                                     
                                        
                                        
                                        
                                                                    
Business Address:                                   
                                        
                                        
                                        
                                                

(Number and Street)

 

(City)    (State)    (Zip Code)
Telephone Number: (            )                     
                                        
                                        
                                        
                                             
Residence Address (for individuals):                              
                                        
                                        
                                                             

(Number and Street)

 

(City)    (State)    (Zip Code)
Telephone Number: (___)                                 
                                        
                                        
                                                                              If
an individual:         Age:                     Citizenship:
                            Where registered to vote:
                                              If a corporation, partnership,
limited liability company, trust or other entity:
Type of entity:                                  
                                        
                                        
                                        
                                                                State of
formation:                                                  Date of
formation:                                                          

 

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Social Security or Taxpayer Identification No.                          
                                        
                                        
                                                    Send all correspondence to
(check one):              Residence Address              Business Address
Current beneficial ownership of securities of the Company1: (1)             
shares of common stock, par value $0.01 per share; (2) options to purchase
             shares of Common Stock

B. STATUS AS ACCREDITED INVESTOR

The undersigned is an “accredited investor” as such term is defined in
Regulation D under the Act, as at the time of the sale of the Securities the
undersigned falls within one or more of the following categories (Please initial
one or more, as applicable):2

             (1) a bank as defined in Section 3(a)(2) of the Act, or a savings
and loan association or other institution as defined in Section 3(a)(5)(A) of
the Act whether acting in its individual or fiduciary capacity; a broker or
dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934;
an insurance company as defined in Section 2(13) of the Act; an investment
company registered under the Investment Company Act of 1940 or a business
development company as defined in Section 2(a)(48) of that Act; a Small Business
Investment Corporation licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan
established and maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions for the benefit of
its employees, if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974 if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with the investment decisions made solely by persons that
are accredited investors;

             (2) a private business development company as defined in
Section 202(a)(22) of the Investment Adviser Act of 1940;

 

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1

A “beneficial owner” of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship, or
otherwise, has or shares (i) voting power, which includes the power to vote or
to direct the voting of, such security, and/or (ii) investment power, which
includes the power to dispose, or to direct the disposition, of such security.
Any person who, directly or indirectly, creates or uses a trust, proxy, power of
attorney, pooling arrangement or any other contract, arrangement or device with
the purpose or effect of divesting such person of beneficial ownership of a
security or preventing the vesting of such beneficial ownership as part of a
plan or scheme to evade the reporting requirements of the Securities Exchange
Act of 1934 shall be deemed the beneficial owner of such security. A person is
the beneficial owner of a security if that person has the right to acquire
beneficial ownership of such security at any time within sixty (60) days,
including but not limited to any right to acquire the security (i) through the
exercise of any option, warrant or right; (ii) through the conversion of a
security; (iii) pursuant to the power to revoke a trust, discretionary account
or similar arrangement; or (iv) pursuant to the automatic termination of a
trust, discretionary account or similar arrangement. The amount of securities
owned beneficially, whether or not such securities are also held of record,
should be stated. The number of shares with respect to which a person has the
right to acquire beneficial ownership within sixty (60) days should be stated as
a note to the number of shares beneficially owned. In addition to other forms of
beneficial ownership, the SEC has taken the position that generally a person has
a beneficial interest in securities owned by a spouse, minor children or any
relatives of such person or spouse who reside in the same home. The final
determination of beneficial ownership is a question to be determined in light of
the facts of a particular case. Thus, although you include certain security
holdings in your beneficial ownership, you may nevertheless disclaim beneficial
ownership of such securities.

2

As used in this Questionnaire, the term “net worth” means the excess of total
assets over total liabilities. In computing net worth for the purpose of
subsection (4), the principal residence of the investor must be valued at cost,
including cost of improvements, or at recently appraised value by an
institutional lender making a secured loan, net of encumbrances. In determining
income, the investor should add to the investor’s adjusted gross income any
amounts attributable to tax exempt income received, losses claimed as a limited
partner in any limited partnership, deductions claimed for depiction,
contributions to an IRA or KEOGH retirement plan, alimony payments, and any
amount by which income from long-term capital gains has been reduced in arriving
at adjusted gross income.

 

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             (3) an organization described in Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring the
Securities offered, with total assets in excess of $5,000,000;

             (4) a natural person whose individual net worth, or joint net worth
with that person’s spouse, at the time of such person’s purchase of the
Securities exceeds $1,000,000;

             (5) a natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person’s
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;

             (6) a trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the Securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii) of
Regulation D; and

             (7) an entity in which all of the equity owners are accredited
investors (as defined above). (Note: If this item is selected, each equity owner
must submit an individual investor questionnaire.)

IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this 30th
day of July 2007, and declares under oath that it is truthful and correct.

 

 

 

 

Print Name By:  

 

Title:   Authorized Signatory   (required for any purchaser that is a
corporation, partnership, trust or other entity)

 

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[Company Letterhead]

[Date]

 

  Re: Cygne Designs, Inc.; Registration Statement on Form S-3

Dear Selling Shareholder:

Enclosed please find five (5) copies of a prospectus dated                     ,
     (the “Prospectus”) for your use in reselling your shares of common stock,
$0.01 par value (the “Securities”), of Cygne Designs, Inc. (the “Company”),
under the Company’s Registration Statement on Form S-3 (or other acceptable
Form) (Registration No. 333-XXXXX) (the “Registration Statement”), which has
been declared effective by the Securities and Exchange Commission. As a selling
shareholder under the Registration Statement, you have an obligation to deliver
a copy of the Prospectus to each purchaser of your Securities, either directly
or through the broker-dealer who executes the sale of your Securities.

The Company is obligated to notify you in the event that it suspends trading
under the Registration Statement in accordance with the terms of the Securities
Purchase Agreement between the Company and you. During the period that the
Registration Statement remains effective and trading thereunder has not been
suspended, you will be permitted to sell you Securities which are included in
the Prospectus under the Registration Statement. Upon a sale of any Securities
under the Registration Statement, you or your broker will be required to deliver
to the Transfer Agent, American Stock Transfer and Trust Company (1) your
restricted stock certificate(s) representing the Securities, (2) instructions
for transfer of the Securities sold, and (3) a representation letter from your
broker, or from you if you are selling in a privately negotiated transaction, or
from such other appropriate party, in the form of Exhibit A attached hereto (the
“Representation Letter”). The Representation Letter confirms that the Securities
have been sold pursuant to the Registration Statement and in a manner described
under the caption “Plan of Distribution” in the Prospectus and that such sale
was made in accordance with all applicable securities laws, including the
prospectus delivery requirements.

Please note that you are under no obligation to sell your Securities during the
registration period. However, if you do decide to sell, you must comply with the
requirements described in this letter or otherwise applicable to such sale. Your
failure to do so may result in liability under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended. Please remember
that all sales of your Securities must be carried out in the manner set forth
under the caption “Plan of Distribution” in the Prospectus if you sell under the
Registration Statement. The Company may require an opinion of counsel reasonably
satisfactory to the Company if you choose another method of sale. You should
consult with your own legal advisor(s) on an ongoing basis to ensure your
compliance with the relevant securities laws and regulations.

In order to maintain the accuracy of the Prospectus, you must notify the
undersigned upon the sale, gift, or other transfer of any Securities by you,
including the number of Securities being transferred, and in the event of any
other change in the information regarding you which is contained in the
Prospectus. For example, you must notify the undersigned if you enter into any
arrangement with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker-dealer. Depending on the circumstances, such transactions may
require the filing of a supplement to the prospectus in order to update the
information set forth under the caption “Plan of Distribution” in the
Prospectus.

Should you need any additional copies of the Prospectus, or if you have any
questions concerning the foregoing, please write to me at Cygne Designs, Inc.,
11 W. 42nd Street, Ninth Floor, New York, NY 10036. Thank you.

 

Sincerely, Bernard Manuel, Chief Executive Officer

 

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