**Exhibit 10.1**

 

STOCK PURCHASE AGREEMENT

 

STOCK PURCHASE AGREEMENT (together with theSchedules and Appendices hereto, the “Agreement”), dated as of July 19,2005 (the “Closing Date”), by and among Lerner New York, Inc., aDelaware corporation (the “Purchaser”) and Luciano Manganella, aMassachusetts resident (the “Shareholder”).

 

W I T N E S S E T H:

 

WHEREAS, Jasmine Company, Inc., aMassachusetts corporation (the “Company”) is engaged in the retail saleof clothes, footwear and related accessories under the “Jasmine Sola” and “LuisaLuisa” names (the “Business”);

 

WHEREAS, the Shareholder is the record andbeneficial owner of 100,300 shares of common stock, no par value per share ofthe Company (the “Company Shares”) representing all of the issued andoutstanding capital stock of the Company;

 

WHEREAS, the Shareholder desires to sell tothe Purchaser, and the Purchaser desires to purchase from the Shareholder, theCompany Shares, the Business, and all the goodwill associated therewith; allfor the consideration and on the terms set forth in this Agreement;

 

NOW, THEREFORE, in consideration of themutual covenants hereinafter set forth, and for other good and valuableconsideration, the receipt and adequacy of which are hereby acknowledged, theparties hereto agree as follows:

 

ARTICLE I.

 

Purchase and Sale

 

Section 1.1  Sale of Shares.  Subject to the terms and conditions of thisAgreement, the Shareholder does hereby sell, transfer, convey, assign and setover (“Transfer”) to the Purchaser, and the Purchaser does herebypurchase and acquire from Shareholder, all of Shareholder’s right, title andinterest in and to the Company Shares, free and clear of all Liens.

 

Section 1.2  Purchase Price.  As consideration for the Transfer of theCompany Shares to the Purchaser, and for the other representations, warrantiesand covenants of Shareholder hereunder, the Purchaser:

 

(A)          isat the Closing, (1) paying Shareholder $15,500,000 in cash by wiretransfer of immediately available funds receiptof which payment the Shareholder hereby acknowledges, (2) paying$7,000,000 into escrow pursuant to Section 1.4 (the foregoing two paymentsin aggregate amount of $22,500,000, the “Cash Closing Payments”); and (3) causingits Affiliate New York & Company, Inc. (the “Issuer”) to issue tothe

 

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Shareholder350,000 shares of the Issuer’s common stock (such shares, the “ClosingShares”); and

 

(B)           followingthe Closing, cause the Issuer to issue to the Shareholder up to 200,000 sharesof the Issuer’s common stock (with such number of shares to be adjusted forstock splits, recapitalizations, and the like between the Closing and issuance)(the “Post-Closing Shares”) pursuant to and in accordance with Schedule 1.2(B).

 

The foregoing consideration payable or issuable by the Purchaser isreferred to herein as the “Purchase Price.”  The Purchase Price is subject to adjustment,following the Closing, pursuant to Section 1.5.

 

Section 1.3  Closing Obligations.

 

A.            ShareholderDeliveries.  At the Closing, theShareholder is delivering:

 

(i)            dulyexecuted forms of transfer in respect of, and share certificates for, theCompany Shares, accompanied by duly executed stock transfer powers in blank;

 

(ii)           theemployment agreements between the Company and the Shareholder and StaceyManganella, respectively, in the forms attached to Schedule 1.3(A) (the“Employment Agreements”) and executed by the Shareholder and StaceyManganella, respectively;

 

(iii)          theRegistration Rights Agreement between the Issuer and the Shareholder, in theform attached to Schedule 1.3(A) (the “Registration RightsAgreement”) and executed by the Shareholder;

 

(iv)          TheEscrow Agreement (as defined in Section 1.4), executed by the Shareholder;

 

(v)           theadditional agreements, documents, certificates and materials listed on Schedule 1.3(A);and

 

(vi)          acertificate of non-foreign status in the form attached to Schedule 1.3(A) datedas of the day immediately preceding the Closing Date, sworn under penalty ofperjury.

 

B.            PurchaserDeliveries.  At the Closing, thePurchaser is delivering:

 

(i)            theCash Closing Payments, by wiretransfer of immediately available funds, ;and

 

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(ii)           the Closing Shares;

 

(iii)          the Employment Agreements, executed by theCompany;

 

(iv)          the Registration Rights Agreement, executed bythe Issuer;

 

(v)           the Escrow Agreement, executed by the Purchaser;and

 

(v)           theadditional agreements, documents, certificates and materials listed on Schedule 1.3(B).

 

The stock certificates, stock powers andtransfer documents described in Section 1.3(A)(i), along with theother documents listed in Schedule 1.3(A) and Schedule 1.3(B) arereferred to collectively as the “Additional Transaction Documents.”

 

Section 1.4  Escrow. Simultaneously with theClosing, the Purchaser is depositing $7,000,000 into escrow pursuant to thatEscrow Agreement between the Purchaser, the Shareholder and Goulston &Storrs, P.C., as escrow agent (the “Escrow Agreement”), with suchdeposit being made as security with respect to the Shareholder’s obligations topay liquidated damages of $7,000,000 in the event of a Major Employment Breachpursuant to Section 6.16.   Theparties agree that the foregoing Escrow Agreement, with Goulston &Storrs, P.C. as escrow agent, is intended to be a temporary arrangement andthat they will use commercially reasonable efforts to enter into escrowarrangements with a third party escrow agent on terms substantially similar tosuch initial Escrow Agreement, as quickly as reasonably practicable (and insuch event, the escrow agreement entered into in connection with such newarrangements shall thereupon constitute the “Escrow Agreement” for all purposeshereunder).

 

Section 1.5.  Purchase Price Adjustment.

 

A.            Adjustments.  The Purchase Price shall be adjusted: (1) upwardor downward to the extent that the Closing Working Capital Level is greater orless than $1,936,000, respectively; and (2) upward or downward to theextent that Closing Long Term Indebtedness is less than or greater than$195,091, respectively; and (3) downward in an amount equal to any ClosingTransaction Expenses; and (4) downward in an amount equal to anyUndisclosed Special Liabilities; all as determined pursuant to this Section 1.5.   Any adjustment to the Purchase Price shalltake into account, and be the net result of, all of the adjustments describedin the preceding clauses (1), (2), (3) and (4), and is referred to hereinas the “Net Adjustment.”

 

B.            CertainDefinitions.  As used herein: (1) theterm “Closing Working Capital Level” means Working Capital Levels of theClosing Date; (2) the term “Working Capital Level” means theCompany’s current assets (i.e., cash; merchandise inventory; prepaid expenses;loans receivable; and prepaid corporate taxes) minus the Company’s currentliabilities (i.e., note payable under line of credit; current portion oflong-term debt; accounts payable, trade; accounts payable, other; sales taxespayable; and accrued payroll and expenses), (3) the term “Closing LongTerm Indebtedness” means the Company’s long-term debt (net of currentportion) as of the Closing Date; (4) the term “Transaction Expenses”means the fees and expenses incurred on or

 

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before the Closing Date(whether or not invoiced) and payable by the Company to third parties relatedto or arising out of the transactions contemplated by this Agreement, or anytransaction involving the sale of all or substantially all of the Company’sassets or capital stock, since January 1, 2005, that the Company and/orthe Shareholder have considered (including any “auction process” conducted onthe Company’s or the Shareholder’s behalf prior to the date hereof), includingtravel, legal, accounting, investment banking and other professional fees andexpenses relating thereto, and 50% of the Company’s outstanding fees payable toSchulte Roth & Zabel LLP (totalling $90,000), and Transfer Taxes forwhich the Shareholder is liable pursuant to Section 5.2(F), in eachcase that are not paid as of the Closing Date; and (5) the term “UndisclosedSpecial Liabilities” means (1) any indebtedness of the Companypursuant to deferred compensation obligations; (2) any “change in control”payments required of the Company as a result of the Closing; (3) any indebtednesspursuant to a guarantee by the Company of the obligations of another Person, (4) anyobligations (including breakage costs) payable by the Company under interestrate protection agreements (including interest rate swaps, caps, floors andcollars) and in respect of any hedging agreements; and (5) any obligationsunder capital leases; provided however that none of the foregoing shallconstitute Undisclosed Special Liabilities if they have otherwise beendisclosed either (I) under Schedules 3.1(D), 3.1(E), or 3.1(F) (or arisepursuant to Commitments or other arrangements disclosed under said schedules,including without limitation the leases of the Leased Realty) or (II) expresslyidentified within the Financial Statements (including the notes thereto).  In the case of any guarantee described in theforegoing clause (3), the Purchaser agrees that the Shareholder shall be givenreasonable opportunity (not to exceed 30 days) after notice from the Purchaserin order to terminate, at his own cost and expense, such guarantee prior tosuch guarantee being considered as an Undisclosed Special Liabilityhereunder.   Notwithstanding anythingherein to the contrary, Working Capital Levels, Closing Long Term Indebtedness(and “debt” and “indebtedness”) will be determined in accordance with GAAP,consistently applied and consistent with the Financial Statements.  By way of example, as of April 30, 2005,the Working Capital Level was $1,711,432 (current assets of $5,970,539 minuscurrent liabilities of $4,259,107) and the long term debt (net of currentportion) was $195,091.

 

C.            Withinsixty (60) days following the Closing, the Shareholder shall prepare or causeto be prepared, and deliver to Purchaser his calculation of (1) AssumedClosing Working Capital Level, (2) Closing Long Term Indebtedness, (3) TransactionExpenses, (4) Undisclosed Special Liabilities; and (5) the NetAdjustment (the “Shareholder Calculations”).

 

D.            Withinthirty (30) days after its receipt of the Shareholder Calculations, thePurchaser shall cause its accountants to review the same.  If Purchaser has any objection to any suchcalculations, or to any of the figures shown on the Shareholder Calculations,the Purchaser shall, within such thirty (30) day period, inform the Shareholderin writing thereof (the “Purchaser’s Objection”), setting forth inreasonable detail the basis for its objection and the adjustments to the NetAdjustment shown in the Shareholder Calculations which the Purchaser believesshould be made.  The Shareholder shall thenhave thirty (30) days after his receipt of a Purchaser’s Objection to reviewand respond to the Purchaser’s Objection (“Shareholder’s Review Period”).  If the Purchaser and the Shareholder areunable to resolve all of their disagreements with respect to the determinationof the Net Adjustment within ten (10) days after the end of theShareholder’s Review Period, they shall refer their remaining disagreements toa

 

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nationally known accountingfirm reasonably acceptable to the Purchaser and the Shareholder (the “AccountingFirm”), who shall determine, on the basis of the standards, principles andmethods set forth herein, and only with respect to the remaining disagreementssubmitted to them (and only, with respect to such disputed items, within theparameters of the respective calculations thereof as have been previouslyprovided by the Purchaser and/or the Seller, respectively), whether and to whatextent the Net Adjustment shown on the Shareholder Calculations requiresadjustment.  The Purchaser and theShareholder shall direct the Accounting Firm to deliver its report anddetermination of such adjustments as quickly as reasonably possible.  The Accounting Firm’s determination shall befinal, conclusive and binding upon the Purchaser and the Shareholder.  The fees and disbursements of the AccountingFirm shall be paid by the party whose calculation of the Net Adjustment wasfurthest from the Accounting Firm’s determination.  The Purchaser and the Shareholder shall makereadily available to the Accounting Firm all relevant books and records and anywork papers (including those of the parties’ respective accountants) relatingto the Financial Statements and the Shareholder Calculations and all otheritems reasonably requested by the Accounting Firm.  The “Final Adjustment” shall be (i) theNet Adjustment set forth in the Shareholder Calculations in the event that (x)no Purchaser’s Objection is delivered to the Shareholder during the thirty (30)day period specified above, or (y) the Shareholder and the Purchaser so agree, (ii) theNet Adjustment, adjusted in accordance with the Purchaser’s Objection in theevent that the Shareholder does not respond to Purchaser’s Objection within theShareholder’s Review Period, or (iii) the Net Adjustment, as adjusted byeither (x) the agreement of the Shareholder and the Purchaser or (y) theAccounting Firm.

 

E.             ThePurchaser shall provide the Shareholder and his accountants full access to thebooks and records of the Business, to any other information, including workpapers of its accountants (to the extent available to the Purchaser), and toany employees to the extent necessary for the Shareholder to prepare theShareholder Calculations.  The Purchaserand its accountants shall have full access to all information used by theShareholder in preparing the Shareholder Calculations, including the workpapers of their accountants (to the extent available to the Shareholder).

 

F.             Withinten (10) days following issuance of the Final Adjustment, the adjustmentpayments payable pursuant to this Section 1.5 shall be paid by wiretransfer of immediately available funds to a bank account designated byPurchaser or Shareholder, as the case may be.; plus, in either case, interestthereon from the Closing Date through the date of payment at the rate ofinterest publicly announced by Citibank, N.A. or any successor thereto in NewYork, New York from time to time as its “base rate” (the “Interest Rate”)

 

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ARTICLE II.

 

Closing

 

Section 2.1  Closing Date.  The closing of the transactions contemplatedhereby (the “Closing”) isoccurring at the offices of Goulston & Storrs, P.C., Boston, MA, USAon the Closing Date (i.e., the date of this Agreement).  The Closing shall be deemed effective as of12:01 a.m. Eastern Time on the Closing Date.

 

Section 2.2  Effect of Closing.  All matters at the Closing shall beconsidered to take place simultaneously, and no delivery of any document orinstrument shall be deemed complete until all transactions and deliveries ofdocuments and instruments and payments contemplated by this Agreement arecompleted or have been waived by the party to whom delivery or payment was duehereunder.

 

ARTICLE III.

 

Representations and Warrantiesby the Shareholder

 

Section 3.1  Representations and Warranties.  The Shareholder hereby represents andwarrants to the Purchaser that:

 

A.            CorporateExistence and Qualification of the Company and the Shareholder; Authority, DueExecution, Ownership of Shares, Etc.

 

(i)            TheCompany is a corporation duly organized, validly existing and in good standingunder the Laws of the Commonwealth of Massachusetts and is duly qualified to dobusiness, and is in good standing, in each jurisdiction in which the failure tobe so qualified would reasonably beexpected to have a Material Adverse Effect, which such jurisdictions are setforth on Schedule 3.1(A).

 

(ii)           TheCompany has the requisite corporate power and authority to own, lease orotherwise hold its Assets and to conduct the Business as now conducted andpresently proposed to be conducted.  TheCompany has no Subsidiaries.  Assumingthe due execution of this Agreement by the Purchaser, this Agreementconstitutes the valid and binding obligation of the Shareholder enforceableagainst such Shareholder in accordance with its terms, subject only toapplicable bankruptcy, insolvency, reorganization, moratorium or other similarLaws relating to creditors’ rights generally and to general principles ofequity (regardless of whether such enforcement is considered in a proceeding atlaw or in equity).

 

(iii)          Asof immediately prior to the Closing, the authorized capital stock of theCompany consists of 275,000 shares of common stock.  The Company Shares constitute all of theissued and outstanding capital stock of the Company, and the Company Shares areowned beneficially and of record by the Shareholder, free and clear of allLiens.  The Company Shares and are dulyauthorized, validly issued and are fully paid and non-assessable.

 

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(iv)          TheCompany does not have outstanding (1) any stock or securities convertibleinto or exchangeable for any shares of its capital stock or containing anyprofit participation features, nor any options, warrants, agreements,arrangements, preemptive rights, or other rights of any Person to acquire, orany other Liens on, any capital stock of the Company or (2) any stock orsecurities convertible into or exchangeable for any stock appreciation rightsor phantom stock or similar plans or rights. The Company is not subject to any obligation (contingent or otherwise)to repurchase or otherwise acquire or retire any shares of its capital stock orany warrants, options or other rights to acquire its capital stock.  There are no outstanding stock appreciation,phantom stock, profit participation, or similar rights with respect to theCompany.  There are no voting trusts,proxies, or other agreements or understandings with respect to the voting of anycapital stock of the Company.

 

B.            NoViolation.

 

(i)            Neitherthe execution, delivery and performance by the Shareholder of this Agreement orthe Additional Transaction Documents to which such Person is party, nor theconsummation of the Contemplated Transactions by the Shareholder, will (A) violateany order, ruling, writ, judgment, injunction or decree of any GovernmentalEntity (an “Order”)applicable to the Shareholder or the Company; (B) conflict with, result ina breach of, constitute a default under, or violate the Charter Documents ofthe Company; or (C) result in the imposition of any Lien on the CompanyShares.

 

(ii)           Neitherthe execution, delivery and performance by the Shareholder of this Agreement orthe Additional Transaction Documents to which he is party, nor the consummationof the Contemplated Transactions by the Shareholder, will violate any Law, orgive others any rights of termination, amendment, acceleration or cancellationof, any Commitment (other than as disclosed on Schedule 3.1(B) orSchedule 3.1(E)) applicable to the Shareholder or the Company or bywhich any of the Company’s properties is bound or affected, excluding, forpurposes of this Section 3.1(B)(ii), any Commitment which is for goods orservices which are readily replaceable on comparable economic terms andconditions and without material incremental cost, and the termination of whichwould not materially impair the normal operations of the Business.

 

(iii)          Exceptas set forth on Schedule 3.1(B) or Schedule 3.1(E)),no consent, authorization, or approval from, or registration or filing with,any Governmental Entity or other third party (not obtained or made as of thedate hereof), is required to be obtained or made by the Shareholder inconnection with the execution, delivery or performance of this Agreement or theAdditional Transaction Documents, or the consummation by the Shareholder of theContemplated Transactions, except for such consents, authorizations, orapprovals under any Commitment which is for goods or services which are readilyreplaceable on comparable economic terms and conditions and without materialincremental cost, and the termination of which would not materially impair thenormal operations of the Business..

 

C.            FinancialInformation.  Set forth on Schedule 3.1(C) arecopies of unaudited balance sheets and related statements of income of theCompany for the year ended December 31, 2004, and for the four monthsended April 30, 2005, respectively (collectively, the “Financial

 

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Statements”).  The Financial Statements were prepared inaccordance with GAAP applied on a consistent basis throughout the periodspresented (except as required to comply with changes to GAAP), except that theFinancial Statements do not contain footnotes and, with respect to theFinancial Statements for the four months ended April 30, 2005, are subjectto year end adjustments, none of which would either singly or in the aggregatebe material.  Subject to the foregoing,the Financial Statements present fairly in all material respects the financialcondition and results of operations of the Company as of the dates or for theperiods presented.  The aforementionedbalance sheet as of April 30, 2005, is sometimes referred to herein as the“April 30, 2005Balance Sheet.”

 

D.            Absenceof Certain Changes or Events.  Exceptas set forth on Schedule 3.1(D), since December 31, 2004, theCompany has conducted the Business only in the Ordinary Course of Business,there have not been any changes in the business, operations, assets, financialcondition or cash flow of the Company which in the aggregate has had, or isreasonably likely to have, a Material Adverse Effect, and the Company has notsince such date:

 

(i)            changedits authorized or issued capital stock; issued any notes, bonds or other debtor equity securities convertible into capital stock; or granted anyregistration rights with respect to any securities;

 

(ii)           amendedits Charter Documents;

 

(iii)          paid,granted or increased any bonuses, salaries or other compensation by the Companyto any of its directors, officers, or employees except for bonus awards andincreases in salaries in the Ordinary Course of Business, as required byapplicable Laws or pursuant to any Commitment listed or referred to on Schedule 3.1(E);

 

(iv)          mortgaged,pledged, imposed any security interest upon or subjected to any Lien any of itsproperties or Assets, tangible or intangible, other than Permitted Liens andfor those Liens securing indebtedness expressly identified in the balance sheetwithin, or notes to, the Financial Statements at December 31, 2004 orexpressly identified in the balance sheet within the Financial Statements at April 30,2005;

 

(v)           sold,assigned, licensed, transferred, leased or otherwise disposed of any Asset,tangible or intangible (including Intellectual Property), except in theOrdinary Course of Business;

 

(vi)          cancelledor waived any material claims or material rights against third Persons;

 

(vii)         changedits accounting methods or principles (including without limitation accountingmethods and principles used for tax purposes), except for any such changesrequired by GAAP;

 

(viii)        enteredinto, accelerated, modified or terminated or received notice of termination ofany Commitment material to the operation of the Business;

 

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(ix)           sufferedany damage to or destruction or loss of any Asset of the Company in excess of$25,000;

 

(x)            adopted,amended, modified or terminated or increased any payments to or benefits underany Company Plans in any material respect;

 

(xi)           incurredany Company Indebtedness, other than in the Ordinary Course of Business or asexpressly identified in the balance sheet within, or notes to, the FinancialStatements at December 31, 2004 or as expressly identified in the balancesheet within the Financial Statements at April 30, 2005;

 

(xii)          madecapital expenditures or commitments therefor that aggregate in excess of$75,000, other than capital expenditures in connection with store build-outs orrenovation consistent with the Company’s 2005 budget (with total budgetedamount therein of $1,272,000);

 

(xiii)         madeany loans or advances to, guarantees for the benefit of, or any investments in,any Persons or formed any Subsidiary;

 

(xiv)        directlyor indirectly engaged in any transaction with any officer, director, partner,shareholder, employee or other Affiliate of the Company or the Shareholder, tothe extent any of the foregoing creates any Liability of the Company followingthe Closing;

 

(xv)         taken anyaction or otherwise omitted to take any action that could reasonably beexpected to result in the loss, lapse, abandonment, invalidity orunenforceability of any material Business Intellectual Property (as definedbelow);

 

(xvi)        grantedany license or sublicense of any rights under or with respect to anyIntellectual Property Rights; or

 

(xi)           agreed,orally or in writing, to do any of the foregoing (to the extent such agreementis currently binding upon the Company or could result in Liability to theCompany following the Closing).

 

As used herein, the “Ordinary Course ofBusiness” means the ordinary course of the Business, as operated by theCompany consistent with past practices.

 

E.             Contracts.

 

(i)            Schedule 3.1(E) listsor references all contracts, agreements, or obligations, whether written ororal, including all amendments thereto (collectively, “Commitments”) towhich the Company is currently a party or otherwise bound of the followingtypes:

 

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(a)           Anysuch Commitment relating to the employment of any current employee of theCompany, or any severance or change in control payment to any employee, or anylabor contract or collective bargaining agreement, or any Commitment providing forpayments to any Person as a result of termination of employment or based uponsales, purchases or profits other than direct payment for goods and whichrequire minimum payments of at least $50,000 per year;

 

(b)           Anysuch Commitment or series of related Commitments for capital expenditures orthe acquisition or construction of fixed assets which requires or requireaggregate future payments or expenditures in excess of $75,000 in total;

 

(c)           Anysuch Commitment granting to any Person a first-refusal, first-offer or otherright to purchase, acquire or use  (1) anyof the Assets of the Company (other than purchase or sales orders, whichpursuant to the terms thereof requires aggregate annual payments to or by theCompany in excess of $50,000, or (2) the Company Shares;

 

(d)           Anysuch Commitment with respect to a joint venture or partnership arrangement,under which the Company is or has agreed to become a joint venturer or partneror otherwise has agreed to share profits, losses, costs or liabilities with anyother Person;

 

(e)           Anysuch Commitment pursuant to which the Company is a lessee of any Leased Realtyrequiring annual payments by the Company in excess of $150,000;

 

(f)            Anypowers of attorney to which the Company is a party;

 

(g)           Anysuch Commitment that contains any provision that in any material way prohibitsthe Company from engaging in any line of business or competing with anotherPerson within the geographic territory in which the Company sells goods**,**or restricts the use of any Business Intellectual Propertyor prohibits the use of any Intellectual Property (including settlement andcoexistence agreements);

 

(h)           Anyother such Commitment which is not cancelable on 60 days or less notice andwhich pursuant to the terms thereof requires annual payments by the Company inexcess of $50,000 (any such Commitment under this sub-clause (h), a “MaterialCommitment”);

 

(i)            Anyagreement or indenture relating to Company Indebtedness or the mortgaging,pledging or otherwise placing a Lien on any material asset or material group ofassets of the Company;

 

(j)            Anysuch Commitment pursuant to which the Company grants or obtains any license orother rights to any Intellectual Property (other than licenses of “off theshelf” software which are readily available on a commercial or retail basiswith a replacement cost and/or annual license fee of less than $10,000).

 

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(ii)           Except as set forth on Schedule 3.1(E) orSchedule 3.1(B), (a) all Commitments listed on Schedule 3.1(E) arenow and will be, immediately following the Transfer of the Company Shares atthe Closing, in full force and effect, and represent the valid and bindingobligation of the Company, and, to the knowledge of the Shareholder, each ofthe other parties thereto; (b) the Company has performed all obligationsrequired to be performed by it and is not in default under or in breach of norin receipt of any claim of default or breach under any Material Commitment; (c) noevent has occurred which with the passage of time or the giving of notice orboth would reasonably be expected to result in a default, breach or event ofnoncompliance by the Company under any Material Commitment; and (d) theexecution, delivery and performance of the Commitments listed on Schedule 3.1(E) bythe Company are not in violation of the Charter Documents of the Company,except to the extent that such any of the foregoing would not reasonably beexpected to have a Material Adverse Effect.

 

(iii)          Exceptas set forth on Schedule 3.1(H): (a) the Company holds allpermits, licenses, approvals, consents and authorizations issued by anyGovernmental Entity or other Person and which are required by applicable Lawsand material to its operation of the Business (collectively, “Licenses”).  Neither the Company nor the Shareholder hasreceived notice of any Legal Proceeding and, to the knowledge of theShareholder, no such Legal Proceeding has been threatened, which would, ifsuccessful on the merits, lead to a revocation, suspension, or limitation ofthe rights of any such Licenses, and the Company is in material compliance witheach of its such Licenses, and (b) to the knowledge of the Shareholder,all applications required to have been filed for renewal of any such Licenseshave been duly filed on a timely basis with all appropriate GovernmentalEntities or other Persons and all other filings required to have been made withrespect to such Licenses have been made on a timely basis with all appropriateGovernmental Entities or other Persons,

 

F.             Titleto and Condition of Properties.

 

(i)            Schedule 3.1(F)(i) listsall real estate owned, leased or otherwise occupied by the Company.  The Company has valid leasehold orsubleasehold interests in any property identified as “Leased Realty” on said schedule (the“Leased Realty”) and the Company owns its other Assets; in each casefree and clear of Liens other than Permitted Liens.

 

As used herein, the term “Lien” meansany charge, claim, option, lien, mortgage, encumbrance, or restriction of anykind, including any restriction on use, voting, transfer, receipt of income orexercise of any other attribute of ownership, and the term “Permitted Liens” means any Lienswhich (1) are listed on Schedule 3.1(F); (2) are forTaxes or other charges or assessments of any Governmental Entity which are notyet due and owing or are subject to a good faith dispute, are not material inamount and are being pursued diligently by appropriate Legal Proceedings; (3) constituteLiens of carriers, warehousemen, mechanics and materialmen, or similar Liens,incurred in the Ordinary Course of Business and for which adequate reserveshave been established in accordance with GAAP; (4) constitute statutoryLiens in favor of landlords with respect to real property leased, or protectiveUCC filings in favor of lessors of personal property leased, to the Company; or(5) with respect to real property only, are minor imperfections in title,and do not materially detract from the value or interfere with the current useof the property subject to such Liens; (6) are restrictions on transfer orchange in control

 

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provisions which are disclosedin Schedule 3.1(B) or Schedule 3.1(E); (7) arerestrictions or limitations arising under Laws (including zoning and land userestrictions and restrictions relating to the transfer of securities); or (8) restrictionscreated by or arising under any of the Commitments disclosed in Schedule 3.1(E).

 

(ii)           Neitherthe Company nor the Shareholder has received notice of any condemnationproceedings and, to the knowledge of the Shareholder, no condemnationproceedings have been threatened, in each case with respect to any of theLeased Realty, and no such property has been condemned.  Neither the Company nor the Shareholder hasreceived notice of any Legal Proceedings, and, to the knowledge of theShareholder, no Legal Proceedings have been threatened, that could, with thepassage of time or otherwise, give rise to a Lien (excluding a Permitted Lien)against the Company’s leasehold interests in the Leased Realty.

 

(iii)          Exceptas set forth in Schedule 3.1(F)(ii) or Schedule 3.1(B),with respect to each of the Leases: (i) such Lease is legal, valid,binding, enforceable and in full force and effect; (ii) the consummationof the transaction contemplated by this Agreement does not require the consentof any other party to such Lease, will not result in a breach of or defaultunder such Lease, or otherwise cause such Lease to cease to be legal, valid,binding, enforceable and in full force and effect on identical terms followingthe Closing; and (iii) neither the Company nor to the Shareholder’sknowledge any other party to the Lease is in breach or default under suchLease, and no event has occurred or circumstance exists which, with thedelivery of notice, the passage of time or both, would reasonably be expectedto result in a breach or default (excluding defaults which would not reasonablybe expected to result in any material Liability to the Company) or permit thetermination, modification or acceleration of rent under such Lease.

 

(iv)          To theknowledge of the Shareholder, the landlord under the Company’s Brattle StreetLeases does not intend to terminate such lease as a result of the ContemplatedTransactions, or to refuse to renew the expired leases relating to the BrattleStreet store on commercially reasonable terms. As used herein the term “Contemplated Transactions” means thetransactions contemplated by this Agreement and the Additional TransactionDocuments.

 

G.            IntellectualProperty Assets.

 

(i)            Setforth on Schedule 3.1(G) is a list of all patents and patentapplications, registered Marks (as defined below) and applications for theregistration of Marks, registered copyrights and copyright applications, andsimilar material intellectual property rights which are owned by or licensed tothe Company or used in the Business as currently conducted or proposed to beconducted; excluding in any case “off the shelf” software or similar propertywhich is readily available on a commercial or retail basis with a replacementcost and/or annual license fee of less than $10,000.  Except as set forth on Schedule 3.1(G),(1) to the knowledge of the Shareholder, the use of the BusinessIntellectual Property, as currently used or proposed to be used by the Company,does not conflict with, misappropriate or infringe upon any IntellectualProperty rights of others; (2) to the knowledge of the Shareholder, noother Person is conflicting with, infringing on, or misappropriating (or has inthe past conflicted with, infringed on, or misappropriated) the rights of theCompany in such Business Intellectual Property; and (3) no

 

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claims (including officeactions by Governmental Entities) with respect to the Business IntellectualProperty have been made or, to the knowledge of Shareholder threatened,contesting the validity, use, ownership, enforceability or registrability ofany of the Business Intellectual Property, nor, to the knowledge of the Shareholder, is there any reasonable basisfor any such claim.

 

(ii)           TheCompany owns all right, title, and interest in and to, free and clear of allLiens (other than Permitted Liens) or has a valid and enforceable right to usewithout payment to a third party (except for payments due under MaterialCommitments or other Commitments listed on Schedule 3.1(E)) allIntellectual Property which is necessary or used in the operation of theBusiness  (together with the IntellectualProperty owned by the Company, collectively****the “BusinessIntellectual Property”).  Any suchusage rights do not require payment to a third party on account of suchBusiness Intellectual Property (except for payments due under MaterialCommitments or other Commitments listed on Schedule 3.1(E)).  The transactions contemplated by thisAgreement shall not adversely affect the right, title or interest of theCompany in or to the Business Intellectual Property, and all of the BusinessIntellectual Property shall be owned or available for use by the Companyimmediately after the Closing on terms and conditions identical to those underwhich the Company owned or used the Business Intellectual Property immediatelyprior to the Closing.   The Company islisted as the record owner of each registration or application for registrationof Business Intellectual Property.   Nopast or present employee or consultant of the Company has or, together with theShareholder, will have as a result of the consummation of the transactionscontemplated by this Agreement, any ownership interest, license, permission orother right in or to any Business Intellectual Property.

 

H.            ComplianceWith Laws. Except as set forth on Schedule 3.1(H), the Companyhas complied and is in compliance with all Laws (including the provisions ofthe Occupational Safety and Health Act (29 U.S.C.A. § 651 et seq.)(“OSHA”) except to the extent that (a) any prior (and not current)noncompliance of such laws would not reasonably be expected to result in aMaterial Adverse Effect, and (b) any current noncompliance is not materialto the operations of the Business.  TheCompany has not received any notices from Governmental Entities alleging anynoncompliance with laws, excluding notices which have been withdrawn or whichrelate to matters which have been resolved and settled in full by the Companyprior to Closing.   This Section 3.1(H) isnot intended to cover Laws relating to the issuance of Licenses, which areaddressed in Section 3.1(E)(iii), Environmental Laws, which are addressedin Section 3.1(J), ERISA and other employee benefit Laws (including Lawsrelating to pension matters), which are addressed in Section 3.1(K), orTax Laws, which are addressed in Section 3.1(N).

 

I.              Litigation.Except as set forth on Schedule 3.1(I), there are no LegalProceedings pending or, to the knowledge of the Shareholder, threatened againstthe Company or the Shareholder that seek to enjoin or obtain damages in respectof the consummation of the transactions contemplated by this Agreement, or thatotherwise relate to the Business.

 

J.             ComplianceWith Environmental Laws.  To theShareholder’s knowledge, except as set forth on Schedule 3.1(J):  (a) the Company is in compliance withall Environmental Laws applicable to the operation of the Business; and (b) within the past two (2) yearsneither the Company nor the Shareholder has received any written notice fromany Governmental Entity

 

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asserting a violation of anyEnvironmental Law in connection with the operation of the Business by theCompany.  As used herein the term “Environmental Law” means: (1) theComprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.§9601 et seq.; (2) the Toxic Substances Control Act, 15 U.S.C. §2101 etseq.; (3) the Hazardous Materials Transportation Act, 49 U.S.C. §5101 etseq.; (4) the Federal Water Pollution Control Act, 32 U.S.C. §1251 etseq.; (5) the Federal Solid Waste Disposal Act, 42 U.S.C. §6901 et seq.; (6) theFederal Clean Air Act, 42 U.S.C. §1857 et seq. and (7) OSHA (but only tothe extent such law in this clause (7) applies to the use, storage,transportation, discharge, or release of Hazardous Materials by such company),each as amended to date.  Notwithstandinganything herein to the contrary, all matters relating to Laws applicable to theprotection of the environment generally, or of land, water or air specifically,or to discharges, releases, creation, storage or transportation of HazardousMaterials, including any Liabilities arising thereunder, shall be governedexclusively by this Section 3.1(J).

 

K.            Employeesand Employee Benefit Programs.

 

(1)           Employees.  Schedule 3.1(K)(1) containsa complete and accurate list of theemployees of the Company as of the date hereof and the rate of all currentcompensation payable by the Company to each such employee, including any bonus,contingent or deferred compensation.

 

(2)           EmployeeBenefit Programs.  Set forth on Schedule 3.1(K)(2) isa complete and correct list of each “employee benefit plan” (within the meaningof Section 3(3) of the Employee Retirement Income Security Act of1974, as amended (“ERISA”)) and eachother benefit plan, program or arrangement maintained, sponsored or contributedor required to be contributed to by the Company or with respect to which theCompany has any current or potential liability. All such plans, programs or arrangements are collectivelyreferred to as the “Company Plans.” With respect to each Company Plan, the Company has heretofore deliveredor made available to the Purchaser, as applicable:  (i) complete and correct copies of theCompany Plan and any amendments thereto (or if the Company Plan is not awritten agreement, a description thereof); (ii) summary plan descriptions;(iii) all related insurance contracts, other funding arrangements andadministrative services agreements; and (iv)  all other documents pursuantto which such Company Plan is maintained, funded and administered.  Each Company Plan has been maintained, fundedand administered in accordance with its terms and in material compliance withthe applicable provisions of ERISA, the Internal Revenue Code of 1986, asamended (the “Code”) and other applicable Laws. Except as required by COBRA (as defined below), the Company does nothave any obligation with respect to any Company Plan, no actions,investigations, hearings, proceedings, audits, examinations, suits or claims(other than routine claims for benefits in the Ordinary Course of Business) arepending, or, to the Shareholder’s knowledge, threatened.  The Company does not have any obligation withrespect to any post-retirement or post-termination medical or life insurance orother similar benefits.

 

(3)           GeneralCompliance Matters.  Neither theCompany nor any ERISA Affiliate has ever maintained, had an obligation tocontribute to, contributed to, or incurred any liability with respect to (1) any“employee pension benefit plan” within the meaning of ERISA Section 3(2);or (2) any pension plan that is or was subject to Title IV of ERISA or Section 401(a)

 

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of the Code.  Neither the Company nor any ERISA Affiliatehas engaged in a prohibited transaction, as such term is defined under Code Section 4975or ERISA Section 406, which would subject to the Company to any taxes,penalties or other liabilities under Section 4975 of the Code or ERISASections 409 or 502(i).  Neither theCompany nor any ERISA Affiliate has ever contributed to or been required tocontribute to any multiemployer plan (as defined in Section 3(37) ofERISA).  Neither the Company nor anyERISA Affiliate has any current or potential liability (including withdrawalliability as defined in ERISA Section 4201) under any multiemployer plan(as defined in Section 3(37) of ERISA). As used above, the term “ERISA Affiliate” means any Person that is orwas at any time treated as a single employer under IRC Section 414 withthe Company.

 

(4)           COBRACompliance.  Except as set forth on Schedule 3.1(K)(2),the Company and each ERISA Affiliate have complied and are in compliance withthe requirements of Part 6 of Subtitle B of Title I of ERISA, Section 4980Bof the Code, and any similar state Laws (“COBRA”).

 

L.             LaborRelations.  Except as set forth on Schedule 3.1(L),the Company is not party to any collective bargaining agreement or othersimilar labor Commitment.  Except as setforth on Schedule 3.1(L): (i) there are, and since January 1,2000 have been, no strikes, work slowdowns or stoppages, widespread picketing,or formal employee grievance processes pending or, to the knowledge of theShareholder, threatened against the Company, and (ii) the Company is notcurrently a party to, or, to the knowledge of the Shareholder, currentlythreatened with, any Legal Proceeding by any employee or former employee~~~~orGovernmental Entity relating to any alleged violation of Law pertaining tolabor relations or employment matters, including any Laws relating to wages andhours, worker’s compensation or immigration.

 

M.           Insurance.  All policies of insurance relating to theBusiness with respect to any periods which include the Closing Date are validand enforceable and in full force and effect and will continue to be in fullforce and effect following the Closing. A summary of the Company’s current insurance coverages is set forth on Schedule 3.1(M).** **All premiums,including any current or retrospective premiums or other like arrangement withrespect to such policies of insurance which are currently maintained, have beenpaid when due with respect to all periods prior to the date hereof.  No notice of cancellation or termination hasbeen received by the Company or Shareholder with respect to any such policy ofinsurance, and except as set forth on Schedule 3.1(M) no claimrelating to the Business is currently reserved or, to the knowledge of theShareholder, should be reserved, under any such policy of insurance involvingan amount in excess of $150,000 (excluding provisional notices of prospectivenon-renewal for insurance policies which are routinely sent, not in response toany specific casualty event or loss history, by insurance companies within acertain period before such policy would normally expire).

 

N.            Taxes.The Company has timely filed all Tax Returns and reports required to be filedby or with respect to it pursuant to applicable Law, and such Tax Returns areaccurate, complete and correct in all material respects.  The Company has paid all Taxes due andpayable by it (whether or not shown on such Tax Returns), and there are noother Taxes payable on account of the Company except for Taxes which are notyet due and for which the Company has made adequate reserves, accruals andcharges in its books and records of account in accordance

 

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with GAAP.  The Shareholder has delivered or madeavailable to the Purchaser complete and correct copies of all federal and stateincome Tax Returns, examination reports, and statement of deficiencies assessedagainst, or agreed to by the Company for all taxable periods ended on or after December 31,1998.  Schedule 3.1(N) liststhe dates since January 1, 1998 as of and for which the federal and statecorporate income/franchise, sales/use and other Tax Returns of the Company wereaudited and closed and lists the jurisdictions in which the Company files anysuch Tax Return.  Except as separatelyset forth and identified on Schedule 3.1(N), there is no Tax auditor examination or any judicial or administrative proceedings now beingconducted, pending or, to the Shareholder’s knowledge, threatened with respectto the Company.  Except as set forth on Schedule 3.1(N),since January 1, 1998, no correspondence or claim has been received by theCompany or the Shareholder from any taxing authority of any jurisdiction inwhich the Company does not file Tax Returns that the Company is or may besubject to taxation by such jurisdiction. There are no Liens on any of the assets of the Company that arose inconnection with any failure (or alleged failure) to pay any Tax.  All Taxes which the Company was or isrequired by Law to withhold or collect have been and are being withheld orcollected by it and have been timely paid over to the proper GovernmentalEntities or, if not yet due, are being held by the Company for such payment.  Except as set forth on Schedule 3.1(N),neither the Shareholder nor the Company has waived, extended or agreed toextend any applicable statute of limitations relating to any Tax assessment ordeficiency of the Company or agreed to any extension of time for filing any TaxReturn of the Company which has not been filed. There is no dispute with or asserted claim by any taxing authorityconcerning any Tax liability of the Company. To the Shareholder’s knowledge no taxing authority intends to assess anyadditional Taxes for any period for which Tax Returns of the Company have beenfiled.  The Company has never been amember of an Affiliated Group or filed or been included in a combined,consolidated or unitary income Tax Return, and the Company is not a party toand is not bound by any Tax allocation or Tax sharing agreement.  The Company has not distributed stock ofanother Person, nor has it had its stock distributed by another Person, in atransaction that was purported or intended to be governed in whole or in partby Sections 355 or 361 of the Code.  TheCompany has not engaged in any reportable transaction within the meaning of Section 6111and 6112 of the Code.  Neither theCompany nor the Shareholder has requested or received a ruling from any taxingauthority or signed any binding agreement with any taxing authority that mightimpact any tax attribute of or the amount of Tax due from the Company on orafter the Closing Date.  All of theCompany’s nonqualified deferred compensation plans (within the meaning of Section 409Aof the Code), if any, are in compliance with Section 409A of theCode.  The Shareholder is not a “foreignperson” within the meaning of Section 1445(f)(3) of the Code.  The Company is not liable for the Taxes ofanother Person (i) under Treasury Regulation § 1.1502-6 (orcomparable provisions of state, local or foreign Law), (ii) as atransferee or successor, (iii) by contract or indemnity or (iv) otherwise;and will not be required to include any item of income in, or exclude any itemof deduction from, taxable income for any taxable period (or portion thereof)ending after the Closing Date as a result of any (A) change in method ofaccounting for a taxable period ending on or prior to the Closing Date, (B) “closingagreement” as described in Section 7121 of the Code (or any correspondingor similar provision of state, local or foreign income Tax Law) executed on orprior to the Closing Date, (C) intercompany transactions or any excessloss account described in Treasury Regulations under Section 1502 of theCode (or any corresponding or similar provision of state, local or foreignincome Tax Law), (D) installment sale or open transaction disposition madeon or prior to the Closing Date, or (E)

 

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prepaid amount received on orprior to the Closing Date.  The Company(and any predecessor of the Company) has been a validly electing S corporationwithin the meaning of Code Sections 1361 and 1362 at all times since July 1,1988.   The Company has not, during itslast ten taxable years, acquired any assets to which Section 1374(d)(8) ofthe Code would be applicable. The Company has consistently used the accrualmethod of accounting, and has not used the cash receipts and disbursementsmethod of accounting, for federal state and local income tax purposes.  Notwithstanding anything herein to thecontrary, each representation and warranty within this Section 3.1(N)shall be deemed to be preceded by the clause “except as set forth on Schedule 3.1(N).”

 

O.            Brokers’Fees.  Neither the Company nor theShareholder has entered into any Commitment which will cause the Purchaser orthe Company (following the Closing) to become obligated for any broker’s,finder’s or other similar fee or commission in connection with this Agreementor the consummation of any of the transactions contemplated hereby, except forTri-Artisan Partners LLC, whose fees and expenses in respect of suchtransactions shall be paid by the Shareholder.

 

P.             VendorMatters.  Schedule 3.1(P)lists the top 25 vendors of the Company for the period therein described.  Except as set forth on Schedule 3.1(P):(1) the relationship of the Company with each such vendor of the Companyis a good commercial working relationship, and there are no material unresolveddisputes between the Company and any such vendors;  (2) the Company has no chargebacks orother liabilities to vendors which are required (or which will be required) tobe accrued or recorded under GAAP in excess or $100,000 and which are not soaccrued or recorded on the Company’s financial records; (3) no such vendorwithin the last twelve (12) months has canceled or otherwise terminated, orthreatened to cancel, or to the knowledge of the Shareholder, intends to cancelor terminate, its relationship with the Company, and (4) during the lasttwelve (12) months there has been no material interruption in the Company’ssupply arrangements with such vendors.

 

Q.            AffiliatedTransactions. Except as set forth on the attached Schedule 3.1(C),Schedule 3.1(D) or Schedule 3.1(E) (andexcluding employment, the Shareholder’s ownership of the Shares, and the priorpayment of personal expenses of any Key Employee which have been reimbursed infull), no officer, Key Employee, director, shareholder or Affiliate of theCompany or the Shareholder, or any individual related by blood, marriage oradoption to any such individual, or any entity in which any such Person orindividual owns any beneficial interest (excluding passive interests of lessthan 5% of the equity of any such entity), is a party to any agreement,contract, commitment or transaction with the Company (to the extent currentlybinding on the Company) or has any material interest in any material propertyused by the Company.  As used above, theterm “Key Employee” means the Shareholder, Stacey Manganella, and Percy Pava.

 

R.            AccreditedInvestor.  Shareholder is anaccredited investor as such term is defined in Regulation D promulgatedpursuant to Section 4(2) of the Securities Act of 1933, as amended(the “Securities Act”). Shareholder acknowledges and agrees that the Closing Shares are beingissued and sold in reliance on the exemption from registration contained in Section 4(2) ofthe

 

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Securities Act andexemptions contained in applicable state securities laws, and that the ClosingShares cannot and will not be transferred except in a transaction that isexempt under the Securities Act and those state acts or pursuant to aneffective registration statement under the Securities Act and those state actsor in a transaction that is otherwise in compliance with the Securities Act andthose state acts.  Shareholderunderstands that he has no contractual right for the registration under theSecurities Act of the Closing Shares for public sale other than pursuant to theRegistration Rights Agreement and that, unless the Closing Shares areregistered or an exemption from registration is available, the Closing Sharesmay be required to be held indefinitely. The Closing Shares to be acquired by Shareholder pursuant to thisAgreement shall be acquired for Shareholder’s own account and not with a viewto, or intention of, distribution thereof in violation of the Securities Act,or any applicable state securities laws, and the Closing Shares shall not bedisposed of in contravention of the Securities Act or any applicable statesecurities laws.  Shareholder issophisticated in financial matters and is able to evaluate the risks andbenefits of the investment in the Closing Shares.  Shareholder is able to bear the economic riskof his investment in the Shareholder Stock for an indefinite period of timebecause the Closing Shares have not been registered under the Securities Actand, therefore, cannot be sold unless subsequently registered under theSecurities Act or an exemption from such registration is available.

 

Section 3.2.  No Implied Representations*. *Notwithstandinganything to the contrary herein: (1) it is the explicit intent andacknowledgement of each party hereto that the Shareholder has not made and isnot making any representation or warranty whatsoever, express or implied, otherthan those expressly given in Section 3.1 of this Agreement, and thePurchaser is not relying on any other statement, representation or warranty, oralor written, express or implied, made by the Shareholder or the Company or theirrespective Affiliates, representatives or agents, including any such statement,representation or warranty contained in any offering memorandum or anyinformation, document or material made available to the Purchaser or itsAffiliates, representatives or agents in any “data rooms,” managementpresentations or any other form in expectation of the transactions contemplatedby this Agreement and the Additional Transaction Documents; and (2) thePurchaser has undertaken its own analyses and methodologies to value theCompany and the Business, and in no event shall the Shareholder be charged withknowledge of, or have responsibility for, such analyses or methodologies or thevaluation resulting therefrom.  EXCEPT ASOTHERWISE SPECIFICALLY SET FORTH IN SECTION 3.1 OF THIS AGREEMENT, THESHAREHOLDER EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTY OR REPRESENTATION.

 

ARTICLE IV.

 

Representations and Warrantiesof the Purchaser

 

Section 4.1             Representationsand Warranties.  The Purchaserrepresents and warrants to the Shareholder that:

 

A.            CorporateExistence and Qualification; Due Execution, Etc.  The Purchaser is a corporation duly organizedand validly existing under the Laws of the State of Delaware and has therequisite corporate power and authority to execute, deliver and perform

 

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this Agreement and toconsummate the transactions contemplated hereby.  The execution and delivery of this Agreementby the Purchaser and the consummation by the Purchaser of the transactionscontemplated hereby have been duly authorized by all requisite corporate actionand, assuming the due execution of this Agreement by the Shareholder, thisAgreement constitutes the valid and binding obligations of the Purchaserenforceable against the Purchaser in accordance with its terms, subject only toapplicable bankruptcy, insolvency, reorganization, moratorium or other similarLaws relating to creditors’ rights generally and to general principles ofequity (regardless of whether such enforcement is considered in a proceeding atlaw or in equity).

 

B.            NoViolation.

 

(i)            Neitherthe execution, delivery and performance by the Purchaser of this Agreement orthe Additional Transaction Documents, nor the consummation of the ContemplatedTransactions by the Purchaser, will (A) violate any Order applicable tothe Purchaser or (B) result in a breach of or default under, the CharterDocuments of the Purchaser; except for such violations which would notreasonably be expected to have a material adverse effect on the Purchaser’sability to perform its obligations under this Agreement or the AdditionalTransaction Documents, or to consummate the Contemplated Transactions.

 

(ii)           Neitherthe execution, delivery and performance by the Purchaser of this Agreement orthe Additional Transaction Documents, nor the consummation of the ContemplatedTransactions by the Purchaser, will violate any agreement or Law applicable tothe Purchaser; except for such violations which would not reasonably beexpected to have a material adverse effect on the Purchaser’s ability toperform its obligations under this Agreement or the Additional TransactionDocuments, or to consummate the Contemplated Transactions.

 

(iii)          Noconsent, authorization, or approval from, or registration or filing with, anyGovernmental Entity or other third party (not obtained or made as of the datehereof) is required to be obtained or made by or with respect to the Purchaserin connection with the execution and delivery of this Agreement or theconsummation by the Purchaser of the transactions contemplated hereby; exceptfor such violations which would not reasonably be expected to have a materialadverse effect on the Purchaser’s ability to perform its obligations under thisAgreement or the Additional Transaction Documents, or to consummate theContemplated Transactions.

 

C.            Litigation.  There are no Legal Proceedings pending or, tothe knowledge of the Purchaser, threatened against the Purchaser that seek toenjoin or obtain damages in respect of the consummation of the transactionscontemplated by this Agreement.

 

D.            FinancialAbility to Perform. The Purchaser has available cash funds sufficient toconsummate the transactions contemplated by this Agreement.

 

E.             Purchasefor Investment.  The Purchaser isacquiring the Company Shares for investment and not with a view toward anyresale or distribution thereof except in compliance with applicable Laws,including the Securities Act.

 

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F.             Brokers’Fees.  The Purchaser has not made anyagreement, which will cause the Company, or the Shareholder to become obligatedfor any broker’s or other similar fee or commission as a result of any of thetransactions contemplated by this Agreement.

 

ARTICLE V

 

Covenants and Agreements

 

Section 5.1             Section 338(h)(10) Election

 

A.            Atthe Purchaser’s option, the Shareholder and the Purchaser shall join in makinga timely election under Code Section 338(h)(10) (and anycorresponding elections under state, local, or foreign tax law) (collectively,the “Section 338(h)(10) Election”) with respect to thepurchase and sale of the stock of the Company. The parties agree that the Purchase Price and the liabilities of theCompany (plus other relevant items) will be allocated to the assets of theCompany for all purposes as set forth in a schedule to be provided by thePurchaser to the Shareholder (and subject to the Shareholder’s reasonableapproval) within 120 days after the Closing Date. In the event that the Purchaserand the Shareholder cannot agree on such allocation within a reasonable periodof time prior to the due date for filing the Section 338(h)(10) Election,then such allocation shall be finally determined by a nationally recognizedaccounting firm reasonably acceptable to the Purchaser and theShareholder.  The Purchaser, theShareholder, and the Company shall file all Tax Returns (including amendedreturns and claims for refund) and information reports in a manner consistentwith such allocation.

 

B.            Forpurposes of this Agreement, “Extra Tax Cost” means the amount, if any,of all incremental federal, state, and local Taxes imposed on the Shareholderor the Company as a result of the Section 338(h)(10) Election(assuming, solely for purposes of this calculation, that all of the Shareholder’srepresentations and warranties set forth in Section 3.1(N) are true andcorrect), compared to the federal, state, and local Taxes that would have beenimposed on the Shareholder or the Company in the absence of the Section 338(h)(10) Election(including, without limitation, a gross-up for any Taxes imposed on theShareholder as a result of the payment of the Extra Tax Cost).  The Extra Tax Cost shall be calculated usingthe highest marginal federal, state, and local Tax rates (taking into accountthe federal Tax benefit of any state and local Taxes) applicable to individualsliving in the state of Massachusetts on income of the relevant character.

 

C.            Notwithstandinganything herein to the contrary, the Shareholder and the Purchaser agree thatas between the Shareholder and the Purchaser, the Purchaser shall beresponsible for any and all Extra Tax Costs, and in furtherance thereof: (i) the Purchaser shall cause the Company to promptlypay when due any Extra Tax Cost imposed on the Company; and (ii) thePurchaser shall pay the amount of any Extra Tax Cost imposed on the Shareholderconcurrently with the payment of any such Extra Tax Cost by the Shareholder(with payments pursuant to this clause (ii) to be made within 10 daysafter delivery to the Purchaser of evidence showing payment by the Shareholderof an Extra Tax Cost imposed on him). The Purchaser shall include with the allocation schedule to beprovided pursuant to clause (a) above its

 

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calculationof the Extra Tax Cost.  The amount ofExtra Tax Cost paid to the Shareholder shall be treated as an increase to thePurchase Price.

 

Section 5.2             TaxMatters.

 

A.            TaxPeriods Ending on or before the Closing Date.  The Shareholder shall prepare and file orcause to be prepared and filed all Tax Returns for the Company and the Businessfor all periods ending on or prior to the Closing Date which are filed afterthe Closing Date. Each such Tax Return described in the preceding sentenceshall be subject to review and approval by the Purchaser (which approval shallnot be unreasonably withheld) prior to filing; provided, however, that withrespect to any dispute involving the calculation any Tax liability under Section 1374of the Code with respect to assets acquired from Flirt, Inc., theAccounting Firm shall determine such calculation consistent with the disputeresolution provisions of Section 1.5. The Shareholder shall pay andbe liable for all Taxes of the Company with respect to such periods or whicharise in respect of any event, action, or transaction which occurred duringsuch periods, excluding, however, Extra Tax Costs.

 

B.            TaxPeriods Beginning on or after the Closing Date.  The Purchaser shall prepare and file or causeto be prepared and filed when due all Tax Returns for the Company for allperiods beginning on or after the Closing Date. The Purchaser shall pay andbe liable for all Taxes of the Company with respect to such periods or whicharise in respect of any event, action, or transaction which occurred duringsuch periods.

 

C.            Tax Periods Beginning Before and Ending After the Closing Date*. *The Purchaser shall prepare and file or cause tobe prepared and filed when due any Tax Returns of the Company for Tax periodswhich begin before the Closing Date and end after the Closing Date.  The Purchaser shall permit the Shareholder toreview and comment on each such Tax Return described in the preceding sentenceprior to filing.  Subject to Section 5.2(G),the Shareholder shall deliver to the Purchaser, at least three (3) businessdays prior to the date on which such Taxes are required to be paid, thatportion of the Taxes which relates to the portion of such taxable period endingon the day immediately preceding the Closing Date (the “Pre-ClosingStraddlePeriod Taxes”), excluding, however, Extra Tax Costs.  Forpurposes of this Section 5.2(C), in the case of any Taxes (other thanExtra Tax Costs) that are imposed on a periodic basis and are payable for ataxable period that includes (but does not end on) the day immediatelypreceding the Closing Date, the portion of such Tax which relates to theportion of such taxable period ending on the day immediately preceding theClosing Date shall (i) in the case of any Taxesother than Taxes based upon or related to income or receipts, be deemed to bethe amount of such Tax for the entire taxable period multiplied by a fractionthe numerator of which is the number of days in the taxable period ending onthe day immediately preceding the Closing Date and the denominator of which isthe number of days in the entire taxable period, and (ii) in the case ofany Tax based upon or related to income or receipts be deemed equal to theamount which would be payable if the relevant taxable period ended on the dayimmediately preceding the Closing Date. Subject to the proration provisions of thepreceding sentence, any credits or refunds relating to a taxable period thatbegins before and ends after the Closing Date shall be taken into account asthough the relevant taxable period ended on the day immediately

 

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preceding the Closing Date.  Alldeterminations necessary to give effect to the foregoing allocations shall bemade in a manner consistent with prior practice of the Company.

 

D.            ContestProceedings. With respect to any Tax Returns for any Tax periods, the partyhereto responsible for the preparation and filing of such Tax Return shallcontrol the defense of any audits thereof or other Legal Proceedings relatingthereto, *provided* that the costs of any suchdefense shall be shared by the parties hereto, pro rata based on theirresponsibility for Taxes due under any such Tax Return, and *provided further* that no such audits or other LegalProceedings shall be settled in a manner which would adversely affect the otherparty hereto without the prior written consent of such other party, whichconsent shall not be unreasonably withheld.

 

E.             NoWithholding.  Payment by thePurchaser to the Shareholder of the Purchase Price shall be made in fullwithout any deduction or withholding, whether in respect of set-off,counterclaim, or Taxes (other than any Taxes imposed on the Shareholder thatare based on net income or profits or any Taxes required by law to be withheldby the Purchaser).

 

F.             TransferTaxes.  All sales, use, transfer,stamp, conveyance, value added or other similar Taxes, duties, excises orgovernmental charges imposed by any taxing jurisdiction, domestic or foreign,and all recording or filing fees, notarial fees andother similar costs with respect to the Transfer of the Company Shares will besplit equally between the Purchaser and the Shareholder.  The Purchaser will file all necessary TaxReturns and other documentation in connection with the Taxes and chargesencompassed in this Section 5.2(F), and the costs and expenses of filingsuch Tax Returns and other documentation shall be split equally between thePurchaser and the Shareholder.

 

G.            Cooperationon Tax Matters.  The Purchaser, theCompany and the Shareholder shall cooperate (and cause their respectiveAffiliates to cooperate) fully, as and to the extent reasonably requested bythe other parties, in connection with the preparation and filing of Tax Returnspursuant to this Section 5.2 and any Tax audit, litigation or otherproceeding with respect to Taxes and payments in respect thereof.  Such cooperation shall include the retentionand (upon the other parties’ request) the provision of records and informationwhich are reasonably relevant to any such Tax audit, litigation or otherproceeding and making employees available on a mutually convenient basis toprovide additional information and explanation of any material providedhereunder.  The Company and theShareholder agree to retain all books and records with respect to Tax matterspertinent to the Company relating to any taxable period beginning before theClosing Date until the expiration of the statute of limitations (and, to theextent notified by the Purchaser, any extensions thereof) of the respectivetaxable periods, and to abide by all record retention agreements entered intowith any taxing authority.  The partiesshall provide timely notice to the other in writing of any pending or proposedTax audits or assessments with respect to Taxes for which the other may have anindemnification obligation under this Agreement.  The Purchaser and the Shareholder furtheragree, upon the reasonable request of the other party, to cooperate with eachother to obtain any certificate or other document from any Governmental Entityor otherwise to mitigate, reduce or eliminate any Tax that might otherwise beimposed on either party or the Company in the absence of such certificate orother documentation (including without limitation as a result of thetransactions

 

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contemplatedhereby). Any failure to timely notify the other party of any Tax audits orassessments shall not relieve such party from any obligation hereunder unless(and then only to the extent) such party is actually prejudiced thereby.  The parties shall furnish the other withcopies of all relevant correspondence received from any taxing authority inconnection with any Tax audit or information request with respect to any Taxesfor which the other may have an indemnification obligation under thisAgreement.  The Purchaser and theShareholder further agree, upon request, to provide the other party with allinformation that either party may be required to report pursuant to Sections6043 and 6043A of the Code and all Treasury Regulations promulgated thereunder. The parties agree to cooperate in pursuing aprocess where they would request the IRS to grant relief to Flirt, Inc. toallow Flirt, Inc. to become an S corporation for its year ended December 31,2004, provided that any additional costs and expenses of such process (on a netbasis, taking into account all of the consequences of such an S election),including the tax costs of Flirt becoming an S corporation for such year, wouldbe borne by the Purchaser.

 

I.              PurchasePrice Adjustment.  Allindemnification payments under this Section 5.2 and Section 6.15shall be deemed adjustments to the Purchase Price.

 

J.             CertainDefinitions.  For purposes of thisAgreement: (i) “Tax” or “Taxes” means all federal, state,provincial, territorial, local, foreign and other taxes, assessments, orgovernmental charges in each case in the nature of a tax, including income,capital, franchise, capital stock, excise, property, sales, use, service,service use, leasing, leasing use, license, goods and services, gross receipts,value added, single business, alternative or add-on minimum, occupation, realand personal property, stamp, ad valorem, workers’compensation, severance, profits, windfall profits, customs, duties,disability, registration, estimated, environmental (including Taxes under Code Section 59A),transfer, payroll, wage or other withholding, employment, unemployment, socialsecurity (or similar) taxes or premiums, or other assessments, charges andtaxes of the same or similar nature, together with any interest, penalties oradditions thereon and estimated payments thereof, whether disputed or not; and (ii) “TaxReturn” or “Tax Returns” includes all returns, reports, informationreturns, forms, declarations, claims for refund, statements and other documents(including any amendments thereto and including any schedule or attachmentthereto) in connection with Taxes that are required to be filed with aGovernmental Entity or other tax authority, or sent or provided to anotherparty under applicable Law (including any schedule or attachment theretoand including any amendment thereof), and all citations of the Code or to theTreasury Regulations promulgated thereunder willinclude any amendments or successor provisions thereto.

 

Section 5.3             Booksand Records.  Until the earlier of (i) the expiration of the applicable statute oflimitations (including periods of waiver) or (ii) seven (7) yearsafter the Closing Date (or such longer period as may be required by any Law orany ongoing Legal Proceeding), (1) the Purchaser shall cause the Companyto maintain all books and records of the Company material to the Business; and (2) theShareholder shall maintain those books and records which are material to theBusiness and are not provided to Purchaser at or in connection with theClosing; in each case with respect to the period up to and including theClosing; and (3) the Purchaser and the Shareholder, respectively, shallpermit the Shareholder and the Purchaser, respectively, to have reasonableaccess to such books, records and data for inspection and copying by theShareholder

 

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or Purchaser, respectively, ortheir respective duly authorized representatives (at the Shareholder’s orPurchaser’s respective expense) upon reasonable prior written notice, inconnection with the preparation of financial reports, Tax Returns, Tax audits,the defense or prosecution of litigation, or any other reasonable need of theShareholder or Purchaser, respectively, to consult such records and data.

 

Section 5.4             Dischargeof Liabilities.   The Purchaser acknowledges that any and allLiabilities of the Company at Closing shall continueto be Liabilities of the Company unaffected by the Closing and the Transfer ofthe Company Shares hereunder.

 

Section 5.6             Indemnificationof Directors and Officers. Following the Closing, the Purchaser shall cause the Company to honorits obligations, if any, to indemnify and advance defense costs to each presentand former officer or director of the Company pursuant to its Charter Documentsand shall not permit the Charter Documents of the Company to be amended for aperiod of six years in a manner which materially adversely affects the indemnificationrights, if any, of present and former directors and officers of the Company.

 

Section 5.7             FurtherAssurances.  At any time and fromtime to time, the Shareholder on the one hand, and the Purchaser, on the otherhand, shall promptly execute, acknowledge and deliver any other assurances ordocuments reasonably requested by the other, as the case may be, and necessaryfor it, as the case may be, to satisfy its respective obligations hereunder orobtain the benefits contemplated hereby.

 

Section 5.8             Confidentiality.  In consideration of the mutual covenantscontained herein, Shareholder agrees that, for all times after the Closing,except as required by law or court order, or in order to assert a claim ordefense under this Agreement or the Additional Transaction Documents, he shallnot, directly or indirectly, disclose to any unauthorized Person or use for hisown account (other than pursuant to his employment duties under the EmploymentAgreement) any Confidential Information.

 

Section 5.9 Non-Competition; Non-Solicitation.

 

(i)            Shareholderacknowledges that during his employment relationship with, and through hisinvolvement as a stockholder of, the Company, Shareholder has become familiarwith trade secrets and other Confidential Information concerning the Company,and with investment opportunities relating to their respective businesses.  Therefore, Shareholder agrees that for aperiod of five years following the date hereof (the “NonCompetePeriod”), he will not singly, jointly, or as a partner, member orstockholder directly, indirectly or beneficially own, manage, control,participate in the ownership, management, operation or control of, or renderservices for (as a consultant or advisor), or provide financial assistance to aCompetitive Business.  Nothing in this Section willprohibit Shareholder from: (a) being employed by the Company or itsAffiliates; or (b) being a passive owner of less than 5% of theoutstanding stock of any company listed on a national securities exchange oractively traded in the over-the-counter market, so long as Shareholder has nodirect or indirect participation in the management of such company.

 

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(ii)           Duringthe NonCompete Period, Shareholder shall not (i) directly or indirectly, either for himself or forany other person, business, partnership, association, firm, company orcorporation, hire from the Company, or attempt to hire, divert or take awayfrom the Company, any of the officers or employees of the Company in existencefrom time to time during his employment with the Company, (ii) interferewith or attempt to interfere with, the relationship of the Company or itsAffiliates, with any employee, customer or supplier of the Company or itsAffiliates, or (iii) knowingly make any public statement or other publiccommunication (or repeated and widespread private statements or communications)that is or are reasonably likely to materially damage the goodwill of theCompany or its Affiliates, or knowingly take any action, directly orindirectly, to interfere with any contractual or customer or supplierrelationships of the Company or its Affiliates.

 

(iii)          Shareholderagrees and acknowledges that:  (a) thecovenants set forth in this Section 5.9 are reasonably limited in time andin all other respects, (b) the covenants set forth in this Section 5.9are reasonably necessary for the protection of the Company, (c) thePurchaser would not have entered into this Agreement but for the covenants ofthe Shareholder contained herein, and (d) the covenants contained hereinhave been made in order to induce the Purchaser to enter into this Agreement.

 

(iv)          If,at the time of enforcement of this Section 5.9, a court shall hold thatthe duration, scope or area restrictions stated herein are unreasonable underthe circumstances then existing, the parties agree that the maximum duration,scope or area reasonable under such circumstances shall be substituted for thestated duration, scope or area and that the court shall be allowed to revisethe restrictions contained herein to cover the maximum period, scope and areapermitted by law.

 

(v)           TheShareholder recognizes and affirms that in the event of his breach of anyprovision of this Section 5.9, money damages would be inadequate and thePurchaser and the Company would have no adequate remedy at law.  Accordingly, the Shareholder agrees that inthe event of a breach or a threatened breach by the Shareholder of any of theprovisions of this Section 5.9, the Purchaser and the Company, in additionand supplementary to other rights and remedies existing in their favor, mayapply to any court of law or equity of competent jurisdiction for specificperformance and/or injunctive or other relief in order to enforce or preventany violations of the provisions hereof (without posting a bond or othersecurity).

 

Section 5.10  Guarantees.  To the extent that the Shareholder or Stacey Manganella has personally guaranteed any obligations of theCompany under any Commitment, then from and after the Closing (1) at theShareholder’s request the Purchaser will use reasonable efforts to have theShareholder and/or Stacey Manganella removed fromsuch guarantee; (2) the Purchaser shall not allow the Company to amend,extend or renew such Commitment without removing the Shareholder and Stacey Manganella from such guarantee; and (3) the Purchasershall indemnify the Shareholder and Stacey Manganellafrom any and all Shareholder’s Losses (as defined in Section 6.15(B))incurred or suffered by the Shareholder and/or Stacey Manganellaon account of such guarantee.

 

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ARTICLE VI

 

Miscellaneous

 

Section 6.1             EntireAgreement.  This Agreement(including the Disclosure Schedule and the Additional TransactionDocuments) supersedes any other agreement, whether written or oral, that mayhave been made or entered into by any party or any of their respectiveAffiliates (or by any director, officer or representative thereof) with respectto the subject matter hereof.  ThisAgreement (including the Disclosure Schedule and the AdditionalTransaction Documents) constitutes the entire agreement of the parties heretowith respect to the matters provided for herein, and there are no agreements orcommitments by or among such parties or their Affiliates with respect to thesubject matter hereof except as expressly set forth in this Agreement, theDisclosure Schedule and the Additional Transaction Documents.

 

Section 6.2             Amendments.  No amendment, modification or alteration ofthe terms or provisions of this Agreement shall be binding unless the sameshall be in writing and duly executed by the Purchaser and the Shareholder.

 

Section 6.3             Successorsand Assigns.  This Agreement shallinure to the benefit of and be binding upon theparties hereto and their respective successors and permitted assigns.  This Agreement may not be assigned by anyparty without the prior written consent of the other parties; provided,however, that Purchaser may assign any or all of its rights and obligationsunder this Agreement or the Additional Transaction Documents to any direct orindirect wholly owned subsidiary, limited partnership, limited liabilitycompany or similar business entity without the consent of the Shareholder, orto any Person in connection with the sale or transfer to such Person of all orsubstantially all of the Purchaser’s assets, or as a collateral assignment bythe Purchaser to its lenders; but such assignment shall not relieve thePurchaser of any of its obligations hereunder.

 

Section 6.4             Counterparts.  This Agreement may be executed and deliveredin counterparts, each of which when executed and delivered shall be deemed tobe an original for all purposes and all of which together shall constitute oneand the same agreement.

 

Section 6.5             Headingsand Section References.  Theheadings of the sections and paragraphs of this Agreement are for referencepurposes only and are not intended to be a part of, or to affect the meaning orinterpretation of, this Agreement.  All Article andSection references herein, unless otherwise clearly indicated, are toArticles and sections within this Agreement.

 

Section 6.6             Waiver.  No failure or delay by either the Purchaseror the Shareholder in exercising any right, power or privilege hereunder shalloperate as a waiver thereof; nor shall any single or partial exercise thereofpreclude any other or further exercise thereof or the exercise of any otherright, power or privilege.  The rightsand remedies herein provided are cumulative and not exclusive of any rights orremedies otherwise provided by law.

 

Section 6.7             Expenses.  Except as otherwise specifically provided forin this Agreement or in any Additional Transaction Document, the Shareholderand the Purchaser shall

 

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each pay all costs and expensesincurred by such party or on such party’s behalf in connection with thisAgreement and the Contemplated Transactions, including fees and expenses ofsuch party’s own financial consultants, accountants and counsel.

 

Section 6.8             Notices.  Any notice, request, instruction or otherdocument or communication to be given under this Agreement by any party heretoto any other party shall be in writing and delivered personally or sent by aninternationally recognized overnight courier service or by registered orcertified mail, postage prepaid:

 

If to the Shareholder to the followingaddress:

 

c/oJasmine Company, Inc

329 Newbury StreetBoston MA 02115Attn: Luciano  Manganella

 

with a copy to:

 

Goulston &Storrs, P.C.

400 AtlanticAvenue

Boston,MA  02110-3333

Attn:       MatthewE. Epstein, Esq.

 

If to the Purchaser, or to the Companyfollowing the Closing, to:

 

New York &Company, Inc.

450 West 33rdStreet

New York,NY  10001

Attn:       RonaldW. Ristau

 

with a copy to:

 

Kirkland &Ellis LLP

CitigroupCenter

153 East 53rdStreet

New York,NY  10022-464611

Attn:       MichaelT Edsall

Heidi C. Matterfis

 

or at such otheraddress for a party or as shall be specified by like notice.  Any notice that is delivered personally inthe manner provided herein shall be deemed to have been duly given to thePerson to which it is directed upon actual receipt by such party (or its agentfor notices hereunder).  Any notice thatis addressed as provided herein and mailed by registered or certified mail shallbe conclusively presumed to have been duly given to the Person to which it isaddressed at the close of business, local time of such party, on the fifthcalendar day after the day it is so placed in the mail.  Any notice that is addressed as provided hereinand sent by an

 

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internationallyrecognized overnight courier service shall be conclusively presumed to havebeen duly given to the Person to which it is addressed at the close ofbusiness, local time of such Person, on the next business day following itsdeposit with such courier service for next day delivery.

 

Section 6.9             GoverningLaw.  This Agreement and the legalrelations among the parties hereto shall be governed and construed inaccordance with the substantive Laws of the State of New York without givingeffect to the principles of conflict of laws thereof.

 

Section 6.10           Severability.  If any provisions hereof shall be held by anycourt of competent jurisdiction to be prohibited by, illegal or unenforceable,such provisions shall be of no force and effect to the extent of suchprohibition, illegality or unenforceability, but the prohibition, illegality orunenforceability shall have no effect upon, and shall not impair theenforceability of, any other provision of this Agreement.

 

Section 6.11           Knowledge.Whenever “to its knowledge,” “known,” “aware,” “awareness,” or a similar phraseis used with respect to the Shareholder to qualify a representation or warrantyof the Shareholder the “knowledge” or “awareness” so referred to shall bedeemed to be the actual and conscious (and not constructive) knowledge of theShareholder and Stacey Manganella, along with theknowledge that the Shareholder would reasonably be expected to have as theresult of such person’s position as chief executive officer and solestockholder, and Key Employee, respectively of the Company.

 

Section 6.12           Rightsof Third Parties.  Nothing expressedor implied in this Agreement is intended or will be construed to confer upon orgive any Person other than the parties hereto and their respective successorsand permitted assigns any rights, benefits or remedies under or by reason ofthis Agreement or any transaction contemplated hereby except for the Partiesentitled to indemnification under Section 6.15.

 

Section 6.13           Consentto Jurisdiction and Service of Process.  The Purchaser and each of the Shareholderhereby irrevocably consents that any legal action or proceeding against itunder, arising out of, or in any manner relating to this Agreement or any otheragreement, document or instrument arising out of or executed in connection withthis Agreement shall be brought only in a state or federal court of competentjurisdiction located within the State of New York and in all appellate courtsassociated therewith.  Each party by theexecution and delivery of this Agreement expressly and irrevocably consents andsubmits to the personal jurisdiction of any of such courts in any such actionor proceeding.  Each party herebyexpressly and irrevocably waives any claim or defense in any action orproceeding based on any alleged lack of personal jurisdiction, improper venue,forum non conveniens, or any similar basis.  Notwithstanding the foregoing, the Purchasermay elect, in its sole discretion, to initiate the arbitration procedures setforth on Schedule 6.13 to assert a claim that a Major EmploymentBreach has occurred and to enforce its rights with respect to the same pursuantto Section 6.16.  In such election,the parties shall cooperate in good faith to implement such arbitration inaccordance with Schedule 6.13, and, without limiting the foregoing, the parties shall direct the arbitrators in suchevent to issue their determinations on an expedited basis.

 

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Section 6.14 Waiver of Right to Jury Trial.  The Company, the Purchaser and theShareholder hereby waive, to the extent permitted by applicable law, trial byjury in any litigation in any court with respect to, in connection with, orarising out of this Agreement, any other Agreement contemplated hereby orthereby or the validity, protection, interpretation, collection or enforcementthereof.

 

Section 6.15           Indemnification;Survival of Representations and Warranties.

 

A.            Indemnificationby Shareholder.  The Shareholdershall indemnify, defend and hold harmless the Purchaser and its Affiliates andtheir respective employees, agents, officers, directors, stockholders,partners, representatives, successors and permitted assigns and the Company (a “PurchaserIndemnified Person”) from and against any losses, taxes, penalties,assessments, Liabilities, claims, damages, costs and expenses (includingreasonable attorneys’ fees and disbursements) incurred by such indemnifiedparty as the result of or arising from any misrepresentation in, breach of orfailure to comply with, any of the representations, warranties, covenants oragreements of the Shareholder contained in this Agreement or any AdditionalTransaction Document (including without limitation the covenants with respectto Taxes under Section 5.2 hereof); and all such losses, assessments,Liabilities, claims, damages, costs and expenses are referred to hereinafter asthe “Purchaser’s Losses.”

 

B.            Indemnificationby the Purchaser.  The Purchaser shallindemnify, defend and hold harmless the Shareholder and its Affiliates andtheir respective employees, officers, directors, stockholders, partners,agents, representatives, successors and permitted assigns (a “ShareholderIndemnified Party”) from and against any losses, taxes, penalties,assessments, Liabilities, claims, damages, costs and expenses (includingreasonable attorneys’ fees and disbursements) incurred by such indemnifiedparty as the result of or arising from any misrepresentation in, breach of orfailure to comply with, any of the representations, warranties, covenants oragreements of the Purchaser contained in this Agreement or any AdditionalTransaction Document (including without limitation the covenants with respectto Taxes under Section 5.2 hereof); and all such losses, assessments,Liabilities, claims, damages, costs and expenses are referred to hereinafter asthe “Shareholder’s Losses.”

 

C.            Survival;Limitations.  Notwithstandinganything else in this Agreement or any Additional Transaction Document to thecontrary:

 

(i)            Therepresentations and warranties of the Shareholder and the Purchaser,respectively, under this Agreement and any Additional Transaction Document, andany indemnification obligations arising therefrom,shall survive the Closing and shall expire and terminate on the date which is12 months following the Closing Date; *provided, however*,that the Shareholder’s representations and warranties in Section 3.1(A)(iii),Section 3.1(A)(iv), Section 3.1(K)(3), Section 3.1(N), and Section 3.1(O),and Section 3.1(S) shall not so expire and terminate upon such date butrather shall expire and terminate 60 days following the expiration of therespective statutes of limitations applicable to the matters giving rise to aclaim for breach of such sections (such applicable date, the “Survival Date”).  The covenants of the parties under thisAgreement and under any Additional Transaction Document, and anyindemnification obligations arising therefrom, shallsurvive the Closing and shall expire in accordance with their

 

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terms.  Any claim for indemnification made by aPurchaser Indemnified Party or a Shareholder Indemnified Party under this Section 6.15must be raised in a writing delivered to the Shareholder or the Purchaser, as applicable, by no later than the Survival Date and, ifraised by such date, such claim shall survive the Survival Date until finalresolution thereof.

 

(ii)           TheShareholder shall not have any indemnification obligations under Section 6.15(A),and the Purchaser shall not have any indemnification obligations under Section 6.15(B):  (a) except to the extent that thePurchaser’s Losses, or the Shareholder’s Losses, respectively, with respect toall such Material Claims in the aggregate exceed $300,000 (the “IndemnificationThreshold”), in which event such indemnification shall be required only tothe full extent of the Purchaser’s Losses or the Shareholder’s Losses,respectively, in excess of the Indemnification Threshold (subject also to thesucceeding clause (b) of this Section 6.15(C)(ii)); and (b) tothe extent that the Purchaser’s Losses in the aggregate, or the Shareholder’sLosses in the aggregate, respectively, exceed $4,500,000 (the “Cap”), inwhich event such indemnification shall be required only to the extent of thePurchaser’s Losses or the Shareholder’s Losses, respectively, below the Cap(subject also to the preceding clauses (a) and (b) of this Section 6.15(C)(ii)),*provided that* this Section 6.15(C)(ii) shallnot apply to the covenants of the parties and the indemnification obligationsrelating thereto or to the Seller’s representations and warranties set forth inSection 3.1(A)(iii), Section 3.1(A)(iv), Section 3.1(K)(3), Section 3.1(N),and Section 3.1(O), and Section 3.1(S), *providedfurther however*that in no event shall the foregoing proviso resultin the Shareholder’s maximum liability under this Agreement or the AdditionalTransaction Documents being more than the Purchase Price.

 

(iii)          Withrespect to any matter for which indemnification has been provided hereunder,the Indemnitee (as defined below) hereby covenants and agrees to use allcommercially reasonable efforts to collect amounts payable to the Indemnitee under any applicable insurance policy ofthe Indemnitee, andany such amounts so paid to the Indemniteeshall reduce the indemnification obligations of the Indemnitor(as defined below) with respect to such matters; provided that this provisionshall not limit Indemnitee’s right to pursue indemnificationhereunder.

 

(iv)          Inno event shall Shareholder’s Losses or Purchaser’s Losses, as the case may be,include amounts arising from special, exemplary, or punitive damages.

 

(v)           TheShareholder shall have no liability under this Agreement (including under Section 3.1(N),Section 5.2 and Section 6.15(A)) in relation to any Liability ormatter to the extent that the amount of such matter or Liability was includedin the determination of the Final Adjustment.

 

(v)           Inno event shall an Indemnitee have, with respect toPurchaser’s Losses, any recourse to the Escrow Assets or the Escrow Account,and the Purchaser hereby waives, for itself and on behalf of each Indemnitee having claims with respect to Purchaser’sLosses, any recourse to, or claims or rights with respect to, the Escrow Assetsand the Escrow Account, provided, however, that such waiver shall not apply tosuch Purchaser’s Losses to the extent arising from a Major Employment Breach bythe Shareholder, and provided further that such waiver shall expire, and be ofno further force or effect, from and after July 31, 2006; and

 

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providedfurther that such waiver shall not apply to any other assets, rights orproperties of the Shareholder. As used above, the term “Escrow Assets” meansany and all cash, stock, property and assets held in escrow pursuant to theEscrow Agreement (or any replacement escrow agreement) pursuant to Section 1.4,and the term Escrow Account means the account or accounts maintained by theescrow agent and containing the Escrow Assets.

 

(vi)          Theparties acknowledge that the limitations set forth in the preceding clauses (i), (ii), (iii), (iv), (v) and (vi) of this Section 6.15(C) arenot mutually exclusive, but rather are separate and independent limitations,and that each and all such limitations may, alone or together, apply to a party’sindemnification obligations in accordance with their respective terms.

 

D.            Sole Remedy.  Notwithstanding anything hereinto the contrary, each party’s sole and exclusive remedy against any other partyfor any breach of a representation, warranty, covenant or other obligation madein or imposed by this Agreement or any Additional Transaction Document or theother transactions contemplated hereunder or under the Additional TransactionDocuments shall be a claim for indemnification under this Section 6.15,subject to all of the limitations of this Section 6.15, including under Section 6.15(C),except in the case of claims in the event of a Major Employment Breach under Section 6.16,or claims in the event of a Major Lease Termination under Section 7.17, orclaims for fraud or for equitable remedies, *provided that*any breach of any representation, warranty, covenant or agreement by a partyhereunder shall not, in and of itself, constitute “fraud” by such party.

 

E.             Procedures.

 

(i)            In the event that any Legal Proceeding shall beinstituted with respect to which indemnification may be sought by one partyhereto from another party under the provisions of this Section 6.15, theparty seeking indemnification (“Indemnitee”)shall, promptly after acquiring knowledge of such Legal Proceeding, causewritten notice in reasonable detail of such Legal Proceeding which is coveredby this indemnification to be forwarded to the other party from whichindemnification is being sought (“Indemnitor”),provided, however, the failure to notify the Indemnitorwill not relieve the Indemnitor of any liability itmay have to indemnify the Indemnitee except to theextent that the Indemnitor’s defense of such action,or any of the Indemnitor’s rights with respect to thesame, including any rights under insurance or against any third parties, isactually prejudiced or impaired by the Indemnitee’sfailure to give such notice.

 

(ii)           In the event of the initiation of any such Legal Proceeding against an Indemnitee, the Indemnitor, afterthe receipt of the notice described in Section 6.15(E)(i),at its option and at its own expense, to be represented by counsel of itschoice, and reasonably acceptable to Indemnitee, and(subject to Section 6.15(E)(iii) and the second provision of thissubsection) to defend against, negotiate, settle or otherwise deal with anyLegal Proceeding or demand that relates to any Purchaser’s Losses orShareholder’s Losses, as the case may be, indemnified against hereunder, and,in such event, the Indemnitee will reasonablycooperate with the Indemnitor and its representativesin connection with such defense, negotiation, settlement or dealings; *provided, however*, that the Indemniteemay directly participate in any such Legal Proceeding so defended with counselof its choice at its own expense; *provided further*that the

 

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Indemnitorshall not be entitled to assume control of such defense and shall pay the feesand expenses of counsel retained by the Indemnitee(reasonably acceptable to Indemnitor) if (1) theclaim for indemnification relates to or arises in connection with any criminalproceeding, action, indictment, allegation or investigation; (2 the claim seeksan injunction or equitable relief against the Indemnitee;(3) a conflict of interest exists between the Indemnitorand the Indemnitee; or (4) the Indemnitor failed or is failing to vigorously prosecute ordefend such claim).  Additionally, if theclaim for Indemnification relates to Taxes, the Indemnitor’srights to control the defense of such matter shall extend only to the specificissue for which indemnification is claimed (and not the entire return or taxableperiod).

 

(iii)          If the Indemnitor shallcontrol the defense of such claim, the Indemnitorshall obtain the prior written consent of the Indemniteebefore entering into any settlement of any third party claim which would leadto Liability or create any financial or other obligation on the part of the Indemnitee which is not paid or reimbursed in full by the Indemnitor on account of its indemnification obligationhereunder; and Indemnitee may refuse to consent to asettlement which imposes continuing obligations on Indemniteeor involves any non-monetary relief, does not result in a complete release of Indemnitee from any and all liability (excluding anyliability with respect to which the Indemnitoracknowledges its indemnification obligations) or involves a finding oradmission of any violation of Legal Requirements or any violation of the rightsof any Person by Indemnitee.  If a firm offer is made to settle a thirdparty claim without leading to Liability or the creation of a financial orother obligation on the part of the Indemnitee forwhich the Indemnitee is not entitled toindemnification hereunder and the Indemnitor desiresto accept and agree to such offer, the Indemnitorwill give written notice to the Indemnitee to thateffect.  If the Indemniteenotifies the Indemnitor that it does not consent tosuch firm offer within ten (10) Business Days after its receipt of suchnotice from the Indemnitor, the Indemniteemay continue to contest or defend such third party claim and, in such event,the maximum Liability of the Indemnitor as to suchthird party claim will not exceed the amount of such settlement offer, plus thePurchaser’s Losses or Shareholder’s Losses, as the case may be, reasonably paidor incurred by the Indemnitee through the end of such10-Business Day period.

 

(iv)          After any final judgment or award shall have been rendered by aGovernmental Entity of competent jurisdiction, and the time in which to appeal therefrom has expired, or a settlement shall have beenconsummated, or the Indemnitee and the Indemnitor shall have arrived at a mutually bindingagreement with respect to each separate matter alleged to be indemnifiedagainst by the Indemnitor hereunder, the Indemnitee shall forward to the Indemnitornotice of any sums due and owing with respect to such matter, and the Indemnitor shall pay all of the sums so owing to the Indemnitee by wire transfer or certified or bank cashier’scheck within thirty (30) days after the date of such notice.  Any indemnification obligations of the(A) Shareholder shall be shall be paid by wire transfer of immediatelyavailable funds to an account designated in writing by the applicable PurchaserIndemnified Party within 10 days after the determination thereof (B) Purchasershall be paid by wire transfer of immediately available funds to an accountdesignated in writing by the applicable Shareholder Indemnified Party within 10days after the determination thereof.

 

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Section 6.16           MajorEmployment Breach.

 

A.            Inthe event that a Major Employment Breach occurs, Shareholder shall pay toPurchaser an amount of cash equal to $7,000,000 (plus interest, calculated atthe Interest Rate) (the “Shareholder Payment”).  The parties agree that the $7,000,000 isbeing deposited into escrow under Section 1.4 as security for Shareholder’sobligation to make such Shareholder Payment. The parties recognize that in the event of a Major Employment Breach,the actual damages to the Purchaser would be extremely difficult or impossibleto determine, and that the amount of $7,000,000 represents the parties’reasonable estimate of such damages, and that such amount shall constituteliquidated damages payable to the Purchaser. Shareholder shall pay such amountto Purchaser out of the Escrow Amount; provided that if the Escrow Amount hasbeen distributed to Shareholder or its designee pursuant to the terms of theEscrow Agreement or if the Escrow Amount is less than the Shareholder Payment,the Shareholder shall pay the full amount or such remaining portion of theShareholder Payment, as applicable, to Purchaser by wire transfer ofimmediately available funds to an account designated in writing by Purchaserwithin 10 days after the determination thereof. The Shareholder Payment shall constitute a full and complete release anddischarge of Shareholder’s liability with respect to such Major EmploymentBreach.

 

B.            In theevent of a dispute as to whether a Major Employment Breach has occurred,Shareholder and Purchaser shall cooperate in good faith to resolve suchdispute. If an arbitration proceeding is commenced, Purchase and Shareholdershall comply with the arbitration procedures set forth on Schedule 6.13and shall instruct the Arbitration Panel to render a final determination withrespect to such dispute within 30 days following the selection of theArbitration Panel.

 

C.            Notwithstandinganything to the contrary set forth herein, in the event of a dispute as towhether there has been a Major Employment Breach, Purchaser may elect tocommence an action in any court of competent jurisdiction to resolve suchdispute and may pursue any equitable relief, including but not limited to,obtaining an injunction or temporary restraining order prohibiting thedistribution of the Escrow Amount. 

 

D.            Any ShareholderPayment made hereunder shall constitute an adjustment to the Purchase Price.

 

E.             As usedabove, the term “Major Employment Breach” means the breach by theShareholder of his Employment Agreement, provided such breach arises fromeither (I) the voluntary resignation by the Shareholder of employment with theCompany; (II) the willful refusal of the Shareholder to comply with anysignificant, lawful and proper policy, directive or decision of the Company’sBoard of Directors or the Chief Executive Officer of the Issuer in furtheranceof a legitimate business purpose or willful refusal to perform the dutiesreasonably assigned to the Shareholder by the Company’s Board of Directors orthe Chief Executive Officer of the Issuer and, in each case, only if notremedied within thirty days after receipt of written notice from the Company;or (III) the Shareholder’s commission or conviction of, or a plea of guilty orno contest or similar plea with respect to, a felony, an act of fraud orembezzlement in each case against the Company; provided that in no event shallany breach be considered a Major Employment Breach to the extent arising fromthe death or disability of the Shareholder, and provided further that in noevent shall a voluntary resignation by the Shareholder be considered a MajorEmployment Breach if such resignation is in response to: (1) a materialbreach by the

 

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Company of the Employment Agreement only if notremedied within thirty days after receipt of written notice from theShareholder, or (2) the request by the Company to engage in (or refrainfrom reporting to the appropriate authorities) any conduct or activities whichare not lawful only if not remedied within thirty days after receipt of writtennotice from the Shareholder.

 

Section 6.17           MajorLease Termination.  In theevent that a Major Lease Termination occurs, Shareholder shall pay to Purchaserthe Major Lease Termination Payment.  Theparties recognize that in the event of a Major Lease Termination, the actualdamages to the Purchaser would be extremely difficult or impossible todetermine, and that the amount of the Major Lease Termination Paymentrepresents the parties’ reasonable estimate of such damages, and that suchamount shall constitute liquidated damages payable to the Purchaser.  In the event of a Major Lease Termination,Shareholder shall pay the full amount of the Major Lease Termination Payment bywire transfer of immediately available funds to an account designated in writingby Purchaser within 10 days after the Purchaser’s demand thereof.  The Major Lease Termination Payment shallconstitute a full and complete release and discharge of Shareholder’s liabilitywith respect to such Major Lease Termination.  As used above, the term “Major Lease Termination” means the Company haslost effective use of its Brattle Street store as the result of eviction orother legal proceedings brought by the landlord under the leases of such store(the “Brattle Street Leases”) solely on account of the failure of the Companyto get such landlord’s consent with respect to the Contemplated Transactions,provided such loss of use has occurred within one year of the Closing Date, andprovided the Shareholder has the opportunity, during such one year period only,to control the defense, at his sole cost and expense, of any such eviction orother legal proceeding; and the term “Major Lease Termination Payment” means$2,000,000.  In connection with theforegoing, the parties shall work together in good faith to obtain any suchconsent post-Closing, provided that in no event shall the Purchaser beobligated to make any payments to the landlord under such Brattle Street Leasesin order to obtain such consent.  AnyMajor Lease Termination Payment made hereunder shall constitute an adjustmentto the Purchase Price.

 

Section 6.18.          CertainDefinitions and Interpretative Matters

 

A.            Definitions.  As used herein, the following terms have themeanings set forth as follows:

 

(i)            “AdjustmentTime” means 12:01 a.m., New York time, on the date of the Closing.

 

(ii)           “Affiliate” means, with respect to anyPerson, any other Person controlling, controlled by, or under common controlwith, such first Person or any individual related by blood, marriage oradoption to any such Person.

 

(iii)          “Affiliated Group”means an affiliated group as defined in Section 1504 of the Code (or anyanalogous combined, consolidated or unitary group defined under state, local orforeign income Tax law) of which the Company is or has been a member.

 

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(iv)          “Assets” means the properties and assetsof the Company which are used in the Business.

 

(v)           “BusinessDay” means any day other than a Saturday, Sunday or other day on whichcommercial banks in the City of New York are authorized by law to close.

 

(vi)          “Charter Documents” means in the case ofthe Company and the Purchaser, the current articles of organization orcertificate of incorporation, as the case may be, and the bylaws of suchentity.

 

(vii)         “CompanyIndebtedness” means, without duplication, (A) all indebtedness of theCompany for borrowed money (including all principal, interest, premiums,penalties, and breakage fees), (B) all obligations of the Companyevidenced by notes, bonds, debentures or similar instruments or pursuant to anyguaranty of indebtedness (excluding, in any event, the amounts covered inclause (A) and trade payables), and (C) obligations under capitalleases or for deferred purchase price of property or services.

 

(viii)        “ConfidentialInformation” means the information, observations and data of the Companyconcerning the business or affairs of the Company (including the Company’stechnology, computer programs, know-how, designs, inventions, methods of doingbusiness and supplier and customer information): (i) whichis proprietary to the Company, (ii) the disclosure of which couldreasonably be expected to be detrimental or adverse to the Company, or (iii) isthe property of the Company and that the continued success of the Companydepends in large part on keeping this information from becoming known tocompetitors of the Company; provided, however, that Confidential Informationshall not include, in any event, any of the foregoing to the extent (A) generallyknown to the public other than through disclosure by the Shareholder, (B) receivedby the Shareholder from a third party where the Shareholder had no reasonablereason to conclude that such disclosure was in violation of a duty ofconfidentiality owed by such third party to the Purchaser; or (C) developedindependently of and without reliance on Confidential Information.

 

(ix)           “DisclosureSchedule” means the Disclosure Schedule attached hereto, whichDisclosure Schedule is incorporated herein and made a part hereof, fullyas if the same were herein set forth in its entirety.

 

(x)            “GAAP” means United States generally acceptedaccounting principles consistently applied with prior periods.

 

(xi)           “GovernmentalEntity” means any domestic, foreign, or multinational court, government,governmental agency, arbitrator, authority, entity or instrumentality.

 

(xii)          “IntellectualProperty” means (1) all inventions (whether patentable or unpatentable and whether or not reduced to practice), allimprovements thereto, and all patents, patent applications, and patentdisclosures, together with all reissuances,continuations, continuations-in-part, revisions, extensions, and reexaminationsthereof; (2) all trademarks, service marks, trade dress, logos, slogans,designs, trade names, and Internet domain names,

 

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together with all translations,adaptations, derivations, and combinations of any of the foregoing, allapplications, registrations, and renewals in connection therewith, and includingall goodwill associated with any of the foregoing (collectively, “Marks”);(3) all copyrights and works of authorship, and all applications,registrations, and renewals in connection therewith; (4) all trade secretsand confidential business information (including ideas, know-how, drawings,specifications, customer and supplier lists, pricing and cost information, andbusiness and marketing plans and proposals); (5) all computer software(including source code, executable code, data, databases, and relateddocumentation); (6) all other proprietary and intellectual propertyrights, and (7) all copies and tangible embodiments of any of theforegoing (in whatever form or medium).

 

(xiii)         “Laws” means any foreign ordomestic, federal, state, provincial, territorial, county or localconstitution, statute, law, principle of common law, ordinance, rule,regulation, treaty or court or administrative order, decree, judgment orruling.

 

(xiv)        “Leases”means all leases, subleases, licenses, concessions and other agreements(written or oral), including all amendments or modifications thereto, pursuantto which the Company occupies any Leased Realty.

 

(xv)         “Legal Proceeding” means any claim, action, suit,proceeding or investigation before any Governmental Entity, whether brought,initiated, asserted or maintained by a Governmental Entity or any other Person.

 

(xvi)        “Liabilities”means all liabilities, claims, obligations, expenses or damages, whether knownor unknown, fixed or contingent.

 

(xvii)       “Material Adverse Effect” means a material adverseeffect on the business, assets, operations, financial condition or cashflow of the Company or the Business, taken as whole,excluding any such effect resulting from the Contemplated Transactions orrelating to general economic conditions.

 

(xxi)         “Person”means any individual, person, corporation, trust, partnership, limited liability company, unincorporated association, jointventure, Governmental Entity or other entity of any kind.

 

(xviii)      “Subsidiary”when used with respect to the Company, means any corporation or other Person(other than a natural person) of which securities or other interests having thepower to elect a majority of that corporation’s or other Person’s board ofdirectors or similar governing body, or otherwise having the power to directthe business and policies of that corporation or other Person (other thansecurities or other interests having such power only upon the happening of acontingency that has not occurred) are held by the Company or one or more of itsSubsidiaries.

 

B.            CertainInterpretive Matters.  Unless thecontext otherwise requires, (i) each accountingterm not otherwise defined in this Agreement has the meaning assigned to it inaccordance with GAAP, (ii) “or” is disjunctivebut not necessarily exclusive, (iii) all words used

 

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in this Agreement will beconstrued to be of such gender or number as the circumstances require, (iv) unlessotherwise expressly provided, the word “including” does not limit the precedingwords or terms and shall mean “including without limitation,” (v) thewords “herein,” “hereunder” and words of similar import shall refer to thisAgreement, (vi) all references to $ or dollar amounts mean lawful currencyof the United States of America.  Noprovision of this Agreement will be interpreted in favor of, or against, any ofthe parties hereto by reason of the extent to which any such party or itscounsel participated in the drafting thereof or by reason of the extent towhich any such provision is inconsistent with any prior draft hereof orthereof.

 

#### C.            Disclosure Schedules.  The disclosure of any matter in any Disclosure Schedule shall alsoqualify the representations and warranties contained in Sections of thisAgreement other than the Section to which such Schedule specificallyrelates only to the extent that the language of the disclosure shouldreasonably apply as the disclosure in such other Section or there is across-reference to such other Section (or to the Schedule specificallyrelating to such other Section).  Thedisclosure of any matter in any schedule shall expressly not be deemed toconstitute an admission by the Shareholder, or to otherwise imply, that anysuch matter is material for the purposes of this Agreement or that any other schedule (orset of schedules) is incomplete by virtue of the omission of such disclosure.

####  

#### [SignaturesBegin on Next Page]

 

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IN WITNESS WHEREOF, the parties hereto haveexecuted this Agreement as of the date and year first written above.

 

 
|   | PURCHASER:                         |
|--------|------------------------------------|
|   |                               |
|   | LERNER  NEW YORK, INC.             |
|   |                               |
|   |                               |
|   |   /s/ RONALD W. RISTAU   |   |
|   | By:                                | Ronald W. Ristau |
|   | Its:                               | *Chief Operating Officer,* |
|   |                               | *Chief Financial Officer and Secretary* |
|   |                               |
|   |                               |
|   | SHAREHOLDER:                       |
|   |                               |
|   |                               |
|   |   /s/LUCIANO  MANGANELLA |   |
|   | Luciano  Manganella           |
|        |                                    |  |  |  |

 

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