EXHIBIT 10.1


 


CONFIDENTIAL TREATMENT REQUESTED


 


QUOTA PURCHASE
AGREEMENT


 


THIS
QUOTA PURCHASE AGREEMENT (the “Agreement”)
is entered into as of October 17, 2005, by and among Orange 21 Inc., a
Delaware corporation (the “Buyer”), Mr. Riccardo
Polinelli, an individual born on August 29, 1944, with a tax code of PLN
RCR 44M29 A848N (“Polinelli”),
and Mrs. Raffaella Ghiringhelli, an individual
born on December 11, 1953, with a tax code of GHR RFL 53T51 D869Z (“Ghiringhelli”) (Polinelli and Ghiringhelli are collectively
referred to as the “Quotaholders”).  The Buyer and the Quotaholders collectively
are referred to as the “Parties.”


 


RECITALS


 


WHEREAS,
Polinelli is the owner of a quota in LEM s.r.l. (the “Company”)
with a par value equal to [CONFIDENTIAL TREATMENT
REQUESTED], representing [CONFIDENTIAL TREATMENT
REQUESTED] of the capital of the Company;


 


WHEREAS,
Ghiringhelli is the owner of a quota in the Company with a par value equal to [CONFIDENTIAL TREATMENT REQUESTED], representing
[CONFIDENTIAL TREATMENT REQUESTED] of the capital of the Company;


 


WHEREAS, the Parties desire, upon satisfaction of certain terms and conditions
set forth in this Agreement, to enter into certain transactions as described in
this Agreement, including a transaction in which the Quotaholders would
transfer to the Buyer quota representing One Hundred Percent (100%)
of the capital of the Company.


 


NOW,
THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the Parties agree as follows:


 


1.                                      AGREEMENT
TO SELL AND PURCHASE QUOTA; ADDITIONAL PURCHASE PRICE.


 


1.1                                 Purchase
and Sale of Quota in the Quota Transfer. 
Subject to the terms and conditions of this Agreement, the Quotaholders
agree to sell to the Buyer at the Closing (as defined in Section 2.1
below), and the Buyer agrees to purchase from the Quotaholders at the Closing,
quota representing One Hundred Percent (100%) of the capital of
the Company in consideration of the payment by the Buyer to the Quotaholders of
the Purchase Price (as defined below) (such transaction referred to as the “Quota Transfer”).  The
Closing shall be conducted in accordance with the provisions of Section 2.1
below.  The “Purchase Price” shall be an amount equal to Three Million
Three Hundred Thousand Euros (€3.300.000,00).


 


1.2                                 Additional
Purchase Price.  Subject to the terms and conditions of this Agreement (including,
without limitation, Section 7.3), the
Buyer shall deliver the Additional Purchase Price (as defined below) to the
Quotaholders via wire transfer of immediately available funds to an account
specified in writing by both of the Quotaholders. 
The “Additional Purchase Price” shall be calculated on a
calendar quarterly basis as an amount equal to  [CONFIDENTIAL TREATMENT REQUESTED] for each sunglass or goggle sales unit shipped by
the Company to the Company’s customers during the period commencing January 1,


 





















 


2006 and
ending December 31, 2007; provided, however, that the
aggregate of such amount over such period shall in no event be more than  [CONFIDENTIAL TREATMENT REQUESTED].  Delivery of the Additional
Purchase Price shall be made no later than thirty (30) days after each
preceding calendar quarter of such period (e.g., for January 1,
2006 through March 31, 2006, no later than April 30, 2006).  At the Closing, the Buyer shall deposit [CONFIDENTIAL
TREATMENT REQUESTED] into an escrow account established pursuant to the
Escrow Agreement (as defined below).  The
“Escrow
Agreement” shall be the escrow agreement entered into at the
Closing by and among the Buyer, the Quotaholders and a third party escrow agent
mutually agreeable to the Buyer and the Quotaholders.  The form and substance of the Escrow
Agreement shall (i) be agreed upon between the Buyer and the Quotaholders
prior to the Closing and (ii) expressly provide that the escrow agent
shall pay amounts to the Quotaholders equal to that portion of the Additional
Purchase Price that is not otherwise paid to the Quotaholders by the Buyer
within thirty (30) days of the date such amounts are due and payable; provided,
however, that in no event shall the balance of the escrow account be
reduced below [CONFIDENTIAL TREATMENT REQUESTED] earlier than June 30, 2007.


 


1.3                                 Good Faith
Deposit.  The Parties
acknowledge and agree that the Quotaholders have received from the Buyer the
amount of One Million Euros (€1.000.000,00) [CONFIDENTIAL
TREATMENT REQUESTED] in connection with the Buyer’s execution of this
Agreement (collectively, the “Good Faith Deposit”).  Subject to Article 8, the
Quotaholders shall (i) retain the [CONFIDENTIAL TREATMENT
REQUESTED] portion of the Good
Faith Deposit and, (ii) as
promptly as possible after the date of this Agreement, but in any event no
later than five (5) days within receipt of such funds, deposit with the
Company the [CONFIDENTIAL TREATMENT REQUESTED]
portion of the Good Faith Deposit as paid-in capital of the Company and immediately provide the Buyer with sufficient proof of
the Company’s receipt of such deposit.


 


1.4                                 Capital Contribution.  Subject to the terms and conditions of this Agreement (including,
without limitation, satisfaction of the conditions to closing set forth in Sections
5.1 and 5.2 below), on December 15, 2005, the Buyer shall deliver an amount equal to [CONFIDENTIAL
TREATMENT REQUESTED] (the “Capital Contribution”) to the Quotaholders via wire transfer of immediately
available funds to an account specified in writing by both of the Quotaholders.
 As promptly as possible after
such delivery, but in any event no later than the one (1) day prior to the
Closing, the Quotaholders shall [CONFIDENTIAL TREATMENT REQUESTED] immediately provide the Buyer with sufficient proof of the Company’s
receipt of such deposit.


 


2.                                      CLOSING
AND PAYMENT.


 


2.1                                 Closing.
 Subject
to satisfaction of the conditions to closing set forth in Sections 5.1
and 5.2 below, the closing of the Quota Transfer (collectively, the “Closing”) shall occur at a time and date that is agreed to in
writing by the Parties on or before December 19, 2005, at the offices of
Public Notary Arrigo Roveda, via Mario Pagano, 65, Milan, Italy (such time and
date are referred to as the “Closing Date”).


 


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2.2                                 Payment.  On January 9, 2006, the Buyer shall deliver the
Purchase Price to the Quotaholders via wire transfer of immediately available
funds to an account specified in writing by both of the Quotaholders; provided,
however, that the amount to be so delivered on such date shall be
reduced by the aggregate amounts previously paid by the Buyer as the Good Faith
Deposit and the Capital Contribution.


 


2.3                                 Italian
Law. 
Notwithstanding any provision herein to the contrary, the foregoing
transactions shall be conducted in accordance with Italian laws governing the
transfer of quota in a s.r.l. company and the Parties agree to cooperate to the
extent reasonably necessary in order to effect such transfers in accordance
with, and under the applicable laws of, Italy, including executing any bill of
sale, assignment or other instrument of transfer, in a form reasonably
acceptable to the Parties, evidencing such transactions, that is required by
the laws of Italy.  Any instruments of
transfer executed or delivered in order to effect the transactions contemplated
hereby shall contain all relevant terms and conditions (including representations
and warranties and indemnification clauses) on substantially the same terms set
forth in this Agreement.  In the event of
a conflict between any such instrument of transfer and this Agreement, the
terms of this Agreement shall prevail. 
The Parties shall confirm the foregoing sentence in writing upon
execution of any such instrument of transfer.


 


3.                                      REPRESENTATIONS
AND WARRANTIES OF THE QUOTAHOLDERS.  Except as set
forth on a Schedule of Exceptions delivered by the Quotaholders to the
Buyer on date hereof (where all references on such Schedule of Exceptions
shall be deemed to modify only the specific representation identified and shall
not be deemed to modify any other representation or warranty contained herein),
each of the Quotaholders hereby jointly and severally represent and warrant to
the Buyer, as of the date of this Agreement and as of the Closing Date, as
follows:


 


3.1                                 Organization,
Good Standing and Qualification.  The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the country of Italy. 
The Company has all requisite corporate power and authority to own and
operate its properties and assets, to execute and deliver this Agreement and
the other instruments or documents contemplated hereby (collectively, the “Ancillary Agreements”), to issue and sell its quota, and to
carry on its business as presently conducted and as presently proposed to be
conducted.  The Company is duly qualified
and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its activities and of
its properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so would not have a
material adverse effect on the Company or its business.


 


3.2                                 Subsidiaries.
 The Company does not own or control
any equity security or other interest of any other corporation, limited
partnership or other business entity. 
The Company is not a participant in any joint venture, partnership or
similar arrangement.


 


3.3                                 Capitalization; Voting Rights.  The authorized quota of the Company
immediately prior to the Closing was issued [CONFIDENTIAL
TREATMENT REQUESTED] to Polinelli and [CONFIDENTIAL
TREATMENT REQUESTED] to Ghiringhelli.  The Quotaholders have full ownership and can
fully dispose of


 


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the quotas, which are
free from any lien or encumbrance of any kind and, prior to the execution and
delivery of this Agreement, have taken all required actions as between each of
the Quotaholders such that the Quotaholders collectively are able to (and will,
as of the Closing Date, be able to) transfer, convey and assign title with
respect to quota representing One Hundred Percent (100%) of the
capital of the Company to the Buyer at the Closing as contemplated hereby.  As of immediately following the Closing, and
after giving effect to the transactions contemplated hereby, the authorized
quota of the Company shall be owned One Hundred Percent (100%) by
the Buyer.  The quota has been issued in
compliance with all applicable laws and in compliance with the organizational
documents of the Company.  There are no
other currently outstanding pre-emptive or conversion rights, options, warrants
or agreements granted or issued by or binding upon the Company or the
Quotaholders for the purchase or acquisition of any quota of the Company
(including, without limitation, any right of approval or right of first refusal
in favor of the Quotaholders or any other person set forth in any document or
otherwise, including the by-laws of the Company) which have not be waived prior
to the date of this Agreement.


 


3.4                                 Authorization;
Binding Obligations.  All corporate
action on the part of the Company, its officers, directors and Quotaholders
(including each of the Quotaholders) necessary for the authorization of this
Agreement and the Ancillary Agreements, the performance of all obligations of
the Quotaholders hereunder and thereunder at the Closing, and the authorization,
sale, issuance and delivery of the quota pursuant hereto have been taken or
will be taken prior to such Closing.  The
Agreement and the Ancillary Agreements, when executed and delivered, will be
valid and binding obligations of the Quotaholders enforceable in accordance
with their terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors’ rights and (ii) to the extent that the
enforceability of the indemnification provisions may be limited by applicable
laws.  The sale of the quota at the
Closing does not and will not be subject to any pre-emptive rights or rights of
first refusal that have not been properly waived or complied with. To the extent
that any Quotaholder has any such right, it shall be deemed to have waived any
such right concurrently with the execution by such Quotaholder of this
Agreement without any further action by such Quotaholder.


 


3.5                                 Financial
Statements.


 


3.5.1                        As of the
date of this Agreement, the Company has delivered to the Buyer a draft of its
audited financial statements (balance sheet and profit and loss statement,
statement of Quotaholders equity and statement of cash flows including notes
thereto) as of and for the periods ended June 30, 2004 and the ten
(10)-months ended April 30, 2005, which draft audited financial
statements include a draft of an opinion from KPMG LLP, which opinion is
subject to issuance by KPMG LLP on or before the Closing Date.


 


3.5.2                        As of the
Closing, the Company has delivered (i) audited financial statements
(balance sheet and profit and loss statement, statement of Quotaholders equity
and statement of cash flows including notes thereto) as of and for the periods
ended June 30, 2004 and April 30, 2005, which financial statements
include an audit from KPMG LLP , (ii) unaudited financial statements for
the three (3)-month period ended September 30, 2005, which
financial statements have been reviewed (but not audited) by KPMG LLP (or other
internationally


 


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recognized accounting
firm acceptable to the Buyer in its sole discretion), and (iii) unaudited
financial statements for the five (5)-month period ended November 30,
2005 (including, without limitation, a balance sheet as of November 30,
2005 – the “Closing Balance Sheet”) (the
foregoing financial statements are collectively referred to as the “Financial Statements”).


 


3.5.3                        The
Financial Statements that have been delivered on or prior to the date of this
Agreement have been, and the Financial Statements that will be delivered at the
Closing, will be, prepared in accordance with generally accepted accounting
principles in Italy (“Italian GAAP”)
applied on a consistent basis throughout the periods indicated and in
accordance with all Italian laws governing the preparation of financial
statements.  The Financial Statements
have and will fairly present the financial condition and operating results of
the Company as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments, in the case of any interim unaudited
financial statements.  The Company’s
books and accounts are up to date and kept in full accordance with the
applicable law provisions, all assets owned by the Company, including
machinery, equipment, vehicles and furniture are recorded in the Financial
Statements as well as in the Company’s accounts at the cost price after
accounting for depreciation calculated according to Italian law and the Company’s
inventory has been stated at the lower of cost and net realizable value in
accordance with applicable accounting principles.


 


3.5.4                        The
Company has delivered (with respect to the Financial Statements delivered prior
on or to the date of this Agreement), and will deliver (with respect to the
Financial Statements to be delivered on or prior to the Closing) a copy of the
Financial Statements that include all reconciliations required to conform the
Financial Statements to generally accepted accounting principles in the country
of the United States (“US GAAP”).


 


3.6                                 Liabilities.  Except as set forth in the Financial
Statements, the Company has no material liabilities, including any contingent
liabilities, other than (i) liabilities incurred that are (x) consistent
with past practice and (y) in the ordinary course of business, subsequent to
the date of the Financial Statements and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under Italian GAAP or US GAAP to be reflected in the Financial Statements.


 


3.7                                 Agreements;
Action.


 


3.7.1                        There are
no agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company is a party or to its
knowledge by which it is bound which may involve (i) obligations
(contingent or otherwise) of, or payments to, the Company in excess of Twenty-Five
Thousand Euros (€25.000,00) (other than obligations of, or payments
to, the Company arising from purchase or sale agreements entered into in the
ordinary course of business) or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary right to or from the
Company.


 


3.7.2                        The
Company has not (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class of its securities, (ii) incurred
any indebtedness for money borrowed or any other liabilities (other than with
respect to dividend obligations, distributions, indebtedness and other
obligations incurred in the ordinary course of business or as disclosed in the
Financial Statements) that are individually in excess of Ten


 


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Thousand Euros
(€10.000,00) or, in the case of indebtedness and/or liabilities individually
less than Ten Thousand Euros (€10.000,00), in excess of Twenty-Five
Thousand Euros (€25.000,00) in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses made to employees or directors of the Company or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.


 


3.7.3                        For the
purposes of Sections 3.7.1 and 3.7.2 above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum Euro amounts of such
subsections.


 


3.8                                 Obligations
to Related Parties.  There are no
obligations of the Company to officers, directors, quotaholders, or employees
of the Company other than (i) for payment of salary for services rendered,
(ii) reimbursement for reasonable expenses incurred on behalf of the
Company, and (iii) for other standard employee benefits made generally
available to all employees.  Except as
may be disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.


 


3.9                                 Title
to Properties and Assets; Liens, Etc. 
The Company has good and marketable title to its properties and assets,
and good title to its leasehold estates, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than (i) those resulting
from taxes which have not yet become delinquent and (ii) minor liens and
encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company.  The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.


 


3.10                           Intellectual
Property.


 


3.10.1                  The Company owns
or possesses, and has taken all reasonable steps necessary or desirable to
maintain, sufficient legal rights to all patents, copyrights, trademarks,
service marks, trade dress, mask works, schematics, technology, inventions,
manufacturing processes, supplier lists, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), moral rights, computer software programs or
applications (including, without limitation, source and object code)
(collectively, “Intellectual Property”) that are
necessary for the Company to conduct its business as now conducted and as it
presently proposes to conduct its business.


 


3.10.2                  The Company does
not require presently any additional material Intellectual Property of any
third party to develop, manufacture, market or sell its products or services or
in relation to any of the processes employed by the Company in connection with
the operation of its business, other than standard “off-the-shelf” or standard
widely available software or other Intellectual Property that can be acquired
in the ordinary course of business of the Company from time to time.


 


3.10.3                  The Schedule of
Exceptions sets forth a complete and accurate list of (i)


 


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all material licenses,
sublicenses and other agreements to which the Company or any of its
subsidiaries is a party and pursuant to which the Company or any of its
subsidiaries authorizes any other person to use the Company’s intellectual
property or exercise any rights with respect thereto and (ii) all
agreements with third parties pursuant to which the Company or its subsidiaries
are granted the right to use the intellectual property of any other party other
than such licenses or agreements arising from the purchase of “off-the-shelf”
or standard widely available software services and products.


 


3.10.4                  The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as presently proposed, would violate the Intellectual
Property of any other person or entity.


 


3.10.5                  The use by the
Company or any subsidiary of the Company of the Company’s or such subsidiary’s
Intellectual Property does not and is not likely to infringe the Intellectual
Property of any other person.


 


3.10.6                  The Company and
subsidiaries have not unlawfully or wrongfully acquired, misused or infringed,
and are not misusing or infringing, the Intellectual Property (including,
without limitation confidential information or know-how) of any third party, and
none of the Intellectual Property (including confidential information or
know-how) of the Company currently used by the Company or any of its
subsidiaries or required to be used in the ordinary course of business by the
Company or any of its subsidiaries has been unlawfully or wrongfully acquired
from any third party.


 


3.10.7                  No claim,
complaint, demand or notice (i) challenging the validity, effectiveness,
enforceability or ownership by the Company of any of its Intellectual Property,
(ii) charging that the Company has not performed its obligation under any
license, sublicense or other agreement relating to any third party’s
Intellectual Property, (iii) to the effect that the use, manufacture,
importation, reproduction, modification, distribution, licensing, sublicensing,
offer for sale, sale or any other exercise of, or the Company’s or any of its
subsidiaries’ reasonably anticipated use, reproduction, modification,
distribution, licensing, sublicensing, offer for sale, sale, or any other
exercise of any of the Company’s Intellectual Property interferes with,
infringes upon, or misappropriates any Intellectual Property of any third
person, nor has there ever been, to the knowledge of the Company, any valid
grounds for any bona fide claim, complaint, demand or notice of such kind.


 


3.10.8                  There is no
unauthorized use, infringement or misappropriation of any of the Company’s
Intellectual Property by any third party, employee or former employee.


 


3.10.9                  No funding or
grant provided to the Company by any third party will affect, in any manner the
Intellectual Property of the Company or any of its subsidiaries and no such
third party has any right or title to, or interest in the Intellectual Property
of the Company (including, without limitation, any Intellectual Property of the
Company licensed to any third party, or any Intellectual Property licensed by
the Company from any third party) or any of its subsidiaries.


 


3.11                           Litigation.  There is no action, suit, proceeding or
investigation pending or, to the


 


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Quotaholders’ knowledge,
currently threatened against the Company or any holder of the Company’s
securities that questions the validity of this Agreement, or the Ancillary
Agreements or the right of the Quotaholders to enter into such agreements, or
to consummate the transactions contemplated hereby or thereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor
are the Quotaholders aware that there is any basis for any of the
foregoing.  The foregoing includes,
without limitation, actions pending or threatened in writing (or any basis
therefor known to the Company) involving the prior employment of any of the
Company’s employees, their use in connection with the Company’s business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.  None of the Company nor any holder of the
Company’s securities is a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or instrumentality.  There is no action, suit, proceeding or
investigation initiated by the Company currently pending or which the Company
intends to initiate. For purposes of this Agreement, “to the
Quotaholders’ knowledge” shall mean the knowledge of the Company,
any officer, director or member of management thereof, or either of the
Quotaholders.


 


3.12                           Tax
Returns and Payments.


 


3.12.1                  All Tax Returns
(defined below) that are required to be filed by or with respect to the Company
have been filed and all such Tax Returns were true, correct and complete in all
material respects when filed.


 


3.12.2                  All Taxes
(defined below) of the Company that are due and payable, whether or not shown
on the Tax Returns, have been paid in full.


 


3.12.3                  The provision
for Taxes on the audited and unaudited balance sheets included in the Financial
Statements are sufficient for the payment of all accrued and unpaid Taxes of
the Company whether or not assessed or disputed as of the respective dates of
such balance sheets.


 


3.12.4                  No national,
local or foreign audits or other administrative proceedings or court
proceedings with regard to Taxes are pending presently with regard to the
Company.


 


3.12.5                  No waiver of
statutes of limitation have been given or requested with respect to any Taxes
of the Company.


 


3.12.6                  There are no
liens for Taxes on any asset of the Company other than for current Taxes not
yet due and payable.


 


3.12.7                  The Company’s
methods of tax accounting are correct in all materials respects under Italian
law.


 


3.12.8                  For purposes of
this Section 3.12, the term “Taxes” means
all taxes, charges, fees, levies, penalties, or other assessments imposed by
any national, state, local, or foreign taxing authority, including, but not
limited to, income, excise, property, sales and use,


 


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transfer, franchise,
payroll, withholding, social security or other taxes, including any interest,
penalties or additions attributable thereto, and “Tax Return”
means any return, report, information return or other document (including any
related or supporting information) filed or required to be filed with any
taxing authority with respect to Taxes.


 


3.13                           Employees.  The names of the employees of the Company are
set forth on the Schedule of Exceptions, together with their respective
work categories and salaries and no salary increase and/or promotion other than
those deriving from law have been granted and there are no independent work
relationships except as has been set forth on the Schedule of Exceptions
on the date of this Agreement.  The
Company has no collective bargaining agreements with any of its employees.  There is no labor union organizing activity
pending or, to the Quotaholders’ knowledge, threatened with respect to the
Company.  To the Quotaholders’ knowledge,
no employee of the Company, nor any consultant with whom the Company has
contracted, is in violation of any term of any employment contract, proprietary
information agreement or any other agreement relating to the right of any such
individual to be employed by, or to contract with, the Company because of the
nature of the business to be conducted by the Company; and to the Quotaholders’
knowledge the continued employment by the Company of its present employees, and
the performance of the Company’s contracts with its independent contractors,
will not result in any such violation. 
The Company has complied with all obligations provided by law with
regard to social security and employment matters and all duties and
contributions, including social security, contributions, salary, overtime work,
holidays and night pays, bonuses and fair prices for inventions have been paid
as required or otherwise set aside and are reflected on the Financial
Statements.  All remuneration due to sole
director or directors has been entirely paid or otherwise set aside and is
reflect on the Financial Statements.  The
Company has not received any notice alleging that any such violation has
occurred.  No employee of the Company has
been granted the right to continued employment by the Company or to any
material compensation following termination of employment with the
Company.  The Company is not aware that
any officer or key employee, or that any group of key employees, intends to
terminate his, her or their employment with the Company, nor does the Company
have a present intention to terminate the employment of any officer, key
employee or group of key employees.


 


3.14                           Compliance
with Laws; Permits.  The Company is
not in violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of
its properties which violation would materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of the
Company.  No governmental orders,
permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed in connection
with the execution and delivery of this Agreement and the transactions
contemplated herein and the issuance of the quota, except such as has been duly
and validly obtained or filed, or with respect to any filings that must be made
after the Closing, as will be filed in a timely manner.  The Company has all franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects or financial condition of the
Company and believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be conducted.


 


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3.15                           Full
Disclosure.  The Quotaholders have
provided the Buyer with all information requested by the Buyer in connection
with its decision to purchase the quota in the Quota Transfer, including all
information the Quotaholders believe is reasonably necessary to make such
investment decision.  Neither this
Agreement, the Ancillary Agreements nor any other statements, schedules,
exhibits or certificates made or delivered in connection herewith or therewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading which
has not been, prior to the date hereof, corrected or amended.  There are no facts which (individually or in
the aggregate) materially adversely affect the business assets, liabilities,
financial condition, prospects or operations of the Company or any of its
subsidiaries that have not been set forth in the Agreement, the exhibits
hereto, the Ancillary Agreements or in other documents delivered to the Buyer
or its counsel in connection herewith.


 


3.16                           Insurance.  The Company has fire and casualty insurance
policies with coverage customary for companies similarly situated to the
Company.


 


3.17                           Material
Changes.  From April 30,
2005 through the date of this Agreement and from April 30, 2005 through
the Closing, except as set forth on the Schedule of Exceptions, there has
not been any of the following:


 


3.17.1                  any change in
the assets, liabilities, financial condition or operating results of the
Company or any of its subsidiaries from that reflected on the balance sheet at April 30,
2005, except changes in the ordinary course of business consistent with past
practices;


 


3.17.2                  any material
damage, destruction or loss, whether or not covered by insurance, affecting the
business, properties, prospects or financial condition of the Company or any of
its subsidiaries (as such business presently is conducted and as it is proposed
to be conducted);


 


3.17.3                  any waiver or
compromise by the Company or any of its subsidiaries of a valuable right or of
a material debt owed to it;


 


3.17.4                  any satisfaction
or discharge of any lien, claim or encumbrance or payment of any material
obligation by the Company or any of its subsidiaries, except in the ordinary
course of business consistent with past practices;


 


3.17.5                  any change to a
material contract or agreement with any employee, officer, director or holder
of the securities of the Company or any of its subsidiaries;


 


3.17.6                  any sale,
assignment or transfer of any of the Company’s intellectual property or any
other tangible asset of the Company or any of its subsidiaries;


 


3.17.7                  any resignation
or termination of employment of any officer, key employee or director of the
Company or any of its subsidiaries and the Company does not know of any
impending resignation or termination of employment of any such officer, key
employee or director;


 


3.17.8                  receipt of
notice that there has been a loss of, or material order


 


10





















 


cancellation by, any
major customer of the Company or any of its subsidiaries or any termination of
any discussions with respect to the purchase of the Company’s products with any
major prospective customer of the Company of any of its subsidiaries;


 


3.17.9                  any mortgage,
pledge, transfer of a security interest in, or lien created by the Company or
any of its subsidiaries, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;


 


3.17.10            any declaration or
payment of any dividend or other distribution of the assets of the Company or
any of its subsidiaries;


 


3.17.11            any other event or
condition of any character that might, either individually or in the aggregate,
materially and adversely affect the business, properties, prospects or
financial condition of the Company or any of its subsidiaries (as such business
presently is conducted and as it is proposed to be conducted); or


 


3.17.12            any arrangement or
commitment by the Company or any of its subsidiaries to do any of the acts described
in this Section 3.17.


 


4.                                      REPRESENTATIONS AND WARRANTIES OF THE BUYER.  The Buyer hereby represents and
warrants to the Quotaholders (such representations and warranties do not lessen
or obviate the representations and warranties of the Quotaholders set forth in
this Agreement) that the Buyer has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and the
Ancillary Agreements and to carry out their provisions.  All action on the Buyer’s part required for
the lawful execution and delivery of this Agreement and the Ancillary
Agreements have been or will be effectively taken prior to the Closing.  Upon its execution and delivery, this
Agreement and the Ancillary Agreements will each be valid and binding upon the
Buyer, enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors’ rights, (ii) as
limited by general principles of equity that restrict the availability of
equitable remedies and (iii) to the extent that the enforceability of the
indemnification provisions may be limited by applicable laws.


 


5.                                      CONDITIONS
TO CLOSINGS.


 


5.1                                 Conditions to Buyer’s Obligations at the Closing.  The Buyer’s obligations to effect the
transactions to be effected at the Closing are subject to the satisfaction or
waiver by the Buyer, at or prior to the Closing Date, of the following
conditions:


 


5.1.1                        Representations
and Warranties True; Performance of Obligations.  The representations and warranties made by
the Quotaholders in Article 3 above shall be true and correct in
all material respects as of the Closing Date with the same force and effect as
if they had been made as of the Closing Date, and each of the Quotaholders
shall have performed all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing, including, without
limitation, all obligations of the Quotaholders set forth in Article 6
below.


 


5.1.2                        Legal
Investment.  On the Closing Date, the
sale and issuance of the quota


 


11





















 


shall be legally
permitted by all laws and regulations to which the Buyer is subject.


 


5.1.3                        Consents,
Permits and Waivers.  Any and all
consents, permits and waivers necessary or appropriate for consummation of the
transactions contemplated by the Agreement and the Ancillary Agreements (except
for such as may be properly obtained subsequent to the Closing) shall have been
obtained.


 


5.1.4                        Corporate
Documents.  The Quotaholders shall
have delivered to the Buyer or its counsel copies of all corporate documents of
the Company as the Buyer shall reasonably request.


 


5.1.5                        Compliance
Certificate.  The Quotaholders shall
have delivered to the Buyer a compliance certificate, executed by both of the
Quotaholders, dated as of the Closing Date, to the effect that the conditions
specified in Sections 5.1.1, 5.1.3 and 5.1.4 have been
satisfied.


 


5.1.6                        Escrow
Agreement.  The Quotaholders shall
have delivered to the Buyer the Escrow Agreement, executed by both of the
Quotaholders, dated as of the Closing Date.


 


5.1.7                        Proceedings
and Documents.  All corporate and
other proceedings in connection with the transactions contemplated at the
Closing hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in form and substance to the Buyer and its
special counsel, and the Buyer and its special counsel shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.


 


5.1.8                        Credit
Facilities.  The existing credit
facilities of the Company (including any leases with personal guarantees) shall
have been or will be after the Closing (but no later than March 31, 2006)
restructured on terms satisfactory to the Buyer and the Quotaholders, including
the elimination of any guarantees on such facilities by Polinelli and
Ghirenghelli.


 


5.1.9                        Satisfactory
Diligence.  The Buyer shall have
completed its due diligence review of the Company and shall be satisfied in all
respect with regard to its findings.


 


5.1.10                  No Material
Adverse Change.  From April 30,
2005 through the date of this Agreement and from April 30, 2005 through
the Closing, there shall not have been a Material Adverse Change.  A “Material Adverse Change”
shall mean (i) a circumstance, fact, change, development or effect that
could reasonably be expected to materially and adversely affect the properties,
business, prospects, results of operations or condition, financial or
otherwise, of the Company taken as a whole; or (ii) any change in the
assets, liabilities, financial condition or operating results of the Company
from that reflected in the Financial Statements, except changes in the ordinary
course of business; or (iii) any damage, destruction or loss, not covered
by insurance, that materially and adversely affects the assets, properties,
financial condition, operating results, prospects or business of the Company
(as such business presently is conducted and as it is proposed to be
conducted); or (iv) any material change or amendment to a material
contract or arrangement of which the Company or any of its assets or properties
is bound or subject.


 


12





















 


5.1.11                  Certain
Additional Conditions.  Each of the
following conditions shall have been satisfied (any of which may be waived by
the Buyer in its sole discretion):


 


(a)                                  The
Company shall have engaged KPMG to conduct an audit of the ten (10) months
ended April 30, 2005, the cost of which shall be paid by the Company;


 


(b)                                 The
Company shall have engaged KPMG to provide a quarterly review for the three
(3) months ended June 30, 2005, September 30, 2005 and December 31,
2005, the cost of which shall be paid by the Buyer;


 


(c)                                  The
Company shall make the following adjustments to its books and records:


 


(i)                                     the
creation of inventory reserve for all items that would not be sold within twelve
(12) months;


 


(ii)                                  the
creation of a bad debt reserve for any debts that are more than sixty (60)
days past due or are deemed uncollectable;


 


(iii)                               the
creation of an employment indemnity based on KPMG’s recommendation;


 


(iv)                              the
creation of a reserve for all rebates;


 


(v)                                 the
creation of a reserve for all foreign exchange losses; and


 


(vi)                              the
write down of property, plant, equipment and other assets to fair market value;


 


(d)                                 The
Company’s [CONFIDENTIAL TREATMENT REQUESTED]
quotaholders’ equity (based upon US GAAP) as of June 30, 2005 shall not
exceed [CONFIDENTIAL TREATMENT
REQUESTED];


 


(e)                                  The
Company’s net loss (based upon Italian GAAP) for the fiscal year ended June 30,
2005 shall not exceed [CONFIDENTIAL
TREATMENT REQUESTED];


 


(f)                                    The
Company’s net profit (based upon US GAAP) for the fiscal year ended June 30,
2005 shall be no less than [CONFIDENTIAL
TREATMENT REQUESTED];


 


(g)                                 The
Company’s earnings before interest, taxes, depreciation and amortization (based
upon US GAAP) for the fiscal year ended June 30, 2005 shall be no less
than [CONFIDENTIAL TREATMENT
REQUESTED]; and


 


(h)                                 The
Company’s total short- and long-term bank debt at the Closing (based upon US
GAAP) shall not exceed [CONFIDENTIAL
TREATMENT REQUESTED].


 


13





















 


5.2                                 Conditions to Quotaholders’ Obligations at the Closing.  The Quotaholders’ obligations to effect the
transactions to be effected at the Closing are subject to the satisfaction or
waiver by the Quotaholders, at or prior to the Closing Date, of the following
conditions:


 


5.2.1                        Representations
and Warranties True.  The
representations and warranties in Article 4 above made by the Buyer
at such Closing shall be true and correct in all material respects at the date
of the Closing with the same force and effect as if they had been made on and
as of said date.


 


5.2.2                        Performance
of Obligations.  The Buyer shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by the Buyer on or before such Closing.


 


5.2.3                        Consents,
Permits and Waivers.  Any and all
consents, permits and waivers necessary or appropriate for consummation of the
transactions contemplated by the Agreement and the Ancillary Agreements (except
for such as may be properly obtained subsequent to the Closing) shall have been
obtained.


 


5.2.4                        Escrow
Agreement.  The Buyer shall have
delivered to the Quotaholders the Escrow Agreement, executed by the Buyer,
dated as of the Closing Date.


 


5.2.5                        Proceedings
and Documents.  All corporate and
other proceedings in connection with the transactions contemplated at the
Closing hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in form and substance to the Quotaholders and
their special counsel, and the Quotaholders and their special counsel shall
have received all such counterpart originals or certified or other copies of
such documents as they may reasonably request.


 


5.2.6                        Credit
Facilities.  The existing credit
facilities of the Company (including any leases with personal guarantees) shall
have been or will be after the Closing (but no later than March 31, 2006)
restructured on terms satisfactory to the Buyer and the Quotaholders, including
the elimination of any guarantees on such facilities by Polinelli and
Ghirenghelli.


 


6.                                      COVENANTS.


 


6.1                                 Prohibition of Certain Corporate Transactions.  Following the date of this Agreement and
prior to the Closing, without the consent of the Buyer, the Quotaholders shall
not permit the Company to take (or obligate itself to take) any of the
following actions:


 


6.1.1                        Pay or
declare any dividend;


 


6.1.2                        Enter into
any contract, agreement, undertaking or understanding, acquire any asset or
make any discretionary payments with a value equal to Twenty-Five Thousand
Euros (€25.000,00) individually, or One Hundred Thousand Euros
(€100.000,00) in the aggregate;


 


6.1.3                        Modify,
amend or alter in any manner any of the organizational documents of the Company
or any of its subsidiaries (provided, however, that the Parties
agree


 


14





















 


that the bylaws shall be
modified in a manner sufficient to effect the transactions contemplated
hereby); or


 


6.1.4                        Modify,
amend or alter the prices (as compared to prices in effect as of the date of
this Agreement) with the Buyer (other than raw material increases which are
made with reasonable notice to the Buyer).


 


6.2                                 Certain
Affirmative Covenants.  Following the date of this Agreement and prior to the
Closing, the
Quotaholders shall cause the Company to use its commercially reasonable efforts
to take each of the following actions:


 


6.2.1                        As
promptly as possible after the date of this Agreement, but in any event within six
(6) months of the date of this Agreement, to install, at the cost of the
Company, an accounting system that that is reasonably acceptable to the Buyer
and that provides “real-time” inventory management in order to ensure
accurately prepared monthly financial statements;


 


6.2.2                        As
promptly as possible after the date of this Agreement, to collaborate with the
Buyer to obtain purchase agreements from the Company’s top [CONFIDENTIAL
TREATMENT REQUESTED] customers (other than the Buyer) with terms of
not less than [CONFIDENTIAL TREATMENT REQUESTED]
years, such purchase agreements to account for a minimum of [CONFIDENTIAL TREATMENT REQUESTED] of the Company’s
projected revenue or not less than [CONFIDENTIAL TREATMENT
REQUESTED];


 


6.2.3                        As
promptly as possible after the date of this Agreement, but in any event no
later than October 15, 2005, to provide to the Buyer an operating budget
for the Company with respect to the Company’s 2006 fiscal year (which the Buyer
shall use its commercially reasonable efforts to approve prior to November 15,
2005); and


 


6.2.4                        As
promptly as possible after the date of this Agreement, to assist the Buyer in
restructuring the credit facilities of the Company (including any leases with
personal guarantees) in a manner so as to eliminate the personal guarantees of
Polinelli and Ghiringhelli.


 


6.3                                 Press
Releases.  The Quotaholders
shall not, and shall not permit the Company to, without the prior written
consent of the Buyer, issue any press release mentioning the Buyer’s name.


 


6.4                                 Certain
Employment Arrangements.  Commencing at the Closing, the Company shall
hire Polinelli (and Polinelli agrees to serve for a period of two (2) years)
as a “director” of the Company and, in such capacity, Polinelli shall have the
authority to manage the day-to-day operations of the Company, subject to the
supervision of the board of directors of the Company such that Polinelli shall
not have the authority to (i) hire or fire members of management of the
Company without approval of the board of directors of the Company or (ii) cause
the Company to deviate in its expenditures by more than five percent (5%)
from the Company’s operating budget as approved from time to time by the
Company’s board of directors prior to the commencement of the fiscal year.  Polinelli shall be paid a pre-tax salary of [CONFIDENTIAL
TREATMENT REQUESTED] for each year of such service, plus


 


15





















 


customary
benefits.  In no event shall Polinelli
work less than [CONFIDENTIAL
TREATMENT REQUESTED] hours per week for the Company.  Notwithstanding the foregoing, the Parties
agree that (i) the Company shall hire a general manager no later than December 31,
2006 to run the day-to-day operations of the Company, subject to the
supervision of the board of directors of the Company or its designee, and (ii) in
the event that the Buyer sells the Company to a third person, Polinelli shall
have the right to terminate his position with the Company without any
competitive limitations, including, but not limited to, his role as a director
of Polinelli s.r.l.  In addition, the
Buyer acknowledges that Polinelli is involved as owner and sole director of
another business that distributes eyewear.


 


6.5                                 Diligence.  The Buyer shall complete its tax, accounting
and legal diligence by October 15, 2005. 
In addition, the Buyer shall notify the Quotaholders no later than October 15,
2005 in the event that it is unable to complete its diligence because of
additional information that it needs to receive from the Company or the
Quotaholders.  In no event shall Buyer be
deemed to be in breach of this Agreement if it notifies the Quotaholders that
it has not completed its diligence as a result of the failure of the
Quotaholders or the Company to provide sufficient diligence materials to the
Buyer.


 


7.                                      INDEMNIFICATION.


 


7.1                                 Indemnification
by the Company and Quotaholders.  Each of the Quotaholders (individually and
collectively, the “Quotaholder
Indemnifying Parties”) hereby agrees to jointly and severally defend, indemnify
and hold harmless the Buyer and its successors, assigns and affiliates
(collectively, the “Buyer
Indemnitees”) from and against any and all losses, deficiencies,
liabilities, damages, assessments, judgments, costs and expenses, including
attorneys’ fees (both those incurred in connection with the defense or
prosecution of the indemnifiable claim and those incurred in connection with
the enforcement of this provision) (collectively, “Buyer Losses”),
caused by, resulting from or arising out of (i) breaches of any
representation or warranty hereunder or any Ancillary Agreement on the part of
any Quotaholder Indemnifying Party and (ii) failures by any Quotaholder
Indemnifying Party to perform or otherwise fulfill any undertaking or other
agreement or obligation hereunder or under any Ancillary Agreement; and any and
all actions, suits, proceedings, claims, demands, incident to any of the
foregoing or such indemnification; provided, however, that if any
claim, liability, demand, assessment, action, suit or proceeding shall be
asserted against a Buyer Indemnitee in respect of which a Buyer Indemnitee proposes
to demand indemnification (“Buyer Indemnified Claims”),
Buyer or such other Buyer Indemnitee shall notify the Quotaholder Indemnifying
Parties thereof, provided, further, however, that the
failure to so notify the Quotaholder Indemnifying Parties shall not reduce or
affect the Quotaholder Indemnifying Parties’ obligations with respect thereto
except to the extent that the Quotaholder Indemnifying Parties are materially
prejudiced thereby.  Subject to rights of
or duties to any insurer or other third person having liability therefor, the
Quotaholder Indemnifying Parties shall have the right promptly upon receipt of
such notice to assume the control of the defense, compromise or settlement of
any such Buyer Indemnified Claims (provided that any compromise or settlement
must be reasonably approved by Buyer), including, at its own expense,
employment of counsel reasonably satisfactory to Buyer; provided, however,
that if the Quotaholder Indemnifying Parties shall have exercised their right
to assume such control, the Buyer Indemnitees may, in their sole discretion and
at their expense, employ counsel to represent them (in addition to


 


16





















 


counsel employed by
the Quotaholder Indemnifying Parties) in any such matter, and in such event
counsel selected by the Quotaholder Indemnifying Parties shall be required to
cooperate with such counsel of the Buyer Indemnitees in such defense,
compromise or settlement.


 


7.2                                 Certain
Limitations. Notwithstanding any provision herein to the contrary, the
Parties agree that in no event shall the Quotaholders be obligated with respect
to any Buyer Loss until the aggregate of all Buyer Losses exceeds [CONFIDENTIAL
TREATMENT REQUESTED] (the “Deductible”)
and then the Buyer shall only be permitted to recover such Buyer Losses in
excess thereof.


 


7.3                                 Reduction of
Additional Purchase Price.  Without limiting the right of the Buyer under
any applicable provision of Italian law to recover the Buyer Losses in
accordance with Sections 7.1 and 7.2 above, in the event of any
Buyer Losses (x) as to which the Buyer is entitled to indemnity under Sections
7.1 and 7.2  above in excess
of the Deductible, (y) as to which the Quotaholders have failed to indemnify
Buyer within ninety (90) days notice thereof and (z) that are
being not contested in good faith by the Quotaholders, the Buyer shall have the
right, in addition to all other remedies provided by law, to reduce the amounts
payable for the Additional Purchase Price by the amount of such Buyer Losses.


 


7.4                                 Indemnification
by Buyer.  The Buyer hereby
agrees to jointly and severally defend, indemnify and hold harmless the
Quotaholders and their respective successors, assigns and affiliates
(collectively, “Quotaholder
Indemnitees”) from and against any and all losses, deficiencies,
liabilities, damages, assessments, judgments, costs and expenses, including
attorneys’ fees (both those incurred in connection with the defense or
prosecution of the indemnifiable claim and those incurred in connection with the
enforcement of this provision) (collectively, “Quotaholder Losses”),
caused by, resulting from or arising out of (i) breaches of any
representation and warranty hereunder or under any Ancillary Agreement on the
part of the Buyer and (ii) failures by the Buyer to perform or otherwise
fulfill any undertaking or agreement or obligation hereunder or under any
Ancillary Agreement; and (ii) any and all actions, suits, proceedings,
claims and demands incident to any of the foregoing or such indemnification; provided,
however, that if any claim, liability, demand, assessment, action, suit
or proceeding shall be asserted against a Quotaholder Indemnitee in respect of
which a Quotaholder Indemnitee proposes to demand indemnification (“Quotaholder
Indemnified Claims”), such Quotaholder Indemnitee shall notify Buyer thereof;
provided, further, however, that the failure to so notify
the Buyer shall not reduce or affect the Buyer’s obligations with respect
thereto except to the extent that the Buyer is materially prejudiced
thereby.  Subject to rights of or duties
to any insurer or other third person having liability therefor, the Buyer shall
have the right promptly upon receipt of such notice to assume the control of
the defense, compromise or settlement of any such Quotaholder Indemnified
Claims (provided that any compromise or settlement must be reasonably approved
by the Quotaholders) including, at their own expense, employment of counsel
reasonably satisfactory to Seller; provided, however, that if the
Buyer shall have exercised its right to assume such control, the Quotaholder
Indemnitees may, in their sole discretion and at their expense, employ counsel
to represent them (in addition to counsel employed by the Buyer) in any such
matter, and in such event counsel selected by Buyer shall be required to
cooperate with such counsel of Quotaholder Indemnitees in such defense,
compromise or settlement.


 


17





















 


8.                                      TERMINATION.  This Agreement may be terminated as follows:


 


8.1                                 By the Quotaholders.  Prior to the
Closing, this Agreement may be terminated by the Quotaholders by delivery of a
termination notice signed by both of the Quotaholders specifying that the Buyer
has materially breached this Agreement (including a reference to the provision
breached), which breach has not been cured by the Buyer following thirty
(30) days notice thereof by the Quotaholders.  In the event of a termination by the
Quotaholders pursuant to this Section 8.1 (following the expiration
of any cure period), the obligations of the Parties under this Agreement shall
terminate and be of no further force or effect; provided, however,
that the obligations of the Parties under the following sections shall survive
any such termination:  Article 7
and Article 9.  In the event
of a termination by the Quotaholders under this Section 8.1
(following the expiration of any cure period), the Quotaholders shall be
entitled to retain the Good Faith Deposit, without any right of offset or
credit to the Buyer, as liquidated damages under this Agreement.  Notwithstanding any provision herein to the
contrary, the Parties agree that the notification by the Buyer under Section 6.5(ii) that
it has elected not to proceed with the transaction, in the absence of any
breach of the Agreement by the Quotaholders, shall be grounds for the
Quotaholders to notify the Buyer that it has elected to terminate this
Agreement and, in such event, the Quotaholders shall be entitled to retain the
Good Faith Deposit; provided, however, that in no event shall the
refusal by the Buyer to effect the Closing or other transactions contemplated
by this Agreement by reason of a Material Adverse Change with respect to the
Company be deemed a material breach of this Agreement by the Buyer.


 


8.2                                 By the Buyer.  Prior to the
Closing, this Agreement may be terminated by the Buyer by delivery of a
termination notice (after expiration of any applicable cure periods under
Italian law, but in no event to exceed thirty (30) days) signed
by the Buyer specifying any of the following:


 


8.2.1                        That the Buyer has been unable to
satisfactorily complete its due diligence with respect to the Company for any
reason, including as a result of the discovery of information that was not
disclosed to the Buyer prior to the date hereof or that is inconsistent with
information disclosed to the Buyer prior to the date hereof and that the Buyer
desires to terminate this Agreement as a result thereof; or


 


8.2.2                        That the Company or the Quotaholders
have failed to satisfy any material condition of this Agreement, have breached,
in any material respect, any obligation thereof under this Agreement or any
Ancillary Agreement or have failed to satisfy, in all respects, any condition
to the Closing under this Agreement.


 


In the event of a termination under this Section 8.2,
the obligations of the Parties under this
Agreement shall terminate and be of no further force or effect; provided,
however, that the obligations of the Parties under the following
sections shall survive any such termination: 
Article 7 and Article 9.  In the event of a termination under this Section 8.2,
the Quotaholders shall return the Good Faith Deposit to the Buyer within ninety
(90) days of the delivery of the termination notice under this Section 8.2
(or, in the alternative, shall issue a credit to the Buyer with respect to the
purchase of products from the Company by the Buyer, in an amount equal to the
Good Faith Deposit).


 


18





















 


9.                                      MISCELLANEOUS.


 


9.1                                 Governing Law and Court.  This Agreement shall be governed in all
respects by the laws of the country of Italy. 
Notwithstanding the foregoing, the Parties agree that this Agreement was
negotiated and originally drafted in the English language, and although a copy
of this Agreement shall be translated into Italian for purposes of effecting
the transactions contemplated hereby, any disputes with respect to this
Agreement shall be resolved with reference to the English draft of this
Agreement, which shall in all events supersede and prevail over any draft of
this Agreement translated into any other language.  Any dispute, controversy and/or claim arising
or relating to this Agreement, including those related to its validity,
effectiveness, interpretation, execution or termination, shall be settled by an
Arbitration Board comprised of three (3) Members, appointed in compliance
with the “National Arbitration Rules” of the Milan National and International
Chamber, which the Parties declare to fully know and accept.  The Arbitration Board shall settle disputes
on a ritual basis in compliance with the dispositions of the Italian Civil
Procedure Code.


 


9.2                                 Survival.  Subject to
the terms of this Agreement, the representations, warranties, covenants and
agreements made herein shall survive the Public Notary deed signed among the
Parties for the sole purpose to respect to Italian Rules (Legge Mancino)
in relation to the valid transfer of the Company’s participation.


 


9.3                                 Successors and Assigns. 
Neither this Agreement nor any of the rights, benefits, obligations or
duties hereunder may be assigned or transferred by the Quotaholders.  Any purported assignment or transfer by the
Quotaholders shall be void.  Except as
otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs and
administrators of the Parties hereto and shall inure to the benefit of and be
enforceable by each person who shall be a holder of the quota from time to
time.


 


9.4                                 Entire Agreement. 
This Agreement, the Ancillary Agreements, the Exhibits and Schedules
hereto, and the other documents delivered pursuant hereto and thereto
constitute the full and entire understanding and agreement between the Parties
with regard to the subjects hereof and no Party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.


 


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


 


9.6                                 Amendment
and Waiver.  This
Agreement may be amended or modified only upon the written consent of the
Quotaholders and the Buyer.


 


9.7                                 Notices.  All notices
required or permitted hereunder shall be in writing and shall be deemed
effectively given:  (a) upon
personal delivery to the Party to be notified, (b) when sent by confirmed
telex or facsimile if sent during normal business hours of the recipient, if
not, then on the next business day, (c) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) day after
deposit with a nationally


 


19





















 


recognized overnight
courier, specifying next day delivery, with written verification of
receipt.  All communications shall be
sent to the following addresses (as applicable) or such other address as may be
specified by the applicable Party by ten (10) days’ advance
written notice to the other Parties hereto:


 


If to
the Buyer, to:


 


2070
Las Palmas Drive


Carlsbad,
CA 92009


Phone:
(760) 804-8420


Fax:
(760) 804-8442


Attention:  Chief Financial Officer


 


With a
copy to:


 


Christopher
M. Forrester


Pillsbury
Winthrop Shaw Pittman LLP


11682
El Camino Real, Suite 200


San
Diego, CA 92130


Phone:
(858) 509-4000


Fax:
(858) 509-4010


 


If to
the Quotaholders, to:


 


Via Gaggio 8


Galliate Lombardo, (VA) 21020


Tel: (011) 39 – 033 – 294 – 7722


 


9.8                                 Expenses.  Each Party
shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement, except for
the costs and expenses of the Italian Public Notary, which shall be borne by the
Buyer.


 


9.9                                 Attorneys’ Fees.  In
the event that any suit or action is instituted to enforce any provision in
this Agreement, the prevailing Party in such dispute shall be entitled to
recover from the losing Party all fees, costs and expenses of enforcing any
right of such prevailing Party under or with respect to this Agreement,
including without limitation, such reasonable fees and expenses of attorneys
and accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.


 


9.10                           Titles
and Subtitles.  The titles of the
sections and subsections of this Agreement are for convenience of reference
only and are not to be considered in construing this Agreement.


 


9.11                           Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.


 


9.12                           Broker’s
Fees.  Each Party hereto represents
and warrants that no agent, broker, investment banker, person or firm acting on
behalf of or under the authority of such Party hereto


 


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is or will be entitled to
any broker’s or finder’s fee or any other commission directly or indirectly in
connection with the transactions contemplated herein.  Each Party hereto further agrees to indemnify
each other Party for any claims, losses or expenses incurred by such other
Party as a result of the representation in this Section 9.12 being
untrue.


 


9.13                           Confidentiality.


 


9.13.1                  “Confidential Information” refers to: (i) the
business or technical information of the Buyer or the Company (including any
information relating to product or service plans, designs, costs, product or
service prices and names, finances, marketing plans, business plans, requests
for proposals, proposals, business opportunities, security, personnel,
research, development, know-how, proprietary information relating to the
Products, and other information of a proprietary or confidential nature) and (ii) any
information disclosed hereunder and designated by the disclosing Party (a “Disclosing Party”) as “confidential” or “proprietary”
or which, if disclosed orally, is identified as confidential at the time of
such disclosure and confirmed in a writing delivered to the receiving Party (a “Recipient”) within thirty (30) days of
such disclosure; provided,
however, that “Confidential Information” does not include
information that: (a) is in or enters the public domain without breach of
this Agreement by a Recipient; (b) a Recipient receives from a third party
without restriction on disclosure and without breach of a nondisclosure
obligation; or (c) a Recipient develops independently, which the Recipient
can prove with written evidence. Notwithstanding any other provision herein to
the contrary, the Parties acknowledge and agree that the terms of this
Agreement and any pre-contractual negotiations shall constitute Confidential
Information of the Buyer.


 


9.13.2                  Each Party
agrees to take all measures reasonably required in order to maintain the
confidentiality of all Confidential Information in its possession or control,
which will in no event be less than the measures used to maintain the
confidentiality of its own information of equal importance. It is understood
and agreed that a Recipient may use and disclose Confidential Information
received from a Disclosing Party solely for the purposes of exercising the
Recipient’s rights and performing its obligations under this Agreement. It is
further understood and agreed that the Parties may disclose the terms and
conditions of this Agreement to their respective actual and potential
investors, attorneys, financial advisors, accountants, collaborators, business
partners, employees and contractors who are bound by written agreements with
the Recipient to maintain the Confidential Information of the Disclosing Party
in confidence or who are otherwise under obligations of confidentiality to the
Recipient (collectively, the “Representatives”);
provided, however, that the Recipient shall
be liable for any unauthorized disclosure by such Representatives. The Parties
also may disclose Confidential Information of the other Party in the course of
prosecuting or defending litigation, complying with applicable governmental
regulations or submitting information to tax or other governmental authorities,
provided that if a Party is required to make any such
disclosure of another Party’s Confidential Information, to the extent it may
legally do so, it will give reasonable advance notice to the latter Party of
such disclosure and will use diligent efforts to secure confidential treatment
of such Confidential Information prior to its disclosure (whether through
protective orders or otherwise). Without limiting the foregoing sentence, the
Parties agree that the Buyer may file this Agreement as an exhibit to a
registration statement filed under the Securities Act of 1933, or a periodic
report filed under the Securities Exchange Act of 1934, so long as the Buyer


 


21





















 


so filing this Agreement exercises its
reasonable efforts to seek confidential treatment regarding the financial terms
of this Agreement to the extent permitted by law.


 


9.13.3                  The Recipient
of Confidential Information acknowledges that Confidential Information includes
trade secrets or confidential or proprietary information, the disclosure of
which could cause substantial harm to the Disclosing Party that could not be
remedied by the payment of damages alone. Accordingly, the Parties agree that a
Disclosing Party shall be entitled to seek preliminary and permanent injunctive
relief and other equitable relief for any breach of this section.


 


9.13.4                  Upon the
written request of the Disclosing Party, the Receiving Party shall promptly
return all tangible items relating to Confidential Information of the
Disclosing Party, including all written material, photographs, models,
components and the like made available or supplied by the Disclosing Party to
the Receiving Party, and all copies and derivatives thereof.


 


9.14                           Pronouns.  All pronouns contained herein, and any
variations thereof, shall be deemed to refer to the masculine, feminine or
neutral, singular or plural, as to the identity of the Parties hereto may
require.


 


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IN
WITNESS WHEREOF, the Parties hereto have executed this QUOTA PURCHASE AGREEMENT as of the date first set forth
above.


 


	
  BUYER:

  	
  QUOTAHOLDERS:

  
	
   

  	
   

  
	
  ORANGE 21 INC.

  	
   

  
	
   

  	
  /s/ Riccardo Polinelli

  	
   

  
	
  By: 

  	
  /s/ Barry
  Buchholtz

  	
   

  	
  Riccardo
  Polinelli, an individual

  
	
  Name: 

  	
  Barry Buchholtz

  	
   

  	
   

  
	
  Its: 

  	
  CEO

  	
   

  	
   

  
	
   

  	
  /s/ Raffaella
  Ghiringhelli

  	
   

  
	
   

  	
  Raffaella
  Ghiringhelli, an individual