Document:

EX-10.2:

 

EXHIBIT 10.2

		
	 	
    ALLOY, INC.
	 	
    151 West 26th Street, 11th Floor
	 	
    New York, NY 10001
	 
	 	
    April 13, 2005

MLF Investments LLC

2401 West Bay Drive, Suite 124

Largo, FL 33770

Attention: Matthew L. Feshbach

     
Re: Standby Commitment of MLF Investments LLC
(“MLF”)

Gentlemen:

     
As you know, the Board of Directors (the
“Board”) of Alloy, Inc.
(“Alloy”) is currently contemplating one or
more transactions relating to its merchandising business, which
transactions include, among others, a spin-off of its
merchandising business (the “Complete Spin
Transaction”) or an offering or other distribution of a
portion of the equity of its merchandising business to its
existing shareholders (a “Carve Out,” and
together with the Complete Spin, the “Spin
Transaction”). The Spin Transaction, if consummated,
likely would take the form of a distribution or offering by
Alloy to its existing shareholders and/or the public of common
stock of a yet-to-be created company, which, for purposes of
this letter agreement, will be called Alloy Merchandise Group
(“AMG”). In connection with the Spin
Transaction, the Board also is contemplating various options for
obtaining financing for AMG to enable it to finance its
contemplated growth. Among these financing options is a rights
offering (the “Rights Offering”), pursuant to
which Alloy shareholders receiving or being offered shares of
the common stock of AMG in the Spin Transaction would also
receive, at no cost, rights to purchase shares of AMG common
stock (the “AMG Stock”) at a specified exercise
price. Because of the uncertainty about the likely trading range
of the AMG Stock upon consummation of the Spin Transaction, the
possibility that the exercise price for the rights may not be at
a discount from the price of the AMG Stock at the time the
Rights Offering is effected, and the possibility that
Alloy’s existing shareholders would not be interested in
purchasing the AMG Stock, there is uncertainty at this point
about AMG’s ability to successfully consummate the Rights
Offering. In order to eliminate this uncertainty, Alloy has
discussed with MLF the possibility of MLF acting as a standby
purchaser of the shares of AMG Stock not purchased by the other
Alloy stockholders in the Rights Offering.

     
The purpose of this letter agreement is to confirm the agreement
of MLF to purchase all of the shares of AMG Stock not purchased
by Alloy’s/ AMG’s other stockholders. The purchase of
the AMG Stock by MLF will be effectuated upon the terms and
conditions to be set forth in a definitive Rights Offering
Standby Agreement (the “Standby Agreement”)
reasonably satisfactory to, and executed by, Alloy, AMG and MLF.
The following is a summary of some of the major points that will
appear in the Standby Agreement.

     
1.     Issuer. The
issuer, AMG, will be will a newly formed corporation, to which
Alloy will contribute substantially all of the assets of its
merchandising business. AMG would also, as part of the Spin
Transaction, assume certain defined liabilities solely related
to the assets of Alloy’s merchandising business contributed
to AMG, as determined in good faith by the Board at the time of
its authorization of the Spin Transaction, if and when it
effects such authorization.

     
2.     Type of Security; Exercise
Price. It is contemplated that, if the Rights Offering
is authorized and commenced, AMG will issue, at no cost to each
person or entity holding shares of Alloy common stock as of a to
be determined record date, rights to purchase shares of AMG
Stock at the Exercise Price (the “Rights”). It
currently is contemplated that the exercise price per share (the
“Exercise Price”) will be based on an implied
pre-money equity market valuation of AMG of $175 million,
on a fully diluted basis calculated pursuant to the treasury
stock method.

     
3.     Amount of
Offering. As currently contemplated, the Rights Offering
would result in aggregate gross proceeds to AMG of $20,000,000
(the “Contemplated Offering Amount”). The Board
shall have the right, in

 

its sole discretion, to reduce the Contemplated Offering Amount
by whatever amount the Board deems advisable.

     
4.     Exercise Period.
The Rights shall be exercisable for a period of not less than
16 days following the date such Rights are issued (the
“Exercise Period”), or such other period as may
be determined by the Board.

     
5.     Purchase Commitment;
Standby Commitment. MLF hereby covenants that it shall
exercise all of the Rights distributed to it (the “MLF
Rights”) and shall purchase all shares of AMG Stock
underlying the MLF Rights at the Exercise Price. Additionally,
if, at the end of the Exercise Period, there are Rights of other
Alloy stockholders that remain unexercised (the
“Unexercised Rights”), MLF Agrees that, at the
request of Alloy, and subject to the provisions hereof, it shall
purchase all of the AMG Stock underlying all Unexercised Rights
at the Exercise Price. There will be no rights of
oversubscription offered to any of Alloy’s stockholders
other than those provided to MLF pursuant to this letter
agreement. MLF’s financial obligation hereunder to purchase
shares of AMG Stock underlying the Unexercised Rights shall not,
in the aggregate, exceed the difference between the aggregate
amount for exercise of the AMG Stock underlying the MLF Rights
and the Contemplated Offering Amount. AMG shall grant usual and
customary demand and piggy back registration rights to MLF in
respect of all shares of AMG Stock acquired pursuant to the
Standby Agreement.

     
6.     Fees.

		
	 	     
    a. Commitment Fee. If and when the Board
    authorizes the Spin Transaction, then promptly following such
    authorization, MLF shall receive a non-refundable fee of $50,000
    (the “Commitment Fee”) as compensation for its
    commitment to purchase all of the AMG Stock underlying all the
    Unexercised Rights at the Exercise Price.
	 
	 	     
    b. Standby Fee. If the Rights Offering is
    effected, MLF shall be entitled to receive a non-refundable fee
    upon the initiation of the Rights Offering of ten-year warrants
    to purchase a number of shares of AMG Stock equal to 8%
    multiplied by the number of shares of AMG Stock issued pursuant
    to the Rights Offering at the Exercise Price (the
    “Standby Fee”).

     
7.     No Obligation to Complete
Spin Transaction or Rights Offering. Nothing contained
in this letter agreement shall (i) obligate Alloy to
initiate or consummate the Spin Transaction, (ii) obligate
Alloy or AMG to initiate or consummate the Rights Offering, or
(iii) obligate Alloy or AMG to require MLF to purchase all
or any of the shares of AMG Stock underlying the Unexercised
Rights. MLF shall have no obligations hereunder if either the
Spin Transaction or the Rights Offering is not consummated.

     
8.     Representations and
Warranties. The Standby Agreement will contain
representations, warranties, indemnities and covenants with
respect to, among other matters:

		
	 	     
    a. the due and valid authorization, execution and delivery
    of the Standby Agreement and the authority of Alloy, AMG and MLF
    in connection therewith;
	 
	 	     
    b. that the execution, delivery and performance by AMG and
    MLF of the Standby Agreement will not constitute a breach of any
    agreement to which AMG or MLF is a party or violate any law
    applicable to AMG or MLF and that there is no litigation pending
    or threatened which would effect or impair the ability of AMG or
    MLF to perform its obligations under and pursuant to the Standby
    Agreement;
	 
	 	     
    c. the due organization, valid existence and good standing
    of AMG and MLF, the corporate or limited liability company power
    and authority of each to own its assets and properties and carry
    on its business in the ordinary course;
	 
	 	     
    d. the class, number and par value of all authorized,
    issued and/or outstanding shares of AMG capital stock, all of
    which issued shares shall be fully paid and non-assessable, and
    that AMG shall not have issued or granted or agreed to issue or
    grant any warrant, option, right of first refusal or other right
    to subscribe for or acquire in any way whatsoever any shares of
    capital stock of AMG except as shall be set forth in the
    Form S-1 Registration Statement relating to the AMG Stock
    underlying the Rights;
	 
	 	     
    e. the material truth, accuracy and completeness of all
    financial statements of or pertaining to AMG, prepared in
    accordance with generally accepted accounting principles
    consistently applied;

 

		
	 	     
    f. the absence of any required consents of any third
    parties to the Spin Transaction, the Rights Offering or Standby
    Agreement or the transactions to be consummated pursuant thereto
    or thereunder; and
	 
	 	     
    g. such other representations and warranties as AMG or MLF
    may reasonably request or are customarily found in agreements of
    the sort contemplated by the Standby Agreement.

     
9.     Commissions. Each
party represents and warrants to the other that it has not dealt
with any broker or finder in connection with this Agreement or
the transactions provided for herein, and that no person or
entity is entitled to any brokerage or finder’s fee,
commission or other compensation on account of any such dealings
with the warranting party. Each party shall indemnify, save and
hold the other harmless from and against any and all loss, cost
or expense (including, without limitation, any and all
attorneys’ fees related to suits, actions or judgments
incident hereto), whether direct, contingent or consequential,
and no matter how arising, in any way related to or arising from
any breach of the representations and warranties contained in
this Paragraph 9.

     
10.     Binding Nature:
Termination. The parties acknowledge that, subject to
the provisions of paragraph 7 hereof, this letter agreement
represents the binding intent of the parties to proceed in
accordance with the terms hereof and this letter agreement
represents the legally enforceable obligations of the parties
hereto in accordance with the terms hereof. The parties each
agree to proceed with diligence and in good faith to cause their
respective counsel, accountants and personnel to so proceed to
draft, negotiate and enter into the Standby Agreement and to
obtain any and all necessary authorizations, consents and prior
approvals as may be required. This letter agreement, and the
transactions contemplated hereby, may be terminated if
(i) AMG or Alloy delivers a written notice of termination
to MLF prior to the execution of the Standby Agreement; or
(ii) the Standby Agreement is not executed and entered into
on or prior to the filing with the SEC of the Form S-1
Registration Statement relating to the AMG Stock underlying the
Rights. Upon any such termination, neither party hereto shall
have any further obligations hereunder to the other with respect
to the subject matter of this letter agreement. In addition,
this letter agreement shall terminate automatically and without
further action of the parties if the Spin Transaction is not
consummated on or prior to December 31, 2005.

     
11.     Costs and
Expenses. Each party hereto shall be responsible for all
expenses incurred by it related hereto, to the Spin Transaction,
the Rights Offering, or otherwise related to the subject matter
hereof.

     
12.     Third-Party
Consents. The Parties shall cooperate with each other in
securing or obtaining all authorizations, consents, approvals,
or clearances of any third parties or governmental agencies, if
any, necessary for the consummation of the transactions
contemplated hereby.

     
13.     Notices. Any
notice required or permitted to be given hereunder shall be in
writing, and shall be either (i) personally delivered,
(ii) sent by U.S. certified or registered mail, return
receipt requested, postage prepaid, (iii) sent by Federal
Express or other reputable common carrier guaranteeing next
business day delivery, (iv) by electronic mail; or
(iv) by facsimile, in any event to the respective addresses
of the parties set forth below, or to such other place as any
party hereto may by notice given as provided herein designate
for receipt of notices hereunder. Any such notice shall be
deemed given and effective upon receipt or refusal of receipt
thereof by the primary party to whom it is to be sent; provided,
however, a notice delivered by electronic mail or facsimile
after 5:00 PM on any day shall be deemed received on the next
business day.

     
If to the Alloy or AMG:

		
	 	
    Alloy, Inc.
	 	
    151 West 26th Street
	 	
    11th Floor
	 	
    New York, NY 10001
	 	
    Attn: Chief Executive Officer
	 	
    Fax: (212) 244-4311

 

     
with a copy (which shall not constitute notice) to:

		
	 	
    Richard M. Graf
	 	
    KMZ Rosenman
	 	
    1025 Thomas Jefferson St, NW
	 	
    Washington, DC 20007
	 	
    Fax: (202) 339-6058

     
If to MLF:

		
	 	
    MLF Investments LLC
	 	
    2401 West Bay Drive, Suite 124
	 	
    Largo, FL 33770
	 	
    Attn: Matthew L. Feshbach
	 	
    Fax:

     
with a copy (which shall not constitute notice) to:

		
	 	
    Steven Wolosky
	 	
    Olshan Grundman Frome Rosenzweig
	 	
    & Wolosky LLP
	 	
    Park Avenue Tower
	 	
    65 East
    55th
    Street
	 	
    New York, NY 10022
	 	
    Fax: (212) 451-2222

     
14.     Governing Law.
This letter agreement shall be governed by and construed in
accordance with the internal laws of the State of New York
without reference to (i) its judicially or statutorily
pronounced rules regarding conflict of laws or choice of law;
(ii) where any instrument is executed or delivered;
(iii) where any payment or other performance required by
any such instrument is made or required to be made;
(iv) where any breach of any provision of any such
instrument occurs, or any cause of action otherwise accrues;
(v) where any action or other proceeding is instituted or
pending; (vi) the nationality, citizenship, domicile,
principal place of business, or jurisdiction or organization or
domestication of any party; (vii) whether the laws of the
forum jurisdiction otherwise would apply the laws of a
jurisdiction other than the State of New York; or
(viii) any combination of the foregoing. Any action, suit
or proceeding initiated by either party hereto against the other
party hereto under or in connection with this letter agreement
shall be brought only in a state or federal court located in the
State of New York, County of New York. Each party hereto submits
itself to the exclusive jurisdiction of any such court, waives
any claims of forum non conveniens and agrees that service of
process may be effected on it by the means by which notices are
to be given pursuant to this agreement.

     
15.     Assignment.
Neither party may assign this agreement without the prior
written consent of the other party, which consent shall not be
withheld, conditioned or delayed unreasonably. In addition, MLF,
with the consent of Alloy, which consent shall not be withheld,
conditioned or delayed unreasonably, may assign all or a portion
of its rights hereunder to one or more senior AMG executives;
provided, that no such assignment shall relieve MLF of
any of its obligations hereunder.

     
16.     Integration. This
Agreement constitutes and comprises the entire agreement and
understanding between parties hereto as of the date hereof with
regard to the subject matter hereof and there are no other prior
or contemporaneous written or oral agreements, undertakings,
promises, warranties or covenants respecting such subject matter
not expressly set forth herein.

     
17.     Counterparts.
This letter agreement may be executed in counterparts and the
counterparts together will constitute a single, fully-executed
original.

[Remainder of page left blank intentionally]

 

     
Please indicate your acceptance of this proposal by executing
the duplicate copy of this letter agreement enclosed herewith
and returning it to Alloy at the address indicated above.

		
	 	
    Sincerely yours,
	 
	 	
    Alloy, Inc.
    

			
	 	By: 	
    /s/ James K. Johnson, Jr.
    

		
	 	
     

	 	
    Name: James K. Johnson, Jr.

			
	 	Title:	
    Chief Operating Officer, Chief Financial Officer

		
	
    ACCEPTED AND AGREED TO:	 
	 
	
    LF INVESTMENTS LLC	 

			
	By: 	
    /s/ Matt L. Feshbach
    	 

		
	
     
	 
	 
	
    Its Chairman
    	 
	 
	
    Date:   April 14,
    2005EX-10.3:

 

Execution Copy

EXHIBIT 10.3

ASSET PURCHASE AGREEMENT

BY AND AMONG

XP INNOVATION LLC,

DAN’S COMPETITION, LLC,

ALLOY, INC.

AND

STEVEN KALSCH, WILLIAM CARTWRIGHT and DUSTIN WILSON

Dated as of May 31, 2005

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 
	
    ARTICLE I PURCHASE AND SALE OF ASSETS	 	 	1	 
	 	
    
    1.1

    	 	
    Purchase and Sale of Assets
    	 	 	1	 
	 	
    
    1.2

    	 	
    Excluded Assets
    	 	 	2	 
	 	
    
    1.3

    	 	
    Assumption of Liabilities
    	 	 	2	 
	 	
    
    1.4

    	 	
    Excluded Liabilities
    	 	 	2	 
	 	
    
    1.5

    	 	
    Closing
    	 	 	3	 
	 	
    
    1.6

    	 	
    Transfer Documents
    	 	 	3	 
	 	
    
    1.7

    	 	
    Further Assurances
    	 	 	3	 
	 	
    
    1.8

    	 	
    Consents of Third Parties
    	 	 	3	 
	
    ARTICLE II PURCHASE PRICE	 	 	4	 
	 	
    
    2.1

    	 	
    Purchase Price
    	 	 	4	 
	 	
    
    2.2

    	 	
    Working Capital Adjustment
    	 	 	4	 
	 	
    
    2.3

    	 	
    Allocation of Purchase
    Price
    	 	 	6	 
	
    ARTICLE III REPRESENTATIONS AND WARRANTIES	 	 	6	 
	 	
    
    3.1

    	 	
    Representations and
    Warranties of the Company
    	 	 	6	 
	
    
       (a)

    	 	
      Organization; Good Standing; Qualification and
    Power	 	 	6	 
	
    
       (b)

    	 	
      Ownership of the Company	 	 	6	 
	
    
       (c)

    	 	
      Authority; Enforceability; No Conflict;
    Consents	 	 	6	 
	
    
       (d)

    	 	
      No Material Adverse Change	 	 	7	 
	
    
       (e)

    	 	
      Tax Matters	 	 	7	 
	
    
       (f)

    	 	
      Title to Assets	 	 	8	 
	
    
       (g)

    	 	
      Intellectual Property	 	 	8	 
	
    
       (h)

    	 	
      Contracts	 	 	9	 
	
    
       (i)

    	 	
      Litigation	 	 	9	 
	
    
       (j)

    	 	
      Compliance with Laws; Permits	 	 	9	 
	
    
       (k)

    	 	
      Employee Benefits	 	 	10	 
	
    
       (l)

    	 	
      Brokers	 	 	10	 
	
    
       (m)

    	 	
      Certain Undisclosed Liabilities and Marketing
    Activities	 	 	10	 
	 	
    
    3.2

    	 	
    Representations and
    Warranties of the Buyer and the Members
    	 	 	11	 
	
    
       (a)

    	 	
      Organization; Good Standing; Qualification and
    Power	 	 	11	 
	
    
       (b)

    	 	
      Authority; Enforceability; No Conflict;
    Consents	 	 	11	 
	
    
       (c)

    	 	
      Litigation	 	 	11	 
	
    
       (d)

    	 	
      No Brokers	 	 	11	 
	
    
       (e)

    	 	
      Financial Capacity	 	 	11	 
	
    
       (e)

    	 	
      Company Representations and Warranties	 	 	12	 
	
    ARTICLE IV COVENANTS	 	 	12	 
	 	
    
    4.1

    	 	
    Conduct of Business by the
    Company Pending Closing
    	 	 	12	 
	 	
    
    4.2

    	 	
    Cooperation
    	 	 	12	 
	 	
    
    4.3

    	 	
    Updates to Disclosure
    Schedules
    	 	 	12	 
	 	
    
    4.4

    	 	
    Solicitation of Other
    Proposals
    	 	 	12	 
	 	
    
    4.5

    	 	
    Public Announcements
    	 	 	13	 

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

i

 

	 	 	 	 	 	 	 	 
	 	
    
    4.6

    	 	
    Employment Matters
    	 	 	14	 
	 	
    
    4.7

    	 	
    Tax Matters
    	 	 	14	 
	
    
       (a)

    	 	
      Preparation of Tax Returns	 	 	14	 
	
    
       (b)

    	 	
      Dispute Resolution	 	 	15	 
	
    
       (c)

    	 	
      Audits	 	 	16	 
	
    
       (d)

    	 	
      Cooperation	 	 	16	 
	 	
    
    4.8

    	 	
    Litigation Cooperation
    	 	 	16	 
	 	
    
    4.9

    	 	
    Transition Matters
    	 	 	16	 
	 	
    
    4.10

    	 	
    Prohibited Business
    Activities; Non-solicitation
    	 	 	17	 
	 	
    
    4.11

    	 	
    Change of Name
    	 	 	17	 
	 	
    
    4.12

    	 	
    Books and Records
    	 	 	17	 
	 	
    
    4.13

    	 	
    Preparation of Financial
    Statements; Post-closing Cooperation; Website
    	 	 	18	 
	
    ARTICLE V CONDITIONS PRECEDENT TO CLOSING	 	 	19	 
	 	
    
    5.1

    	 	
    Conditions to Obligations
    of the Buyer
    	 	 	19	 
	
    
       (a)

    	 	
      Representations and Warranties of the Company	 	 	19	 
	
    
       (b)

    	 	
      Performance of Obligations of the Company	 	 	19	 
	
    
       (c)

    	 	
      Related Agreements	 	 	19	 
	
    
       (d)

    	 	
      Closing Certificate	 	 	19	 
	
    
       (e)

    	 	
      Evidence of Corporate Authority	 	 	19	 
	
    
       (f)

    	 	
      Good Standing Certificates	 	 	19	 
	
    
       (g)

    	 	
      No Injunction	 	 	19	 
	 	
    
    5.2

    	 	
    Conditions to Obligations
    of the Company
    	 	 	19	 
	
    
       (a)

    	 	
      Representations and Warranties of the Buyer and
    the Members	 	 	19	 
	
    
       (b)

    	 	
      Performance of Obligations of the Buyer and the
    Members	 	 	19	 
	
    
       (c)

    	 	
      Related Agreements	 	 	20	 
	
    
       (d)

    	 	
      Closing Certificate	 	 	20	 
	
    
       (e)

    	 	
      Evidence of Corporate Authority	 	 	20	 
	
    
       (f)

    	 	
      Good Standing Certificates	 	 	20	 
	
    
       (g)

    	 	
      No Injunction	 	 	20	 
	
    
       (h)

    	 	
      Resignation and Releases	 	 	20	 
	
    
       (i)

    	 	
      Payment of Purchase Price	 	 	20	 
	
    ARTICLE VI INDEMNIFICATION	 	 	20	 
	 	
    
    6.1

    	 	
    Definitions
    	 	 	20	 
	 	
    
    6.2

    	 	
    Indemnification
    	 	 	21	 
	 	
    
    6.3

    	 	
    Limitations
    	 	 	21	 
	 	
    
    6.4

    	 	
    Assertion of Claims
    	 	 	22	 
	 	
    
    6.5

    	 	
    Defense of Third Party
    Claims
    	 	 	22	 
	 	
    
    6.6

    	 	
    Survival of
    Representations, Warranties and Covenants
    	 	 	23	 
	 	
    
    6.7

    	 	
    Sole and Exclusive Remedy
    	 	 	23	 
	
    ARTICLE VII TERMINATION	 	 	23	 
	 	
    
    7.1

    	 	
    Termination
    	 	 	23	 
	 	
    
    7.2

    	 	
    Effect of Termination
    	 	 	24	 

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

ii

 

	 	 	 	 	 	 	 	 
	
    ARTICLE VIII MISCELLANEOUS	 	 	24	 
	 	
    
    8.1

    	 	
    Expenses
    	 	 	24	 
	 	
    
    8.2

    	 	
    Entire Agreement
    	 	 	24	 
	 	
    
    8.3

    	 	
    Interpretation
    	 	 	25	 
	 	
    
    8.4

    	 	
    Notices
    	 	 	25	 
	 	
    
    8.5

    	 	
    Counterparts
    	 	 	26	 
	 	
    
    8.6

    	 	
    Governing Law; Venue
    	 	 	26	 
	 	
    
    8.7

    	 	
    Benefits of Agreement
    	 	 	26	 
	 	
    
    8.8

    	 	
    Pronouns
    	 	 	26	 
	 	
    
    8.9

    	 	
    Amendment, Modification
    and Waiver
    	 	 	27	 
	 	
    
    8.10

    	 	
    No Third Party
    Beneficiaries
    	 	 	27	 
	 	
    
    8.11

    	 	
    Interpretation
    	 	 	27	 
	 	
    
    8.12

    	 	
    No Joint Venture
    	 	 	27	 
	 	
    
    8.13

    	 	
    Severability
    	 	 	27	 
	 	
    
    8.14

    	 	
    Specific Performance
    	 	 	27	 
	 	
    
    8.15

    	 	
    Waiver of Jury Trial
    	 	 	27	 

EXHIBITS AND SCHEDULES

Exhibits

	 	 	 	 	 
	 	Exhibit  A	 	 	
    Form of Bill of Sale, Assignment and Assumption Agreement
	 	Exhibit  B	 	 	
    Form of Trademark Assignment
	 	Exhibit  C	 	 	
    Form of Escrow Agreement
	 	Exhibit  D	 	 	
    Form of 8-K
	 	Exhibit  E	 	 	
    Form of Release
	 	Exhibit  F	 	 	
    Form of Letter to Experian Marketing Services

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

iii

 

Schedules

	 	 	 	 	 
	 	Schedule 1.1(a)	 	 	
    Assigned Contracts
	 	Schedule 1.1(b)	 	 	
    Tangible Personal Property
	 	Schedule 1.1(c)	 	 	
    Leasehold Interests
	 	Schedule 1.1(h)	 	 	
    Employee Benefit Plans
	 	Schedule 1.1(i)	 	 	
    Insurance Policies
	 	Schedule 1.2(e)	 	 	
    Excluded Accounts and Notes Receivable
	 	Schedule 1.2(f)	 	 	
    Certain Excluded Assets
	 	Schedule 1.4(a)	 	 	
    Excluded Intercompany Liabilities
	 	Schedule 1.4(e)	 	 	
    Certain Excluded Liabilities
	 	Schedule 2.2(a)	 	 	
    Working Capital Adjustments
	 	Schedule 2.2(b)	 	 	
    Working Capital Statement
	 	Schedule 4.5(a)	 	 	
    Permitted Public Announcement
	 	Schedule 4.9(a)(i)	 	 	
    Website Transition Services
	 	Schedule 4.12(b)(1)	 	 	
    Process for Deleting Company Customer List from TeenBase
	 	Schedule 4.12(b)(2)	 	 	
    Permitted Cross-marketing Activities
	 	Disclosure Schedule	 	 	 

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

iv

 

INDEX TO DEFINED TERMS

	 	 	 	 	 
	
    
    Accountant’s Working Capital

    	 	 	2.2(d)	 
	
    
    Acquired Assets

    	 	 	1.1	 
	
    
    Acquisition Proposal

    	 	 	4.4(a)	 
	
    
    Actions

    	 	 	3.1(i)	 
	
    
    Adjustment Notice

    	 	 	2.2(c)	 
	
    
    Affiliate

    	 	 	6.1(a)	 
	
    
    Agreement

    	 	 	Preamble	 
	
    
    Assigned Contracts

    	 	 	1.1(a)	 
	
    
    Assumed Liabilities

    	 	 	1.3	 
	
    
    Assumed Plan

    	 	 	4.6(b)	 
	
    
    Business Day

    	 	 	1.5	 
	
    
    Buyer

    	 	 	Preamble	 
	
    
    Buyer Event of Indemnification

    	 	 	6.2(a)	 
	
    
    Buyer Indemnified Persons

    	 	 	6.1(c)(i)	 
	
    
    Buyer Indemnifying Persons

    	 	 	6.1(d)(ii)	 
	
    
    Closing

    	 	 	1.5	 
	
    
    Closing Date

    	 	 	1.5	 
	
    
    COBRA Coverage

    	 	 	3.1(k)(iii)	 
	
    
    Code

    	 	 	3.1(e)	 
	
    
    Company

    	 	 	Preamble	 
	
    
    Company Business

    	 	 	4.10	 
	
    
    Company Contracts

    	 	 	3.1(h)	 
	
    
    Company Customer List

    	 	 	4.12(b)	 
	
    
    Company Employee

    	 	 	4.6(a)	 
	
    
    Company Event of Indemnification

    	 	 	6.2(b)	 
	
    
    Company Indemnified Persons

    	 	 	6.1(c)(ii)	 
	
    
    Company Indemnifying Persons

    	 	 	6.1(d)(i)	 
	
    
    Company Intellectual Property

    	 	 	3.1(g)	 
	
    
    Continuing Employee

    	 	 	4.6(a)	 
	
    
    Contracts

    	 	 	3.1(h)	 
	
    
    Current Assets

    	 	 	2.2(a)(i)	 
	
    
    Current Liabilities

    	 	 	2.2(a)(ii)	 
	
    
    Damages

    	 	 	1.1(g)	 
	
    
    Dan’s House File

    	 	 	4.12(b)	 
	
    
    Deposit

    	 	 	2.1	 
	
    
    Disclosure Schedule

    	 	 	3.1	 
	
    
    Dispute Notice

    	 	 	2.2(d)	 
	
    
    Employee Benefit Plans

    	 	 	3.1(k)(i)	 
	
    
    Encumbrance

    	 	 	3.1(c)	 
	
    
    ERISA

    	 	 	3.1(k)(i)	 
	
    
    Escrow Agent

    	 	 	2.1	 

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

v

 

	 	 	 	 	 
	
    
    Escrow Agreement

    	 	 	2.1	 
	
    
    Estimated Working Capital

    	 	 	2.2(b)	 
	
    
    Event of Indemnification

    	 	 	6.1(b)	 
	
    
    Excluded Assets

    	 	 	1.2	 
	
    
    Excluded Liabilities

    	 	 	1.4	 
	
    
    Final Working Capital

    	 	 	2.2(d)	 
	
    
    Governmental Authority

    	 	 	3.1(c)	 
	
    
    Governmental Permits

    	 	 	3.1(j)(ii)	 
	
    
    Income Tax

    	 	 	3.1(e)	 
	
    
    Income Tax Return

    	 	 	3.1(e)	 
	
    
    Indemnified Persons

    	 	 	6.1(c)	 
	
    
    Indemnifying Persons

    	 	 	6.1(d)	 
	
    
    Independent Accountant

    	 	 	2.2(d)	 
	
    
    Intellectual Property

    	 	 	3.1(g)	 
	
    
    IRS

    	 	 	3.1(e)	 
	
    
    Licensed Intellectual Property

    	 	 	3.1(g)	 
	
    
    Losses

    	 	 	6.1(e)	 
	
    
    Material Adverse Change

    	 	 	3.1(d)	 
	
    
    Material Adverse Effect

    	 	 	3.1(a)	 
	
    
    Member

    	 	 	Preamble	 
	
    
    Members

    	 	 	Preamble	 
	
    
    Notice of Claim

    	 	 	6.4(a)	 
	
    
    Other Pre-Closing Tax Returns

    	 	 	4.7(a)(ii)	 
	
    
    Outside Date

    	 	 	7.1(b)	 
	
    
    Owned Intellectual Property

    	 	 	3.1(g)	 
	
    
    Parent

    	 	 	Preamble	 
	
    
    Parent GAAP

    	 	 	2.2(a)(i)	 
	
    
    Permitted Encumbrances

    	 	 	3.1(f)	 
	
    
    Person

    	 	 	3.1(g)	 
	
    
    Promissory Note

    	 	 	2.1	 
	
    
    Public Announcement

    	 	 	4.5(a)	 
	
    
    Purchase Price

    	 	 	2.1	 
	
    
    Related Agreements

    	 	 	3.1(c)	 
	
    
    Representatives

    	 	 	4.4(a)	 
	
    
    Revised Working Capital

    	 	 	2.2(c)	 
	
    
    Shared Customer List

    	 	 	4.12(b)	 
	
    
    Specified Sales and Use Tax Returns

    	 	 	3.1(e)	 
	
    
    Straddle Period

    	 	 	4.7(a)(ii)	 
	
    
    Superior Proposal

    	 	 	4.4(a)	 
	
    
    Survival Date

    	 	 	6.6	 
	
    
    Tax

    	 	 	3.1(e)	 
	
    
    Tax Audit

    	 	 	4.7(c)	 
	
    
    Tax Dispute Accountants

    	 	 	4.7(b)	 

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

vi

 

	 	 	 	 	 
	
    
    Tax Proceeding

    	 	 	4.7(d)	 
	
    
    Tax Return

    	 	 	3.1(e)	 
	
    
    Taxes

    	 	 	3.1(e)	 
	
    
    TeenBase

    	 	 	4.12(b)	 
	
    
    Third Party Claim

    	 	 	6.5	 
	
    
    Trademark Assignment

    	 	 	1.6(b)	 
	
    
    Trademarks

    	 	 	3.1(g)	 
	
    
    Transfer Documents

    	 	 	1.6	 
	
    
    Transferred Books and Records

    	 	 	1.1(i)	 
	
    
    Website

    	 	 	4.9(i)	 
	
    
    Working Capital

    	 	 	2.2(a)(iii)	 
	
    
    Working Capital Statement

    	 	 	2.2(b)	 
	
    
    Working Capital Target

    	 	 	2.2(a)(iv)	 

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

vii

 

ASSET PURCHASE AGREEMENT

     
THIS ASSET PURCHASE AGREEMENT (this
“Agreement”), dated as of May 31, 2005, is
made by and among DAN’S COMPETITION, LLC, a Delaware
limited liability company (the “Company”),
ALLOY, INC., a Delaware corporation and the indirect
parent of the Company (“Parent”), XP
INNOVATION LLC, an Indiana limited liability company (the
“Buyer”) and STEVEN KALSCH, WILLIAM
CARTWRIGHT and DUSTIN WILSON, the sole members of the
Buyer (each, a “Member” and collectively, the
“Members”).

     
WHEREAS, subject to the terms and conditions set forth in
this Agreement, the Company wishes to sell to the Buyer, and the
Buyer wishes to purchase from the Company, substantially all of
the assets and properties of the Company, subject to
substantially all of the liabilities of the Company.

     
NOW, THEREFORE, in consideration of the mutual benefits
to be derived from this Agreement and the representations,
warranties, covenants, agreements, conditions and promises
contained herein, the parties hereby agree as follows:

ARTICLE I

PURCHASE AND SALE OF ASSETS

     
1.1     Purchase and Sale of
Assets. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing, the Company shall sell,
transfer, assign and deliver to the Buyer, and relinquish to the
Buyer in perpetuity, free and clear of all Encumbrances, other
than Permitted Encumbrances, all right, title and interest in
and to all of the Acquired Assets. As used in this Agreement,
the term “Acquired Assets” means all of the
assets, properties and goodwill of the Company as of the Closing
Date, including, without limitation, the following, but
excluding, however, the Excluded Assets:

		
	 	     
    (a) all right, title and interest of the Company in, to and
    under all Contracts to which the Company is a party or is
    otherwise subject or bound as set forth on Schedule 1.1(a)
    hereto (the “Assigned Contracts”);
	 
	 	     
    (b) all tangible personal property of the Company
    (including all equipment, machinery, furniture, inventory,
    vehicles and supplies of the Company) as set forth on
    Schedule 1.1(b) hereto;
	 
	 	     
    (c) all right, title and interest of the Company with
    respect to all real and personal property leasehold interests
    and rights thereunder as set forth on Schedule 1.1(c)
    hereto;
	 
	 	     
    (d) except as set forth in Section 1.2(e), all
    accounts and notes receivable of the Company, and all other
    rights to receive payment however evidenced;
	 
	 	     
    (e) all right, title and interest of the Company with
    respect to all cash reflected in the calculation of Final
    Working Capital, securities, certificates of deposit, bonds,
    letters of credit, other cash equivalents, credits, refunds,
    prepaid expenses, deferred charges, advance payments, security
    deposits and prepaid items;
	 
	 	     
    (f) all rights of the Company, to the extent transferable,
    under all Federal, state, local and foreign governmental
    licenses, consents, approvals, authorizations, permits, orders,
    decrees and other compliance agreements;
	 
	 	     
    (g) all Company Intellectual Property, and the goodwill
    associated therewith, licenses and sublicenses granted in
    respect thereto and rights thereunder, together with all claims
    against third parties for profits and all costs, losses, claims,
    liabilities, fines, penalties, damages and expenses (including
    interest which may be imposed in connection therewith), court
    costs and reasonable fees and disbursements of counsel,
    consultants and expert witnesses (collectively,
    “Damages”) incurred by reason of the past
    infringement, alleged infringement, unauthorized use or
    disclosure or alleged unauthorized use or disclosure of any
    Company Intellectual Property, together with the right to sue
    for, and collect the same,

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

1

 

		
	 	
    or to sue for injunctive relief, for the Buyer’s own use
    and benefit, and for the use and benefit of its successors,
    assigns or other legal representatives;
	 
	 	     
    (h) the Employee Benefit Plans set forth on
    Schedule 1.1(h) hereto, and all assets related thereto;
	 
	 	     
    (i) the insurance policies set forth on
    Schedule 1.1(i) hereto and all rights of the Company
    thereunder;
	 
	 	     
    (j) except as set forth in Section 1.2(a), all books
    and records of the Company located at the Company’s office
    in Mt. Vernon, Indiana (the “Transferred Books and
    Records”);
	 
	 	     
    (k) all right, title and interest to and in respect of any
    telephone numbers, facsimile numbers, websites, e-mail
    addresses, Internet domain names, and corporate and trade names
    of the Company (including the name “Dan’s
    Competition”);
	 
	 	     
    (l) all right, title and interest in and to the Company
    Customer List and the Company’s right, title and interest
    in and to any of the Company’s mail tapes in the possession
    of Experian Marketing Services; and
	 
	 	     
    (m) all goodwill of the Company.

     
1.2     Excluded Assets.
The following assets and property are to be retained by the
Company and shall not constitute Acquired Assets (collectively,
the “Excluded Assets”):

		
	 	     
    (a) all corporate minute books and records, tax returns and
    related information of the Company and all other books and
    records of the Company not located at the Company’s office
    in Mt. Vernon, Indiana and, for the avoidance of doubt, all
    right, title and interest in and to TeenBase and the Shared
    Customer List;
	 
	 	     
    (b) all right, title and interest of the Company in and to
    each bank account, money market account, investment account,
    other deposit account, lockbox and safe-deposit box maintained
    by the Company;
	 
	 	     
    (c) all rights of the Company under this Agreement and all
    Related Agreements;
	 
	 	     
    (d) all right, title and interest of the Company in, to and
    under all Employee Benefit Plans and insurance policies not set
    forth on Schedules 1.1(h) and (i), respectively;
	 
	 	     
    (e) all accounts and notes receivable, and other rights to
    receive payments, from any Affiliate of the Company including,
    without limitation, those set forth on Schedule 1.2(e)
    hereto; and
	 
	 	     
    (f) those assets set forth on Schedule 1.2(f) hereto.

     
1.3     Assumption of
Liabilities. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, the
Buyer shall assume all liabilities and obligations of the
Company of any nature whatsoever, due or to become due, known or
unknown, accrued, absolute, contingent or otherwise, other than
the Excluded Liabilities (collectively, the “Assumed
Liabilities”). From and after the Closing Date, the
Buyer shall honor, pay, discharge or perform, as appropriate,
all Assumed Liabilities in accordance with their respective
terms.

     
1.4     Excluded
Liabilities. The following liabilities and obligations
of the Company shall be retained by the Company (the
“Excluded Liabilities”):

		
	 	     
    (a) any intercompany liability of the Company to any
    Affiliate of the Company including, without limitation, those
    set forth in Section 1.4(a);
	 
	 	     
    (b) any liability or obligation of the Company arising
    under this Agreement or any of the Related Agreements;

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

2

 

		
	 	     
    (c) any liability arising under or resulting from any of
    the Employee Benefit Plans and insurance policies that
    constitute Excluded Assets;
	 
	 	     
    (d) any Income Tax liability of the Company as contemplated
    by Section 4.7(a)(i) of this Agreement; and
	 
	 	     
    (e) any liability or obligation set forth on
    Schedule 1.4(e) hereto.

     
1.5     Closing. Subject
to the terms and conditions of this Agreement, the closing of
the transactions contemplated by this Agreement (the
“Closing”) will take place at 10:00 a.m.
(New York time) on the later of June 1, 2005 or the third
(3rd)
Business Day following the date on which all of the conditions
set forth in Article V have been satisfied or waived (other
than any such conditions that by their terms cannot be satisfied
until the Closing Date, which conditions shall be required to be
so satisfied or waived on the Closing Date), unless another time
or date is agreed to in writing by the Company and the Buyer
(the “Closing Date”), at the offices of Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., 666 Third
Avenue, New York, New York. Upon the mutual agreement of the
parties, the Closing may be conducted remotely. The consummation
of the transactions contemplated by this Agreement shall be
deemed to occur at 12:01 a.m. on the Closing Date. As used
herein, the term “Business Day” shall mean any
day other than a Saturday, Sunday or day on which banks are
permitted to close in the City and State of New York.

     
1.6     Transfer
Documents. At the Closing, the parties shall execute and
deliver the following documents (collectively, the
“Transfer Documents”):

		
	 	     
    (a) the Company and the Buyer shall execute and deliver to
    one another a bill of sale, assignment and assumption agreement
    in substantially the form of Exhibit A
    attached hereto pursuant to which the Company will transfer
    and assign to the Buyer the Acquired Assets and the Buyer will
    assume from the Company the Assumed Liabilities;
	 
	 	     
    (b) the Company will execute and deliver a trademark
    assignment in substantially the form of Exhibit B
    attached hereto (the “Trademark
    Assignment”) pursuant to which the Company will
    transfer and assign to the Buyer the Trademarks being acquired
    by the Buyer pursuant to this Agreement; and
	 
	 	     
    (c) the Company will duly endorse for transfer and deliver
    certificates of title to all motor vehicles owned by the Company
    included in the Acquired Assets.

     
1.7     Further
Assurances. At any time and from time to time after the
Closing, at the request of the Company or the Buyer and without
further consideration, the Company, the Buyer and the Members
will execute and deliver such other instruments of sale,
transfer, conveyance, assignment, confirmation and assumption,
and will take such further action, as may be reasonably
requested in order to more effectively transfer, convey and
assign to the Buyer, and to confirm the Buyer’s title in
and to, the Acquired Assets, and to effect the assumption of the
Assumed Liabilities by the Buyer, and each of the parties shall
execute such other documents and take such further action as may
be reasonably required or desirable to carry out the provisions
of this Agreement and the transactions contemplated hereby.

     
1.8     Consents of Third
Parties.

     
(a) Notwithstanding anything in this Agreement or in any
Related Agreement to the contrary, neither this Agreement nor
any such Related Agreement shall constitute an agreement to
assign or otherwise transfer any Assigned Contract if an
attempted assignment or transfer thereof would, without the
consent of a third party to such assignment or transfer,
constitute a breach thereof or otherwise be ineffective.

     
(b) Prior to the Closing, the Buyer shall use its best
efforts to obtain any consent required in order to assign the
Assigned Contracts to the Buyer at the Closing. If any such
consent has not been obtained as of the Closing Date, the Buyer
shall use its best efforts to obtain such consent after the
Closing. The Company shall provide such reasonable cooperation
to the Buyer in attempting to obtain such consent as may be
reasonably

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

3

 

requested by the Buyer, provided that, the Company shall not be
obligated to incur any out-of-pocket expenses unless the Buyer
undertakes responsibility for such expenses.

     
(c) If any Assigned Contract is not transferred to the
Buyer at the Closing pursuant to this Agreement, the Company and
the Buyer shall cooperate in any reasonable arrangement designed
to provide for the Buyer all of the benefits of, and to have the
Buyer assume or be responsible for the burdens, liabilities,
obligations and expenses with respect to, such Assigned Contract.

     
(d) If, following the efforts of the parties pursuant to
this Section 1.8, an Assigned Contract is unable to be
transferred to the Buyer pursuant to the applicable transfer
provisions contained herein, the Company and the Buyer shall
cooperate in any reasonable arrangement designed to give the
Buyer, as nearly as possible, the same economic benefits, and to
have the Buyer assume the same burdens, liabilities, obligations
and expenses, as if such transfer had been consummated in
accordance with the provisions hereof.

ARTICLE II

PURCHASE PRICE

     
2.1     Purchase Price.
The entire purchase price (the “Purchase
Price”) payable by the Buyer to the Company in
consideration for the Acquired Assets and the transactions
contemplated by this Agreement shall be Thirteen Million Dollars
($13,000,000), subject only to adjustment for changes in Working
Capital as provided in Section 2.2 below. Contemporaneously
with the execution and delivery of this Agreement, the Buyer is
depositing with Fifth Third Bank, as escrow agent (the
“Escrow Agent”), a deposit in the amount of Two
Hundred Fifty Thousand Dollars ($250,000) (the
“Deposit”) to be held by the Escrow Agent for
the benefit of the Company pursuant to the terms of an escrow
agreement in the form of Exhibit C attached
hereto (the “Escrow Agreement”). At the
Closing, the Buyer shall pay to the Company the Purchase Price
(as may be adjusted pursuant to Section 2.2(b)), less the
Deposit, by wire transfer of immediately available funds to such
account or accounts designated in writing by the Company prior
to the Closing. Further, three (3) Business Days prior to
the Closing, the Buyer shall provide irrevocable instructions to
the Escrow Agent directing the Escrow Agent to deliver the
Deposit to the Company on the Closing Date by wire transfer of
immediately available funds.

     
2.2     Working Capital
Adjustment.

     
(a) For purposes of this Section 2.2, the following
terms shall have the following meanings:

		
	 	     
    (i) “Current Assets” shall mean the
    current assets of the Company as of the Closing Date, determined
    in accordance with generally accepted accounting principles as
    applied by Parent on a consistent basis (“Parent
    GAAP”), subject to the principles and adjustments set
    forth on Schedule 2.2(a) hereto.
	 
	 	     
    (ii) “Current Liabilities” shall mean the
    current liabilities of the Company as of the Closing Date,
    determined in accordance with Parent GAAP, subject to the
    principles and adjustments set forth on Schedule 2.2(a) hereto.
	 
	 	     
    (iii) “Working Capital” shall mean Current
    Assets less Current Liabilities.
	 
	 	     
    (iv) “Working Capital Target” shall mean
    Two Million Five Hundred Fifteen Thousand Dollars ($2,515,000).

     
All determinations of Working Capital pursuant to this
Section 2.2 shall be made in accordance with Parent GAAP.

     
(b) At least two (2) Business Days prior to the
Closing, the Company shall deliver to the Buyer a certificate
(the “Working Capital Statement”) setting forth
in reasonable detail its good faith calculation of the Working
Capital (“Estimated Working Capital”), a copy
of which shall be attached hereto as

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

4

 

Schedule 2.2(b). If the Estimated Working Capital exceeds
the Working Capital Target, the Purchase Price shall be
increased by the amount by which the Estimated Working Capital
exceeds the Working Capital Target. The Members shall provide
such information, documents and cooperation as the Company shall
reasonably request in order to enable the Company to timely
prepare and deliver the Working Capital Statement to the Buyer
in accordance with the terms hereof.

     
(c) Following the Closing, the Buyer shall have the
opportunity to review the Working Capital Statement to verify
the accuracy of the determination of the Estimated Working
Capital as set forth therein. If the Buyer determines that the
Working Capital (the Working Capital as determined by the Buyer,
the “Revised Working Capital”) does not equal
the Estimated Working Capital, the Buyer shall deliver to the
Company no later than thirty (30) days following the
Closing a notice (the “Adjustment Notice”)
setting forth the Revised Working Capital and the calculation
thereof in reasonable detail. If the Buyer does not timely
deliver an Adjustment Notice to the Company, or if the Buyer
notifies the Company that the Buyer has no objection to the
Working Capital Statement, the Company’s determination of
the Estimated Working Capital shall be final and binding on all
parties and the Purchase Price shall be adjusted in accordance
with the provisions of Section 2.2(e).

     
(d) If the Buyer does timely deliver an Adjustment Notice
to the Company, the Company shall have thirty (30) days
from receipt of the Adjustment Notice to provide written notice
to the Buyer that it disputes the Adjustment Notice (a
“Dispute Notice”), which Dispute Notice shall
provide a description of such dispute and the Company’s
calculation of the Working Capital. If the Company does not
timely deliver a Dispute Notice to the Buyer, or if the Company
notifies the Buyer that it has no objection to the Adjustment
Notice, the Buyer’s determination of the Revised Working
Capital shall be final and binding on all parties and the
Purchase Price shall be adjusted in accordance with the
provisions of Section 2.2(e). If the Company timely
delivers a Dispute Notice to the Buyer and the Buyer and the
Company are unable to mutually agree on the Working Capital
within twenty (20) days following receipt by the Buyer of
the Dispute Notice, the Buyer and the Company shall mutually
agree on a nationally-recognized independent public accounting
firm (the “Independent Accountant”) to review
the Working Capital Statement, the Adjustment Notice and the
Dispute Notice (and all related information) in accordance with
Parent GAAP, which review shall include a determination of the
Working Capital (the Working Capital as determined by the
Independent Accountant, the “Accountant’s Working
Capital”), which determination shall be final and
binding on all parties absent manifest error. The costs of the
Independent Accountant shall be borne by the party (either the
Buyer or the Company) whose determination of the Working Capital
(as set forth in the Adjustment Notice, for the Buyer, or in the
Dispute Notice, for the Company) was farthest from the
determination of the Accountant’s Working Capital, or
equally by the Buyer and the Company if the determination by the
Independent Accountant is equidistant between the determinations
of the parties. For purposes hereof, “Final Working
Capital” shall equal (i) the Estimated Working
Capital, if the Buyer does not timely deliver an Adjustment
Notice in accordance with the provisions hereof (or agrees that
it does not object to the Working Capital Statement),
(ii) the Revised Working Capital, if the Buyer timely
delivers an Adjustment Notice in accordance with the provisions
hereof and the Company does not timely deliver a Dispute Notice
(or agrees that it does not object to the Adjustment Notice),
(iii) the Working Capital as mutually agreed upon by the
Buyer and the Company upon the resolution of any dispute
regarding Working Capital pursuant hereto or (iv) the
Accountant’s Working Capital, if the Independent Accountant
is engaged and delivers a calculation of Accountant’s
Working Capital.

     
(e) Within five (5) Business Days following the
determination of the Final Working Capital, the Purchase Price
shall be adjusted as follows:

		
	 	     
    (i) if the Purchase Price was not previously adjusted
    pursuant to Section 2.2(b):

		
	 	     
    (A) if Final Working Capital exceeds the Working Capital
    Target, the Buyer shall pay to the Company an amount equal to
    the amount by which the Final Working Capital exceeds the Working

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

5

 

		
	 	
    Capital Target by wire transfer of immediately available funds
    to such account or accounts designated in writing by the Company
    during such five-Business Day period,
	 
	 	     
    (B) if the Working Capital Target exceeds the Final Working
    Capital, the Company shall pay to the Buyer an amount equal to
    the amount by which the Working Capital Target exceeds the Final
    Working Capital by wire transfer of immediately available funds
    to such account or accounts designated in writing by the Buyer
    during such five-Business Day period, or
	 
	 	     
    (C) if the Final Working Capital equals the Working Capital
    Target, then there shall be no adjustment to the Purchase Price
    pursuant to this Section 2.2(e); and

		
	 	     
    (ii) if the Purchase Price was previously adjusted pursuant
    to Section 2.2(b):

		
	 	     
    (A) if Final Working Capital exceeds the Estimated Working
    Capital, the Buyer shall pay to the Company an amount equal to
    the amount by which the Final Working Capital exceeds the
    Estimated Capital Target by wire transfer of immediately
    available funds to such account or accounts designated in
    writing by the Company during such five-Business Day period,
	 
	 	     
    (B) if the Estimated Working Capital exceeds the Final
    Working Capital, the Company shall pay to the Buyer an amount
    equal to the amount by which the Estimated Working Capital
    exceeds the Final Working Capital by wire transfer of
    immediately available funds to such account or accounts
    designated in writing by the Buyer during such five-Business Day
    period, or
	 
	 	     
    (C) if the Final Working Capital equals the Estimated
    Working Capital, then there shall be no adjustment to the
    Purchase Price pursuant to this Section 2.2(e).

     
2.3     Allocation of Purchase
Price. Following the Closing, Parent, the Company and
the Buyer shall allocate the Purchase Price among the Acquired
Assets in good faith and in accordance with the requirements of
Section 1060 of the Code. Parent, the Company and the Buyer
agree to report the transaction contemplated hereby for Tax
purposes, including the filing of Internal Revenue Service
Form 8594 (Asset Acquisition Statement), in accordance with
such allocation and to defend such allocation before, and not
take any positions that are inconsistent with such allocation
before, any Governmental Authority charged with the collection
of Taxes, or in any judicial proceeding.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     
3.1     Representations and
Warranties of the Company. The Company represents and
warrants to the Buyer that the statements contained in this
Section 3.1 are true and correct, except as disclosed in
the disclosure schedule delivered by the Company to the Buyer on
the date hereof (as the same may be supplemented from time to
time in accordance with Section 4.3 hereof, the
“Disclosure Schedule”). The Disclosure Schedule
shall be arranged in paragraphs corresponding to the numbered
and lettered paragraphs contained in this Section 3.1;
provided, however, that for convenience purposes,
certain disclosures in one section or subsection of the
Disclosure Schedule may be cross-referenced to another section
or subsection of the Disclosure Schedule and any item that is
disclosed in a particular section or subsection of the
Disclosure Schedule shall be deemed to be disclosed and
incorporated into any other section or subsection of the
Disclosure Schedule where such disclosure would be otherwise
appropriate. For purposes of this Agreement, the phrase “to
the knowledge of the Company,” “of which the Company
is aware” or any phrase of similar import shall be deemed
to refer only to the actual knowledge of Matthew C. Diamond,
James K. Johnson, Samuel A. Gradess, Walter Killough, Robert
Bernard and Robert Bell, without investigation or inquiry.

     
(a) Organization; Good Standing; Qualification and
Power. The Company (i) is a limited liability
company duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation,
(ii) has all requisite limited liability company power and
authority to own, lease and operate its

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

6

 

properties and assets and to carry on its business as now being
conducted, to enter into this Agreement and each of the Related
Agreements to which it is a party, to perform its obligations
hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby and (iii) is duly qualified
and in good standing to do business in those jurisdictions
listed in Section 3.1(a) of the Disclosure Schedule, which,
to the knowledge of the Company, are all jurisdictions where the
failure to be so qualified and in good standing would have a
material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company
(a “Material Adverse Effect”).

     
(b) Ownership of the Company. All outstanding
membership interests of the Company are owned by Canal Park
Trust, a Massachusetts Business Trust.

     
(c) Authority; Enforceability; No Conflict;
Consents. The execution, delivery and performance by the
Company and Parent of this Agreement and each of the Transfer
Documents and other agreements contemplated by this Agreement
(the “Related Agreements”) to which either of
them is a party and the consummation of the transactions
contemplated hereby and thereby have been duly and validly
authorized by all necessary limited liability company action on
the part of the Company and all necessary corporate action on
the part of Parent. This Agreement constitutes, and each such
Related Agreement, when executed and delivered by the Company
and Parent will constitute, the legal, valid and binding
obligations of the Company and Parent (as applicable),
enforceable against them in accordance with its respective
terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting the rights of creditors generally
and by general equitable principles. Except as set forth in
Section 3.1(c) of the Disclosure Schedule, neither the
execution, delivery and performance of this Agreement or the
Related Agreements to which the Company or Parent is a party,
nor the consummation by the Company or Parent of the
transactions contemplated hereby or thereby, nor compliance by
the Company or Parent with any provision hereof or thereof will
(i) conflict with, result in any breach or violation of,
cause a default under (with or without due notice, lapse of time
or both), give rise to any right of termination, amendment,
cancellation or acceleration of any obligation contained in or
the loss of any benefit under or result in the creation of any
Encumbrance on or against any assets, rights or property of the
Company under any term, condition or provision of (x) any
Contract to which the Company or Parent is a party, or by which
the Company or Parent or any of its respective properties,
assets or rights may be bound and or which the Company has
knowledge or (y) any law, statute, rule or regulation, or
judgment, order, injunction, decree or permit of which the
Company has knowledge, of any Federal, state, municipal, foreign
or other governmental court, department, commission, board,
bureau, agency or instrumentality (“Governmental
Authority”) applicable to the Company, Parent or any of
their properties, assets or rights, in any case, except as would
not have a Material Adverse Effect, or (ii) conflict with
or result in any violation of the organizational documents of
the Company, as amended through the date hereof. Except as set
forth in Section 3.1(c) of the Disclosure Schedule, to the
knowledge of the Company, no permit, authorization, consent or
approval of or by, or any notification of or filing with, any
Governmental Authority or other Person is required in connection
with the execution, delivery and performance by the Company or
Parent of this Agreement or any of the Related Agreements or the
consummation by the Company or Parent of the transactions
contemplated hereby or thereby. As used in this Agreement, the
term “Encumbrance” shall mean any security
interest, mortgage, lien, pledge or other encumbrance.

     
(d) No Material Adverse Change. To the
knowledge of the Company, since January 31, 2005, the
Company has operated its business only in the ordinary course of
business, consistent with past practice, and there has been no
Material Adverse Change. For purposes hereof, the term
“Material Adverse Change” shall mean a material
change, event, development, damage or circumstance adversely
affecting the Company or the business or operation thereof,
other than a change, event, development, damage or circumstance
that results from any of the following: (i) the effect of
any change in the United States or foreign economies or
securities or financial markets in general; (ii) the effect
of any change that generally affects any industry in which the
Company operates; (iii) the effect of any changes in
applicable laws or accounting rules; (iv) any effect
resulting from the public announcement of this Agreement,
compliance with the terms of this Agreement or

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

7

 

the consummation of the transactions contemplated by this
Agreement; and (v) the indirect or consequential effect of
any generally applicable change arising in connection with
earthquakes, hostilities, acts of war, sabotage or terrorism or
military actions or any escalation or material worsening of any
such hostilities, acts of war, sabotage or terrorism or military
actions existing or underway as of the date hereof, but not the
direct effect of any such events on the assets or properties of
the Company.

     
(e) Tax Matters. The Company has filed on a
timely basis all Income Tax Returns and sales and use Tax
Returns for all jurisdictions other than Indiana and New York
(the “Specified Sales and Use Tax Returns”)
and, to the knowledge of the Company, all other material Tax
Returns, in each case, as required to have been filed by the
Company on or after September 28, 2001 and prior to the
Closing. All such Income Tax Returns and Specified Sales and Use
Tax Returns and, to the knowledge of the Company, all such other
material Tax Returns, were complete and accurate in all material
respects and the Company has paid on a timely basis all Taxes
that were due and payable as reflected on the such Income Tax
Returns and Specified Sales and Use Tax Returns and, to the
knowledge of the Company, such other Tax Returns. All Income
Taxes of the Company and sales and use Taxes of the Company for
all jurisdictions other than Indiana and New York, and, to the
knowledge of the Company, all other material Taxes of the
Company, in each case for all tax periods not yet due and
payable, have been adequately accrued or reserved for in the
Company’s financial statements. To the knowledge of the
Company, no unpaid tax deficiency has been asserted against or
with respect to the Company, and the Company has not received
notice of any such assertion. The Company has not been a United
States real property holding corporation within the meaning of
Section 897(c)(2) of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder
(the “Code”) during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code, and no
withholding pursuant to Section 1445 of the Code will be
required in connection with this Agreement or the transactions
contemplated hereby. For purposes hereof, (A) the term
“Tax” shall mean any of the Taxes, and
“Taxes” shall mean all taxes and governmental
impositions of any kind in the nature of (or similar to) taxes,
payable to any Federal, state, local or foreign taxing authority
or other Governmental Authority, including but not limited to
those on or measured by or referred to as income, franchise,
profits, gross receipts, capital ad valorem, custom
duties, alternative or add-on minimum taxes, estimated,
environmental, disability, registration, value added, sales,
use, service, real or personal property, capital stock, license,
payroll, withholding, employment, social security, workers’
compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes, and interest, penalties and
additions to tax imposed with respect thereto; (B) the term
“Tax Return” shall mean any and all returns,
declarations, reports, claims for refunds and information
returns or statements relating to Taxes, including all schedules
or attachments thereto and including any amendment thereof,
required to be filed with the Internal Revenue Service (the
“IRS”) or any other governmental or taxing
authority or agency, domestic or foreign, including
consolidated, combined and unitary tax returns; (C) the
term “Income Tax” shall mean any Tax based upon
or related to income or receipts, excluding any sales, use,
transfer or payroll Tax; and (D) the term “Income
Tax Return” means any Tax Return relating to Income
Taxes.

     
(f) Title to Assets. To the knowledge of the
Company, the Company has good and valid title to all of the
Acquired Assets free and clear of all Encumbrances, other than
Permitted Encumbrances. Except as contemplated by this
Agreement, as of the Closing Date, the Company has not conveyed
title to the Company Customer List to any third party or leased
the Company Customer List to any Person set forth in
Section 3.1(f) of the Disclosure Schedule, nor has the
Company generated in excess of $50,000 in revenue during the
past twelve (12) months from the lease of the Company
Customer List. For purposes hereof, the term “Permitted
Encumbrances” means (i) Encumbrances set forth in
Section 3.1(f) of the Disclosure Schedule,
(ii) Encumbrances for Taxes and other governmental charges
and assessments that are not yet due and payable or that are
being contested in good faith by appropriate proceedings,
(iii) Encumbrances of carriers, warehousemen and mechanics
and other like Encumbrances arising in the ordinary course of
business and (iv) Encumbrances that do not materially
interfere with the current use of the assets affected thereby

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

8

 

(collectively, “Permitted Encumbrances”). To
the knowledge of the Company, there are no Encumbrances for
Taxes or other governmental charges or assessments that are
being contested by the Company.

     
(g) Intellectual Property. To the knowledge
of the Company, Section 3.1(g) of the Disclosure Schedule
sets forth a complete and accurate list of (A) all
Trademarks owned by the Company and (B) all material
Intellectual Property licensed by the Company (“Licensed
Intellectual Property”). To the knowledge of the
Company, the Company owns, free and clear of all Encumbrances
other than Permitted Encumbrances, all material Intellectual
Property owned by the Company (“Owned Intellectual
Property” and, together with the Licensed Intellectual
Property, the “Company Intellectual Property”),
and has a valid, enforceable and transferable right to use all
of the Licensed Intellectual Property. Except as set forth in
Section 3.1(g) of the Disclosure Schedule, to the knowledge
of the Company, the Company Intellectual Property does not
infringe upon any Intellectual Property rights of any other
Person, and no Person is infringing upon any Company
Intellectual Property. As used in this Agreement, the term
“Person” means an individual, corporation,
partnership, limited liability company, joint venture, trust or
unincorporated organization or other legal entity and the term
“Intellectual Property” means worldwide
trademarks, service marks, slogans, logos, trade dress, trade
names, Uniform Resource Locators (URLs) and Internet domain
names and applications therefor, designs and general intangibles
of like nature, together with all goodwill related to the
foregoing (including any registrations and applications for any
of the foregoing) (collectively, “Trademarks”);
patents (including any registrations, continuations,
continuations in part, renewals and applications for any of the
foregoing); copyrights (including any registrations,
applications and renewals for any of the foregoing); trade
secrets and other confidential information, know-how,
proprietary technology, customer and vendor lists, pricing and
marketing information, inventions, source codes and object codes
and methodologies and marketing materials and all documentation
and media constituting, describing or relating to the foregoing.

     
(h) Contracts. To the knowledge of the
Company, Section 3.1(h) of the Disclosure Schedule sets
forth a true and complete list of all material written
contracts, agreements, licenses and leases (collectively,
“Contracts”) of the following nature to which
the Company is a party or is otherwise bound or by which any
assets or properties of the Company is subject (collectively,
the “Company Contracts”):

		
	 	     
    (i) all notes, loan or credit agreements, mortgages,
    indentures, security agreements, operating leases, capital
    leases and other contracts relating to indebtedness for borrowed
    money or extension of credit and any contract of suretyship or
    guarantee (regardless of whether the Company is a beneficiary or
    obligor under such Contracts);
	 
	 	     
    (ii) all employment, consulting and independent contractor
    contracts, and all bonus, compensation, pension, insurance,
    retirement, deferred compensation and other plans, contracts,
    trusts, funds and other arrangements for the benefit of
    employees, consultants and independent contractors;
	 
	 	     
    (iii) all contracts which involve annual payments by or to
    the Company in excess of $25,000, other than contracts with
    product vendors;
	 
	 	     
    (iv) all licenses of Intellectual Property;
	 
	 	     
    (v) all contracts for capital expenditures in excess of
    $25,000 for any single project;
	 
	 	     
    (vi) all contracts with any Affiliate of the Company;
	 
	 	     
    (vii) all real property leases;
	 
	 	     
    (viii) all leases of personal property which are material
    to the business of the Company;
	 
	 	     
    (ix) all contracts or commitments for charitable
    contributions;
	 
	 	     
    (x) all agreements or arrangements for the sale of any
    assets, properties or rights of the Company outside the ordinary
    course of business;

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

9

 

		
	 	     
    (xi) all agreements that restrict the Company from engaging
    in any aspect of its business or competing in any line of
    business in any territory or geographic area; and
	 
	 	     
    (xii) any joint venture, partnership or other agreement or
    arrangement for the sharing of assets or profits of the Company.

     
To the knowledge of the Company: (i) each Company Contract
is in full force and effect and is the legal, valid and binding
obligation of the Company enforceable in accordance with its
terms and (ii) neither the Company nor the other party or
parties thereto is or are in default thereunder. Except as set
forth in Section 3.1(h) of the Disclosure Schedule, no
consent of, or notice to, any Person is required under any such
Company Contract as a result of or in connection with the
execution, delivery and performance of this Agreement or any
Related Agreement, or the transactions contemplated hereby or
thereby.

     
(i) Litigation. Except as set forth in
Section 3.1(i) of the Disclosure Schedule, there are no
(i) actions, suits, claims, investigations or other legal,
administrative, arbitration or other proceedings (collectively,
“Actions”) pending or, to the knowledge of the
Company, threatened by or against the Company, or (ii) to
the knowledge of the Company, judgments, decrees, injunctions or
orders of any Governmental Authority or arbitrator against the
Company or binding upon any of its properties or assets.

     
(j) Compliance with Laws; Permits. Except as
set forth in Section 3.1(j) of the Disclosure Schedule, to
the knowledge of the Company:

		
	 	     
    (i) the Company has complied and is in compliance with all
    Federal, state, local and foreign laws, ordinances, regulations
    and orders applicable to it, except where non-compliance would
    not have a Material Adverse Effect; and
	 
	 	     
    (ii) (A) the Company has all Federal, state, local and
    foreign governmental licenses, consents, approvals,
    authorizations, permits, orders, decrees and other compliance
    agreements (“Governmental Permits”) necessary
    in the conduct of its business, except where the failure to have
    any such Governmental Permit would not have a Material Adverse
    Effect, and (B) such Governmental Permits are in full force
    and effect, no violations are or have been recorded in respect
    of any thereof, the Company is not in default or alleged to be
    in default under any thereof, and no proceeding is pending or
    threatened to revoke or limit any thereof, in any case, except
    as would not have a Material Adverse Effect.

     
(k) Employee Benefits.

		
	 	     
    (i) To the knowledge of the Company, Section 3.1(k) of
    the Disclosure Schedule lists all written employee benefit plans
    (as defined in Section 3(3) of the Employee Retirement
    Income Security Act of 1974, as amended
    (“ERISA”)) and all written bonus, stock or
    other security option, stock or other security purchase, stock
    or other security appreciation rights, incentive, deferred
    compensation, retirement or supplemental retirement, profit
    sharing, severance, golden parachute, vacation, cafeteria,
    dependent care, medical care, employee assistance program,
    education or tuition assistance programs, insurance and other
    similar fringe or employee benefit plans, programs or
    arrangements, which are maintained for the benefit of any
    present or former employee, officer or director of the Company,
    or any trade or business (whether or not incorporated) which is
    a member of a controlled group or which is under common control
    with the Company within the meaning of Section 414 of the
    Code (an “ERISA Affiliate”) (collectively, the
    “Employee Benefit Plans”).
	 
	 	     
    (ii) To the knowledge of the Company: (A) there are no
    Actions pending (other than routine claims for benefits) or
    threatened against any Employee Benefit Plan or against the
    assets of any Employee Benefit Plan, (B) all Employee
    Benefit Plans conform to, and in their operation and
    administration have been maintained in accordance with the terms
    thereof in all material respects and in material compliance with
    any and all laws, (C) all contributions required to be made
    to any Employee Benefit Plan pursuant to Section 412 of the
    Code or otherwise have been timely made and (D) neither the
    Company nor any ERISA Affiliate has ever made a complete or
    partial withdrawal from a

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

10

 

		
	 	
    Multiemployer Plan (as such term is defined in
    Section 3(37) of ERISA) resulting in “withdrawal
    liability” (as such term is defined in Section 4201 of
    ERISA), without regard to any subsequent waiver or reduction
    under Section 4207 or 4208 of ERISA.
	 
	 	     
    (iii) No Employee Benefit Plan is an “employee pension
    benefit plan” or a “pension plan” (within the
    meaning of Section 3(2) of ERISA) subject to Title IV
    of ERISA, and neither the Company nor any ERISA Affiliate has
    ever maintained, contributed to or partially or fully withdrawn
    from any such plan. No Employee Benefit Plan is a Multiemployer
    Plan or “single-employer plan under multiple controlled
    groups” as described in Section 4063 of ERISA, and
    neither the Company nor any ERISA Affiliate has ever contributed
    to or had an obligation to contribute, or incurred any liability
    in respect of a contribution, to any Multiemployer Plan. No
    Employee Benefit Plan is a “multiple employer plan”
    within the meaning of Section 413(c) of the Code or
    Section 3(40) of ERISA. No Employee Benefit Plan obligates
    the Company to provide health care coverage, medical, surgical,
    hospitalization, death or similar benefits (whether or not
    insured) to any employee, former employee or director of the
    Company or any ERISA Affiliate following such employee’s,
    former employee’s or director’s termination of
    employment with the Company or any ERISA Affiliate, other than
    the group health plan continuation coverage requirements of
    Section 4980B of the Code and Sections 601 through 608
    of ERISA (“COBRA Coverage”).

     
(l) Brokers. Except as set forth in
Section 3.1(l) of the Disclosure Schedule, to the knowledge
of the Company, neither the Company nor any of its Affiliates
has employed any broker, finder, investment banker or other
agent or incurred or will incur any liability for any brokerage
fees, commissions, finders’ fees or similar fees in
connection with the transactions contemplated hereby.

     
(m) Certain Undisclosed Liabilities and Marketing
Activities. Except as set forth in the balance sheet of
the Company as of April 30, 2005 attached hereto as
Section 3.1(m) of the Disclosure Schedule and for
Liabilities incurred in the ordinary course of business since
the date of such balance sheet, to the knowledge of the Company,
the Company does not have any material Liabilities which would
be required by Parent GAAP to be reflected in such balance
sheet. Neither Parent nor any of its Affiliates (other than the
Company) has mailed “Back to School 2005” catalogs to
the persons listed in the Company Customer List, and have not
otherwise mailed or e-mailed any direct marketing, promotional
or other materials to any such person after May 20, 2005,
in either case other than on behalf of the Company.

     
3.2     Representations and
Warranties of the Buyer and the Members. The Buyer and
the Members represent and warrant to the Company that the
statements contained in this Section 3.2 are true and
correct.

     
(a) Organization; Good Standing; Qualification and
Power. The Buyer (i) is duly organized, validly
existing and in good standing under the laws of its jurisdiction
of organization, (ii) has all requisite limited liability
company power and authority to own, lease and operate its
properties and assets and to carry on its business, to enter
into this Agreement and each of the Related Agreements to which
it is a party, to perform its obligations hereunder and
thereunder, and to consummate the transactions contemplated
hereby and thereby. All equity interests of the Buyer are owned
solely by the Members and no Person has any option or other
right to acquire any equity interests in the Company.

     
(b) Authority; Enforceability; No Conflict;
Consents. The execution, delivery and performance by the
Buyer of this Agreement and each of the Related Agreements to
which the Buyer is a party and the consummation of the
transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary limited liability company
action on the part of the Buyer. This Agreement constitutes, and
each Related Agreement to which the Buyer or any Member is a
party, when executed and delivered by the Buyer or such Member
will constitute, the legal, valid and binding obligations of the
Buyer or such Member, as the case may be, enforceable against
the Buyer or such Member, as the case may be, in accordance with
its respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting the rights of creditors
generally and by general equitable principles. Neither the
execution, delivery and performance of this Agreement or the
Related

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

11

 

Agreements to which the Buyer or any Member is a party, nor the
consummation by the Buyer or any Member of the transactions
contemplated hereby or thereby, nor compliance by the Buyer or
any Member with any provision hereof or thereof will conflict
with, result in any breach or violation of, cause a default
under (with or without due notice, lapse of time or both), give
rise to any right of termination, amendment, cancellation or
acceleration of any obligation contained in or the loss of any
benefit under or result in the creation of any Encumbrance on or
against any assets, rights or property of the Buyer or such
Member under any term, condition or provision of (x) the
organizational documents of the Buyer, as amended through the
date hereof, (y) any Contract to which the Buyer or such
Member is a party, or by which the Buyer, such Member or any of
its respective properties, assets or rights may be bound or
(z) any law, statute, rule, regulation, judgment, order,
injunction, decree, or permit of any Governmental Authority
applicable to the Buyer, such Member or any of its respective
properties, assets or rights, in each case, which conflict,
breach, default or violation or other event would impair in any
material respect or prevent the consummation of the transactions
contemplated by this Agreement or any of the Related Agreements.
No permit, authorization, consent or approval of or by, or any
notification of or filing with, any Governmental Authority or
other Person is required in connection with the execution,
delivery and performance by the Buyer or the Members of this
Agreement or any of the Related Agreements to which the Buyer or
any Member is a party or the consummation by the Buyer or the
Members of the transactions contemplated hereby or thereby.

     
(c) Litigation. There are no Actions pending
or, to the knowledge of the Buyer or the Members, threatened
against the Buyer or the Members, whether at law or in equity,
or before or by any Governmental Authority.

     
(d) No Brokers. Neither the Buyer, the
Members nor any of their respective representatives or agents
have employed any broker, finder, investment banker or other
agent or incurred or will incur any liability for any brokerage
fees, commissions, finders’ fees or similar fees in
connection with the transactions contemplated hereby.

     
(e) Financial Capacity. The Buyer has cash
available on hand, permitted borrowing capacity under existing
facilities or firm financing commitments that together are
sufficient funds to enable it to pay the Purchase Price in full
at Closing and to consummate the transactions contemplated
hereby. The Buyer is, and will be following the Closing after
giving effect to the transactions contemplated hereby,
(i) able to pay its debts as they mature and
(ii) solvent, and the value of its assets, at a fair
valuation, is and will be greater than all of its debts.

     
(f) Company Representations and Warranties.
Neither the Buyer nor any of the Members have knowledge of any
fact, circumstance, condition or event that would cause any of
the Company’s representations and warranties set forth in
Section 3.1 to be untrue or inaccurate.

ARTICLE IV

COVENANTS

     
4.1     Conduct of Business by
the Company Pending Closing. The Company covenants and
agrees that, from the date hereof until the earlier of the
Closing Date or the termination of this Agreement in accordance
with its terms, unless the Buyer and Parent shall agree in
writing, the Company shall conduct its business in the ordinary
course of business and in a manner consistent with past
practice, and the Members agree that they will not take any
action to cause the Company to conduct its business in any
manner inconsistent with the foregoing.

     
4.2     Cooperation. From
the date hereof until the earlier of the Closing Date or the
termination of this Agreement in accordance with its terms, each
party hereto shall use commercially reasonable efforts to take,
or cause to be taken, all actions, and do, or cause to be done,
and to assist and cooperate with the other party or parties in
doing, all things necessary, proper or advisable to consummate
the transactions contemplated

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

12

 

hereby and to satisfy or cause to be satisfied all of the
conditions precedent that are set forth in Article V, as
applicable to each of them. Each party hereto, at the reasonable
request of the other party hereto, shall execute and deliver
such other instruments and do and perform such other acts and
things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions
contemplated hereby.

     
4.3     Updates to Disclosure
Schedules.

     
(a) From the date hereof until the earlier of the Closing
Date or the termination of this Agreement in accordance with its
terms, the Company shall notify the Buyer in writing of any
event, condition, fact or circumstance of which it becomes aware
that occurs, arises or exists after the date of this Agreement
and that would cause or constitute a material inaccuracy in or
material breach of any representation or warranty made by the
Company in this Agreement, provided that, if any of the Members
become aware of any such event, condition, fact or circumstance,
such Member shall promptly notify the Company and Parent
thereof. If any event, condition, fact or circumstance that is
required to be disclosed pursuant to this Section 4.3
requires any change in the Disclosure Schedule, then the Company
shall promptly deliver to the Buyer an update to the Disclosure
Schedule specifying such change, which change shall be
incorporated into the Disclosure Schedule for all purposes of
this Agreement, subject to the provisions of Section 4.3(b)
below.

     
(b) If any change to the Disclosure Schedule pursuant to
Section 4.3(a) constitutes a Material Adverse Change, the
Buyer may terminate this Agreement by providing written notice
to the Company within two (2) Business Days of receipt of
the updated Disclosure Schedule containing such change. If the
Outside Date falls within such two-Business Day period, the
Outside Date shall be extended to the next Business Day
following expiration of such two-Business Day period. If the
Buyer does not terminate this Agreement within such two-Business
Day period, such change to the Disclosure Schedule shall be
incorporated into the Disclosure Schedule for all purposes of
this Agreement.

     
4.4     Solicitation of Other
Proposals.

     
(a) The parties agree that from the date hereof until the
earlier of the Closing Date or the termination of this Agreement
in accordance with its terms, the Buyer, Parent and their
respective officers, directors, employees, representatives and
agents (collectively, the “Representatives”)
may, in their sole discretion, respond to any inquiry from or
furnish information to, any Person regarding an Acquisition
Proposal. If the Company or Parent receives an Acquisition
Proposal which it determines in good faith will provide greater
value to the Company and its members than the transaction
contemplated by this Agreement (such other Acquisition Proposal,
a “Superior Proposal”), the Company shall
provide written notice to the Buyer, which notice shall set
forth in reasonable detail the material terms and conditions of
such Superior Proposal. The Buyer may, within two
(2) Business Days following receipt of such notice propose
an improved transaction to the Company. If the Company wishes to
accept a Superior Proposal after having received an improved
transaction from the Buyer, the Company shall provide notice to
the Buyer and afford the Buyer one (1) Business Day to
submit a final proposal to the Company prior to accepting such
Superior Proposal. Following such one (1) Business Day
period (or if the Buyer did not propose an improved transaction
during the aforementioned two-Business Day period, then
following such two-Business Day period), the Company, in its
discretion, may terminate this Agreement by providing written
notice to the Buyer, which termination shall be effective upon
receipt of such notice by the Buyer. For purposes of this
Agreement, the term “Acquisition Proposal”
shall mean any proposal or offer from any Person relating to any
merger, consolidation, recapitalization or other direct or
indirect business combination or reorganization involving the
Company, or the sale of all or substantially all of the assets
of the Company.

     
(b) In the event that the Company, Parent or any of the
Representatives are engaged in any discussions or negotiations
with, or wish to provide information to or respond to any
inquiry from, any Person regarding an Acquisition Proposal, upon
the request of the Company, Parent or any Representative, the
Members shall provide to the Company, Parent and their
respective representatives and agents such assistance,
information

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

13

 

and documents as such party may request in connection therewith.
If any of the Members fail to comply with the foregoing, the
Company may terminate this Agreement by providing at least two
(2) Business Days prior written notice to the Buyer.

     
4.5     Public
Announcements.

     
(a) Neither the Buyer nor any of the Members shall, nor
shall the Buyer or any of the Members permit any of its agents
or representatives to, issue or permit to be issued any public
announcement or press release (a “Public
Announcement”) pertaining to this Agreement or any
transaction contemplated hereby without the prior written
consent of Parent; provided, however, that if the
Buyer or any Member receives an inquiry from the media regarding
this Agreement or the transactions contemplated hereby prior to
the Closing Date, the Buyer or such Member may issue the
statement set forth in Schedule 4.5(a) in response to such
inquiry without Parent’s consent. The Company, Parent and
their respective Affiliates may in their discretion issue any
Public Announcement pertaining to this Agreement or any
transaction contemplated hereby without the consent of the Buyer
or the Members; provided, however, to the extent
reasonably feasible, but subject to any public disclosure and
other legal obligations of the Company, Parent or any of their
respective Affiliates and regulatory obligations to which any of
them may be subject, the Company and Parent shall provide the
Buyer an opportunity to review and shall consult with the Buyer
prior to issuing any such Public Announcement (provided that the
Buyer shall have not less than two (2) Business Day to
conduct such review and to consult with the Company or its
Affiliates with respect to the foregoing). Notwithstanding the
foregoing, the parties agree that Parent may issue a Public
Announcement announcing the signing of this Agreement pursuant
to a Form 8-K under the Securities Exchange Act of 1934, as
amended, in substantially the form of Exhibit D
attached hereto, and may issue the statement set forth in
Schedule 4.5(a) at any time, without complying with the
preceding sentence.

     
(b) For the avoidance of doubt, the provisions of
Section 4.5(a) shall not prohibit the Buyer or the Members
from responding to inquiries from, or having discussions with,
employees, vendors or customers of the Company with respect to
the transactions contemplated by this Agreement provided that
such responses or discussions do not constitute a Public
Announcement.

     
(c) From the date hereof until the earlier of the
termination of this Agreement in accordance with its terms or
two (2) years following the Closing Date, (i) neither
the Buyer nor any of the Members will make any disparaging or
negative statements, orally or in writing, to any Person
concerning Parent, the Company, any of their respective
Affiliates (or any of their officers, directors or employees) or
any of their respective products or services, and
(ii) neither the Company nor Parent will make any
disparaging or negative statements, orally or in writing, to any
Person concerning the Buyer or the Company (or any of its
members, officers, directors or employees) or any of its
products or services.

     
4.6     Employment
Matters.

     
(a) On or prior to the Closing Date, the Buyer shall offer
employment to each employee of the Company as of the Closing
Date (each, a “Company Employee”) with a salary
or wage level and bonus opportunity, to the extent applicable,
at least equal to that in effect on the Closing Date and with
employee benefits and other terms and conditions of employment
that are, in the aggregate, comparable to or more favorable than
the benefits and terms and conditions provided to each such
Company Employee by the Company on the Closing Date (each such
Company Employee who accepts such continued employment, a
“Continuing Employee”).

     
(b) From and after the Closing, the Buyer shall honor, pay,
perform and satisfy any and all liabilities, obligations and
responsibilities to or in respect of each Company Employee and
any former employee of the Company arising under the terms of or
in connection with any Employee Benefit Plan that constitutes an
Acquired Asset hereunder (each, an “Assumed
Plan”), as in effect immediately prior to the Closing.
Without limiting the generality of the foregoing, the Buyer will
honor, pay, perform and satisfy all liabilities and commitments
under each Assumed Plan that provides any such employee with
compensation or benefits upon or in connection with the
termination of such employee’s employment, and, to the
extent applicable to a

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

14

 

Company Employee, the Buyer will honor and continue in effect in
accordance with its terms each severance plan, program or policy
of the Company in effect immediately before the Closing. The
Buyer shall be responsible for any and all compensation,
benefits or other payments which become payable to any Company
Employee or former employee of the Company on or after the
Closing Date with respect to any period prior to the Closing
Date including, without limitation, any severance payments,
payments for accrued wages, salary, vacation, personal and sick
days and any other payments to any Company Employee upon
termination of employment of such employee. Effective as of and
after the Closing, the Buyer shall provide COBRA Coverage to all
Company Employees or former employees (and their respective
dependents) of the Company who are “M&A qualified
beneficiaries” as defined in Section 54.4980B-9 of the
Treasury Regulations.

     
(c) The Buyer shall recognize, for all purposes (including
vesting and any waiting period, eligibility condition and the
availability and level of benefits) under its employee benefit
plans, programs, arrangements and policies in which a Continuing
Employee will participate, and for all employment purposes, in
general, the service of each Continuing Employee as of the
Closing Date to the extent recognized by the Company prior to
the Closing Date. The Continuing Employees (and their
dependents) shall be exempt from any waiting period or
limitations on benefits for pre-existing conditions under the
Buyer’s employee benefits plans (except to the extent not
satisfied under any comparable plan of the Company as of such
time), and receive credit under any group health plan for any
portion of any co-pay or deductible previously met by such
employee or his or her dependent as of the transfer date under
the group health plan of the Company. The Buyer shall credit
each Continuing Employee for all accrued vacation, personal and
sick days as of the Closing.

     
4.7     Tax Matters.

     
(a) Preparation of Tax Returns.

		
	 	     
    (i) The Company shall prepare and file, or cause to be
    prepared and filed (including, without limitation, by any
    Affiliate of the Company in respect of any consolidated Tax
    Return), in its sole discretion, all Income Tax Returns required
    to be filed by the Company (or any such Affiliate) on or after
    the Closing Date with respect to any taxable period commencing
    prior to the Closing Date, whether such taxable period ends
    prior to, on or after the Closing Date, and shall be responsible
    for the payment of all Taxes payable pursuant to any such Income
    Tax Return.
	 
	 	     
    (ii) The Buyer shall prepare all other Tax Returns required
    to be filed by the Company on or after the Closing Date with
    respect to any taxable period commencing prior to the Closing
    Date, whether such taxable period ends prior to, on or after the
    Closing Date (“Other Pre-Closing Tax Returns”).
    The Buyer shall provide to the Company for review a draft of
    each Other Pre-Closing Tax Return no later than fifteen
    (15) days (or, with respect to personal property Taxes,
    thirty (30) days) prior to the date on which such Other
    Pre-Closing Tax Return is required to be filed with the proper
    taxing authority (taking into account any applicable valid
    extension). The Company shall have the right to review all work
    papers, procedures and other documents and information used to
    prepare each such Pre-Closing Tax Return and the Buyer shall
    make available to the Company and their representatives the
    accountants and other personnel who participated in the
    preparation of each such Other Pre-Closing Tax Return. If the
    Company objects to any item set forth in any such Other
    Pre-Closing Tax Return, the Company shall provide written notice
    to the Buyer of such objection and the basis thereof within ten
    (10) days (or, with respect to personal property Taxes,
    twenty (20) days) of receipt of such Other Pre-Closing Tax
    Return. If the Company does not timely deliver such notice to
    the Buyer, the draft of the Other Pre-Closing Tax Return
    provided to the Company shall be final and binding on all
    parties hereto. If the Company does timely deliver such notice
    to the Buyer, any dispute with respect to such Other Pre-Closing
    Tax Return shall be resolved in accordance with
    Section 4.7(b). Subject to the provisions of
    Section 4.7(b), upon resolution of all disputes with
    respect to such Other Pre-Closing Tax Return, the Buyer shall
    revise such Other Pre-Closing Tax Return to reflect such
    resolution. Upon completion of any Other Pre-Closing Tax Return
    in accordance with the provisions hereof, the Buyer shall pay to
    the Company all amounts due pursuant to such Other Pre-Closing
    Tax Return attributed to any period prior to the Closing and the

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

15

 

		
	 	
    Company shall file or cause to be filed such Pre-Closing Tax
    Return and make or cause to be made all payments required to be
    made as set forth in such Other Pre-Closing Tax Return. If an
    Other Pre-Closing Tax Return relates to a taxable period that
    begins prior to and ends after the Closing Date (a
    “Straddle Period”), the liability of the Buyer
    and the Company pursuant to such Other Pre-Closing Tax Return
    shall be apportioned between the Buyer and the Company in
    accordance with Section 4.7(a)(iii) below. If the Company
    is entitled to a refund pursuant to any Other Pre-Closing Tax
    Return (excluding any refund resulting from the carryback of a
    loss or credit from a taxable period (or portion thereof)
    beginning after the Closing Date) attributable to any period
    prior to the Closing, upon actual receipt of any such refund by
    the Company, the Company shall cause such refund to be delivered
    to the Buyer; provided, however, that if such Other Pre-Closing
    Tax Return relates to a Straddle Period, any such refund shall
    be apportioned between the Company and the Buyer in the same
    manner as Taxes are apportioned in accordance with the
    provisions of Section 4.7(a)(iii).
	 
	 	     
    (iii) Liability for Taxes of the Company attributable to
    any Straddle Period shall be apportioned between the Company and
    the Buyer as follows: the Buyer shall be responsible for such
    amount as is equal to the total amount of such Taxes multiplied
    by a fraction, the numerator of which shall be the number of
    days in the taxable period ending on the Closing Date and the
    denominator of which shall be the total number of days in such
    taxable period, and the Company shall be responsible for the
    remainder of such Taxes.

     
(b) Dispute Resolution. Any dispute pursuant
to Section 4.7(a)(ii) shall be resolved as follows:
(i) the Company and the Buyer will in good faith attempt to
negotiate a settlement of the dispute, (ii) if such parties
are unable to negotiate a resolution of the dispute within ten
(10) days of receipt of notice of such dispute in
accordance with Section 4.7(a)(ii), the dispute will be
submitted to Grant Thornton LLP (the “Tax Dispute
Accountants”) within five (5) days of the
expiration of the aforementioned 10-day period, (iii) the
Company and the Buyer will present their arguments to the Tax
Dispute Accountants within ten (10) days after submission
of the dispute to the Tax Dispute Accountants, (iv) the Tax
Dispute Accountants will resolve the dispute, in a fair and
equitable manner and in accordance with applicable Tax law and
the provisions of this Agreement, within fifteen (15) days
after the parties have presented their arguments to the Tax
Dispute Accountants, whose decision shall be final, conclusive
and binding on the parties absent manifest error, (v) any
payment to be made as a result of the resolution of a dispute
shall be made, and any other action to be taken as a result of
the resolution of a dispute shall be taken, on or before the
later of (A) the date on which such payment or action would
otherwise be required or (B) the third Business Day
following the date on which the dispute is resolved (in the case
of a dispute resolved by the Tax Dispute Accountants, such date
being the date on which the parties receive written notice from
the Tax Dispute Accountants of its resolution), provided that if
a dispute with respect to an item in an Other Pre-Closing Tax
Return shall not be resolved on or before the date that is five
(5) Business Days prior to the latest date on which such
Other Pre-Closing Tax Return must be filed under applicable Tax
law, then the Company shall file such Other Pre-Closing Tax
Return reflecting all disputed items that have been resolved in
the manner so resolved, and reflecting all unresolved disputed
items in the manner proposed by the Company, and shall, upon the
resolution of all such unresolved disputed items, file an
amended Other Pre-Closing Tax Return reflecting the resolution
thereof in the manner so resolved and (vi) the fees and
expenses of the Tax Dispute Accountants in resolving a dispute
will be borne equally by the Company and the Buyer. Any amounts
payable pursuant to any Other Pre-Closing Tax Return or amended
Other Pre-Closing Tax Return filed in accordance herewith
(whether such return is filed before or after the resolution of
any dispute) shall be the responsibility of and paid by the
party so responsible for such payment in accordance with the
provisions of Section 4.7(a)(ii).

     
(c) Audits. The Buyer shall promptly notify
the Company in writing within ten (10) days from receipt of
notice of any pending or threatened Tax audit or assessment with
respect to any Tax Return of, or other Tax-related inquiry
relating to, the Company, or any Action with respect thereto
(each, a “Tax Audit”). The Company shall have
the right to control and settle any such Tax Audit. If, upon
resolution of any Tax Audit,

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

16

 

an additional payment becomes due, the party so responsible for
such payment in accordance with the provisions of
Section 4.7(a) shall promptly make such payment.

     
(d) Cooperation. The parties shall cooperate
fully, as and to the extent reasonably requested by the other
parties, in connection with the preparation and filing of any
Tax Returns with respect to or on behalf of the Company or an
Action with respect to any Tax liability of the Company (each, a
“Tax Proceeding”). Such cooperation shall
include the reasonable retention and provision of records and
information which are reasonably relevant to any such Tax Return
or Tax Proceeding and making employees available on a mutually
convenient basis to provide additional information and
explanation of any material provided hereunder. The parties
shall provide each other copies of all relevant correspondence
received from any taxing authority in connection with any Tax
Proceeding.

     
4.8     Litigation
Cooperation. If a party hereto (or any of its
Affiliates) shall become engaged in or participate in any Action
relating in any way to the Company or its business following the
Closing, the other parties shall cooperate in all reasonable
respects with such party in connection therewith, including,
without limitation, making available to such parties, without
cost, all relevant records and using its commercially reasonable
efforts to make available the employees of such party or its
Affiliates who are reasonably expected to be helpful with
respect to such Action, provided that, such employees shall be
made available in a manner so as not to interfere with their
employment duties in any material respect.

     
4.9     Transition
Matters. For a period of up to six (6) months
following the Closing, upon the request of the Buyer, the
Company shall:

		
	 	     
    (i) provide continued support for the Company’s
    website (www.danscomp.com) (the
    “Website”) as more particularly described in
    Schedule 4.9(a)(i) hereto at a cost set forth in
    Schedule 4.9(a)(i);
	 
	 	     
    (ii) provide reasonable access upon reasonable prior
    written request to Ben Brucia, provided that Mr. Brucia is
    then employed by the Company or an Affiliate of the Company, for
    purposes of assisting the Buyer with its catalog circulation
    planning and providing historical data necessary for the Buyer
    to plan its catalogue mailings;
	 
	 	     
    (iii) provide reasonable access upon reasonable prior
    written request to Mitch Schultz, provided that Mr. Schultz
    is then employed by the Company or an Affiliate of the Company,
    for the purpose of discussing the Company’s historical
    marketing information with the Buyer; and
	 
	 	     
    (iv) provide one employee of the Buyer use of office space
    at Parent’s Hudson Street location in New York City at no
    cost, provided that, the Buyer shall reimburse the Company and
    Parent for any out-of-pocket expenses (other than rent) incurred
    by either of them in allowing such employee to use such office
    space.

     
The parties acknowledge that the Company is providing the
foregoing services as an accommodation to the Buyer, and the
Buyer acknowledges and agrees that neither the Company, its
Affiliates or any of their successors or assigns, nor any of
their respective officers, directors, employees or agents shall
have any liability whatsoever relating to, arising out of or
resulting from any act taken or omitted to be taken by the
Company in connection with its obligations under this
Section 4.9, expect for acts taken or omitted to be taken
in bad faith. Further, the Buyer shall indemnify, defend and
hold harmless the Company, its Affiliates, their successors or
assigns, and their respective officers, directors, employees and
agents from and against any and all costs, losses, damages,
liabilities and expenses, including reasonable attorneys’
fees, which may be imposed upon or incurred by any such party in
connection with the performance of the Company’s
obligations under this Section 4.9.

     
4.10     Prohibited Business
Activities; Non-solicitation.

     
(a) For a period of five (5) years following the
Closing Date, neither the Company nor Parent, directly or
indirectly (including through any Affiliate), shall
(i) develop for its own account a catalog, website or retail

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

17

 

store that sells, or a promotion that promotes, primarily
products relating to the bicycle industry (the “Company
Business”), it being understood that the foregoing
shall in no way prohibit or restrict the Company or Parent (or
any of their respective Affiliates) from engaging in any such
activities on behalf of third parties, or (ii) lend money
to, guarantee any debts or obligations of or own any equity
interest in (other than passive investments in publicly-traded
companies) any Person engaged in the Company Business. For a
period of five (5) years following the Closing Date,
neither the Buyer nor any Member, directly or indirectly
(including through any Affiliate), shall engage in any business
conducted by Parent or any of its Affiliates as of the Closing
Date, other than the Company Business, including, but not
limited to the Buyer’s sale, assignment or other transfer
of any interest in the Company Customer List and information
delivered to the Buyer pursuant to clause (ii) of the
second sentence of Section 4.12(b), or lend money to,
guarantee any debts or obligations of or own any equity interest
in (other than passive investments in publicly-traded companies)
any such business.

     
(b) From the date hereof until the earlier of the
termination of this Agreement in accordance with its terms or
eighteen (18) months following the Closing Date,
(i) Parent shall not, directly or indirectly (including
through any Affiliate), solicit for employment any Company
Employee, and (ii) the Buyer shall not, directly or
indirectly, solicit for employment any person employed or
engaged by Parent or any of its Affiliates (other than the
Company Employees); provided, however, that the
parties acknowledge that placing advertisements soliciting
employees in newspapers, Internet job sites and similar media
generally accessible to the public or responding to reference
requests shall not be deemed to be a breach of this
Section 4.10(b).

     
4.11     Change of Name.
Within ten (10) days following the Closing, the Company
shall change its name to a new name bearing no resemblance to
any name which constitutes an Acquired Asset.

     
4.12     Books and
Records.

     
(a) From and after the Closing Date, the Company, Parent or
any of their Affiliates and their respective representatives
shall have the right, upon reasonable advance notice (which may,
notwithstanding any provision of this Agreement to the contrary,
be provided orally or via e-mail), to examine and make copies of
the Transferred Books and Records, or any portions thereof, and
the Buyer shall, upon the reasonable request of the Company, its
Affiliates or their respective representatives, provide copies
of the Transferred Books and Records, or any portions thereof,
to such party as promptly as practicable following receipt of
such request. The Buyer shall maintain all Transferred Books and
Records for a period of seven (7) years following the
Closing Date; provided, however, that the Buyer
may discard or destroy any of the Transferred Books and Records
after providing the Company and Parent at least one hundred
twenty (120) days prior written notice of its intent to
discard or destroy any such books and records and providing the
Company the opportunity take possession thereof. To the extent
reasonably necessary, the Buyer shall deliver to the Company,
Parent or its respective designee any original of the
Transferred Books and Records, provided that, the Buyer shall be
entitled to make copies of such original record prior to
delivery and the Company or its designee shall return such
original record to the Buyer at such time that possession
thereof is no longer necessary. The Buyer shall not sell or
otherwise transfer any of the Transferred Books and Records to
any other party unless (i) the Buyer provides to the
Company and Parent notice of its intent to transfer or sell such
books and records to such party and (ii) such party agrees
in writing to be bound by the terms of this Section 4.12
(and agrees to cause any subsequent transferee to be similarly
bound).

     
(b) For purposes of this Agreement, the term
“Dan’s House File” means the names of all
consumers in Parent’s “TeenBase” Database
(“TeenBase”) as of the Closing Date who either
purchased or received product from the Company, requested a
catalog or electronic communication from the Company or
registered as a user on the Company’s website, and all
other information in TeenBase relating to such consumers; the
term “Shared Customer List” means the names of
all consumers in the Dan’s House File who either purchased
or received product from Parent or any of its Affiliates,
requested a catalog or electronic communication from Parent or
any of its Affiliates or registered as a user on Parent’s
or any of its Affiliates’ websites, and all other
information relating thereto; and the term “Company
Customer List” means the names

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

18

 

and information in the Dan’s House File excluding the names
and information in the Shared Customer List. On or prior to the
later of June 16, 2005 and five (5) Business Days
following the Closing Date, the Company (i) shall cause all
information in the Company Customer List, and all other
references to the Company in the Shared Customer List, to be
deleted from TeenBase (as is in use at the date of deletion) in
accordance with the process set forth in
Schedule 4.12(b)(1) attached hereto (which deletion shall
be certified to the Buyer by Parent’s chief technology
officer), and will not otherwise use, retain or restore into use
any such deleted information, (ii) deliver to the Buyer a
list of all consumers in the Shared Customer List together with
all information in the Shared Customer List concerning such
consumers that relates exclusively to the Company and
(iii) deliver a letter in substantially the form attached
hereto as Exhibit F to Experian Marketing
Services. Further, from the date hereof until the earlier of the
Closing Date or the termination of this Agreement in accordance
with its terms, neither the Company nor Parent shall conduct any
cross-marketing activities to any consumer set forth in the
Company Customer List other than the cross-marketing activities
set forth in Schedule 4.12(b)(2). The Buyer and the Members
acknowledge that TeenBase, and all information contained
therein, is owned by, and constitutes proprietary information of
Parent, provided that, prior to the Closing, Parent shall convey
to the Company its interest in the Company Customer List and the
information in the Shared Customer List concerning the consumers
set forth therein that relates exclusively to the Company.

     
(c) From and after the Closing Date, the Buyer shall have
the right, upon reasonable advance notice (which may,
notwithstanding any provision of this Agreement to the contrary,
be provided orally or via e-mail), for legitimate business
purposes, to examine and make copies of any of the
Company’s books and records retained by the Company that
relate to the assets, liabilities or operations of the
Company’s business prior the Closing, and the Company
shall, upon the reasonable request of the Buyer for legitimate
business purposes, provide copies of any such books and records
to the Buyer as promptly as practicable following receipt of
such request.

     
4.13     Preparation of Financial
Statements; Post-closing Cooperation; Website.

     
(a) Promptly following the Closing, the Buyer shall prepare
such financial statements with respect to the operations of the
Company prior to the Closing as are reasonably requested by the
Company or Parent. Such financial statements shall be prepared
by the Buyer in accordance with such principles and procedures
as are determined by the Company. In addition, the Buyer and the
Members shall, and shall cause the Buyer’s employees,
representatives and agents to, provide such cooperation and
assistance as the Company or Parent may reasonably request in
connection with the preparation by the Company, Parent or any of
their respective Affiliates of financial statements, reports,
filings (including, without limitation, filings with the
Securities and Exchange Commission and NASDAQ) or other
documents and answer any questions and provide such additional
information as the Company or Parent may reasonably request with
respect to the operation of the Company prior to the Closing.

     
(b) Following the Closing, the Buyer shall promptly take
all action reasonably requested by the Company or Parent in
order to transition the Website from the Company to the Buyer
and to ensure that the Website is in no way associated with or
attributable to the Company, Parent or any of their Affiliates.

ARTICLE V

CONDITIONS PRECEDENT TO CLOSING

     
5.1     Conditions to Obligations
of the Buyer. The obligation of the Buyer to consummate
the transactions contemplated by this Agreement is subject to
the satisfaction, prior to or at Closing, of the following
conditions, unless waived by the Buyer:

		
	 	     
    (a) Representations and Warranties of the
    Company. Each of the representations and warranties set
    forth in Section 3.1 shall be true and correct in all
    material respects on the date of this Agreement and

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

19

 

		
	 	
    on and as of the Closing Date as though made on and as of the
    Closing Date (except for representations and warranties made as
    of a specified date, the accuracy of which will be determined
    only as of the specified date).
	 
	 	     
    (b) Performance of Obligations of the
    Company. The Company shall have performed in all
    material respects the obligations required to be performed by it
    under this Agreement prior to or as of the Closing Date.
	 
	 	     
    (c) Related Agreements. Each of the Related
    Agreements to be executed at or prior to Closing by the Company
    shall have been so executed and delivered.
	 
	 	     
    (d) Closing Certificate. The Company shall
    have delivered to the Buyer a certificate, dated as of the
    Closing Date, certifying that the conditions set forth in
    Sections 5.1(a) and 5.1(b) have been satisfied or waived by
    the Buyer in writing.
	 
	 	     
    (e) Evidence of Corporate Authority. The
    Company shall have delivered to the Buyer a certificate of an
    officer or manager of the Company, dated as of the Closing Date,
    certifying as to and attaching (if applicable): (i) true
    and correct copies of the organizational documents of the
    Company, (ii) the incumbency of the officers or managers
    executing this Agreement and the Related Agreements to which the
    Company is a party on behalf of the Company and (iii) true
    and correct copies of resolutions of the Board of Managers and
    members of the Company authorizing and approving the execution,
    delivery and performance of this Agreement and the transactions
    contemplated hereby, and the acts of the officers or managers of
    the Company in carrying out the terms and provisions hereof.
	 
	 	     
    (f) Good Standing Certificates. The Company
    shall have delivered to the Buyer a certificate of good standing
    dated within five (5) Business Days prior to the Closing
    Date with respect to the Company from the Secretary of State of
    its jurisdiction of organization.
	 
	 	     
    (g) No Injunction. No Action by any
    Governmental Authority which seeks to restrain, enjoin or
    prevent the consummation of the transactions contemplated hereby
    shall have been instituted and be pending, and no preliminary
    order of any foreign, federal, state or local court restraining,
    enjoining or preventing the consummation of the transactions
    contemplated by this Agreement shall be in effect;
    provided, however, that in the event that such
    Action is pending or such order is in effect, at the election of
    the Company, the Closing shall be delayed until such Action has
    been fully and finally resolved or such order is no longer in
    effect, as the case may be.

     
5.2     Conditions to Obligations
of the Company. The obligation of the Company to
consummate the transactions contemplated by this Agreement is
subject to the satisfaction, prior to or at the Closing, of the
following conditions, unless waived by Company:

		
	 	     
    (a) Representations and Warranties of the Buyer and
    the Members. Each of the representations and warranties
    set forth in Section 3.2 shall be true and correct in all
    material respects, in each case, on the date of this Agreement
    and on and as of the Closing Date as though made on and as of
    the Closing Date (except for representations and warranties made
    as of a specified date, the accuracy of which will be determined
    only as of the specified date).
	 
	 	     
    (b) Performance of Obligations of the Buyer and the
    Members. The Buyer and the Members shall have performed
    in all material respects the obligations required to be
    performed by them under this Agreement prior to or as of the
    Closing Date.
	 
	 	     
    (c) Related Agreements. Each of the Related
    Agreements to be executed at or prior to Closing by the Buyer
    and the Members shall have been so executed and delivered.
	 
	 	     
    (d) Closing Certificate. The Buyer and the
    Members shall have delivered to the Company a certificate, dated
    as of the Closing Date, certifying that the conditions set forth
    in Sections 5.2(a) and 5.2(b) have been satisfied or waived
    by the Company in writing.

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

20

 

		
	 	     
    (e) Evidence of Corporate Authority. The
    Buyer shall have delivered to the Company a certificate of an
    officer or manager of the Buyer, dated as of the Closing Date,
    certifying as to and attaching (if applicable): (i) true
    and correct copies of the organizational documents of the Buyer,
    (ii) the incumbency of the officers or managers executing
    this Agreement and each Related Agreement to which the Buyer is
    a party on behalf of the Buyer and (iii) true and correct
    copies of resolutions of the Board of Managers and members of
    the Buyer authorizing and approving the execution, delivery and
    performance of this Agreement and the transactions contemplated
    hereby, and the acts of the officers and managers of the Buyer
    in carrying out the terms and provisions hereof.
	 
	 	     
    (f) Good Standing Certificates. The Buyer
    shall have delivered to the Company a certificate of good
    standing dated within five (5) Business Days prior to the
    Closing Date with respect to the Buyer from the Secretary of
    State of the state of its organization.
	 
	 	     
    (g) No Injunction. No Action by any
    Governmental Authority which seeks to restrain, enjoin or
    prevent the consummation of the transactions contemplated hereby
    shall have been instituted and be pending, and no preliminary
    order of any foreign, federal, state or local court restraining,
    enjoining or preventing the consummation of the transactions
    contemplated by this Agreement shall be in effect;
    provided, however, that in the event that such
    Action is pending or such order is in effect, at the election of
    the Company, the Closing shall be delayed until such Action has
    been fully and finally resolved or such order is no longer in
    effect, as the case may be.
	 
	 	     
    (h) Resignation and Releases. Each of the
    Members shall have resigned as employees of the Company
    effective as of the Closing Date and shall have entered into
    releases in favor of the Company, Parent and their respective
    Affiliates in substantially the form attached hereto as
    Exhibit E. Further, Steven Kalsch and Alloy
    Merchandising Group, LLC shall have entered into an agreement
    reasonably satisfactory to Parent, effective as of the Closing
    Date, terminating the offer letter between Mr. Kalsch and
    Alloy Merchandising Group, LLC dated October 25, 2004,
    together with all liabilities and obligations of Alloy
    Merchandising Group, LLC thereunder.
	 
	 	     
    (i) Payment of Purchase Price. The Buyer
    shall have paid to the Company the Purchase Price as required by
    the terms of this Agreement and the Seller shall have received
    the Deposit from the Escrow Agent.

ARTICLE VI

INDEMNIFICATION

     
6.1     Definitions. As
used in this Agreement, the following terms shall have the
following meanings:

		
	 	     
    (a) “Affiliate” means, as to any Person,
    any Person, directly or indirectly, through one or more
    intermediaries, controlling, controlled by or under common
    control with such Person.
	 
	 	     
    (b) “Event of Indemnification” means a
    Company Event of Indemnification or a Buyer Event of
    Indemnification, as applicable.
	 
	 	     
    (c) “Indemnified Persons” means:

		
	 	     
    (i) with respect to a Buyer Event of Indemnification, the
    Buyer, its Affiliates, their successors and assigns, and the
    respective stockholders, members or partners, officers,
    directors, employees and agents of each of the foregoing (the
    “Buyer Indemnified Persons”); or
	 
	 	     
    (ii) with respect to a Company Event of Indemnification,
    the Company, Parent, their Affiliates, their respective
    successors and assigns and the respective stockholders, members
    or partners, officers, directors, employees and agents of each
    of the foregoing (the “Company Indemnified
    Persons”).

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

21

 

		
	 	     
    (d) “Indemnifying Persons” means:

		
	 	     
    (i) with respect to a Buyer Event of Indemnification, the
    Company, Parent and their respective successors and assigns (the
    “Company Indemnifying Persons”); or
	 
	 	     
    (ii) with respect to a Company Event of Indemnification,
    the Buyer, the Members and their respective successors, assigns,
    heirs and estates, jointly and severally (the “Buyer
    Indemnifying Persons”).

		
	 	     
    (e) “Losses” means any and all losses,
    demands, actions or causes of action, suits, proceedings,
    investigations, arbitrations, claims, damages, liabilities
    (contingent or otherwise), payments, obligations, expenses
    (including reasonable attorneys’ and accountants’
    fees), assessments or Taxes (including interest or penalties
    thereon) sustained, suffered or incurred by any Indemnified
    Person arising from or in connection with any such matter that
    is the subject of indemnification pursuant to Section 6.2
    hereof; provided, however, that an Indemnified
    Party shall be entitled to only direct damages and in no event
    shall any Indemnified Party be awarded consequential,
    incidental, special, punitive or multiple damages.

     
6.2     Indemnification.

     
(a) From and after the Closing, the Company Indemnifying
Persons shall indemnify, defend and hold harmless the Buyer
Indemnified Persons from and against any and all Losses arising
out of, relating to or resulting from (i) the breach of any
representation or warranty of the Company set forth in this
Agreement or in any Related Agreement to which the Company is a
party, (ii) the breach of or non-compliance with any
agreement or covenant of the Company set forth in this Agreement
or in any Related Agreement to which the Company is a party,
(iii) any of the Excluded Liabilities including, without
limitation, the failure of the Company to honor, pay, discharge
or perform any Excluded Liability, or (iv) the operation of
the Company from and after the Closing (each, a “Buyer
Event of Indemnification”).

     
(b) From and after the Closing, the Buyer Indemnifying
Persons shall indemnify, defend and hold harmless the Company
Indemnified Persons from and against any and all Losses arising
out of, relating to or resulting from (i) the breach of any
representation or warranty of the Buyer or any Member set forth
in this Agreement or any Related Agreement to which the Buyer or
any Member is a party, (ii) the breach of or non-compliance
with any agreement or covenant of the Buyer or any Member set
forth in this Agreement or any Related Agreement to which the
Buyer or any Member is a party, (iii) any of the Assumed
Liabilities including, without limitation, the failure of the
Buyer to honor, pay, discharge or perform any Assumed Liability,
or (iv) the operation of the Company prior to the Closing
(each, a “Company Event of Indemnification”).

     
6.3     Limitations. The
rights of the Indemnified Persons to indemnification hereunder
are subject to the following:

		
	 	     
    (i) no indemnification shall be payable by a
    [************************] with respect to Losses arising from a
    [****************************] described in
    Section 6.2(a)(i) until the cumulative amount of all such
    Losses exceeds [***********], whereupon the [******************]
    [*******] shall be liable for the full amount of all such Losses
    in excess of such amount up to a maximum aggregate amount of
    [**********];
	 
	 	     
    (ii) no indemnification shall be payable by a
    [*******************] with respect to Losses arising from a
    [*******************************] described in
    Section 6.2(b)(i) until the cumulative amount of all such
    Losses exceeds [*********], whereupon the
    [***********************] shall be liable for the full amount of
    all such Losses in excess of such amount up to a maximum
    aggregate amount of [*************];
	 
	 	     
    (iii) no indemnification shall be payable to any
    Indemnified Person to the extent of any Tax benefits actually
    realized by such Indemnified Person or its Affiliates with
    respect to such Losses or to the extent

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

22

 

		
	 	
    such Losses shall have been reduced as a result of the recovery
    by such Indemnified Person or any of its Affiliates (after
    deducting all attorneys’ fees, expenses and other costs of
    recovery) from any insurer or other party liable for such Losses
    (and such Indemnified Person shall use commercially reasonable
    efforts to seek and obtain such recovery); and
	 
	 	     
    (iv) a Buyer Indemnified Person shall not be entitled to
    indemnification hereunder with respect to a Buyer Event of
    Indemnification where the Buyer or any Member had actual
    knowledge or notice of the facts giving rise to such Event of
    Indemnification, provided that, for purposes of
    Section 3.1(i), the Buyer and the Members shall be deemed
    to have actual knowledge of an Action pending against the
    Company if notice of such Action had been delivered to the
    Company’s offices in Mt. Vernon, Indiana or to any of its
    employees principally located at such offices at any time on or
    prior to the Closing Date.

     
6.4     Assertion of
Claims.

     
(a) To bring a claim for indemnification under this
Article VI, the Indemnified Person shall give the
appropriate Indemnifying Person(s) written notice of the
existence of any such claim, specifying the nature and basis of
such claim and the amount thereof, to the extent known, and, if
such claim arises from a Third Party Claim as defined in
Section 6.5, accompanied by copies of all relevant
documentation with respect to such Third Party Claim, including,
without limitation, any summons, complaint or other pleading
that may have been served, any written demand or any other
document or instrument (each, a “Notice of
Claim”) in each case, as promptly as practicable after
becoming aware of such claim. Notwithstanding the foregoing, the
failure so to provide such Notice of Claim will not relieve the
Indemnifying Person(s) from any liability which they may have to
the Indemnified Persons under this Agreement, unless and only to
the extent that such failure results in the loss or compromise
in any material respect of any material rights or defenses of
the Indemnifying Persons and the Indemnifying Persons were not
otherwise aware of such action or claim. No claim shall be
brought under this Article VI with respect to an Event of
Indemnification unless an applicable Indemnified Person, at any
time prior to the applicable Survival Date, gives an applicable
Indemnifying Person a Notice of Claim with respect to such claim.

     
(b) In the case of a claim for indemnification not arising
from a Third Party Claim, if the Indemnifying Person disputes
its liability with respect to such claim, in whole or in part,
the Indemnifying Person and the Indemnified Person shall proceed
in good faith to negotiate a resolution of such dispute and, if
not resolved through negotiations, such dispute shall be
resolved by litigation in an appropriate court of competent
jurisdiction in accordance with Section 8.6.

     
6.5     Defense of Third Party
Claims. Claims arising from the assertion of liability
by third parties (each, a “Third Party Claim”)
shall be subject to Section 6.4 and the following terms and
conditions:

		
	 	     
    (a) Upon receipt of a Notice of Claim timely delivered in
    accordance with Section 6.4 and relating to a Third Party
    Claim, the Indemnifying Person shall then have ten
    (10) days to advise the Indemnified Person whether the
    Indemnifying Person accepts the defense of such claim, and the
    Indemnifying Person shall have no obligation to the Indemnified
    Person for legal fees incurred by the Indemnified Person after
    the date of any assumption of the defense by the Indemnifying
    Person, provided that, (i) an Indemnifying Person may only
    assume control of such defense if it acknowledges in writing to
    the Indemnified Person that any Losses that may be assessed
    against the Indemnified Person in connection with such Third
    Party Claim constitute Losses for which the Indemnified Party
    shall be indemnified pursuant to this Article VI and
    (ii) the Indemnifying Person may not assume control of the
    defense of any Action involving a Third Party Claim for criminal
    liability or in which equitable relief is sought against the
    Indemnified Party.
	 
	 	     
    (b) If the Indemnifying Person determines to accept the
    defense of such Third Party Claim, it shall defend such Third
    Party Claim with counsel of its own choice that is reasonably
    satisfactory to the Indemnified Person and at its own expense,
    provided that, the Indemnified Person shall have the right to be
    represented by its own counsel at its own expense, its
    participation to be subject to reasonable direction of counsel
    for the Indemnifying Person. If the Indemnifying Person fails to
    undertake the defense of or

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

23

 

		
	 	
    settle or pay any such Third Party Claim within ten
    (10) days after the Indemnified Person has given written
    notice to the Indemnifying Person of the claim, or if the
    Indemnifying Person, after having given such notification to the
    Indemnified Person, fails within ten (10) days, or at any
    time thereafter, to defend to the reasonable satisfaction of the
    Indemnified Person, settle or pay such claim, then the
    Indemnified Person may take any and all necessary action to
    dispose of such claim subject to the provisions of
    clause (c) below.
	 
	 	     
    (c) The party controlling the defense of a Third Party
    Claim may settle such Third Party Claim on any terms which it
    may deem reasonable, provided that, (i) an Indemnifying
    Person shall not without the Indemnified Person’s prior
    written consent settle or compromise such proceeding, claim or
    demand, or consent to the entry of any judgment which does not
    include as an unconditional term thereof the delivery by the
    claimant or plaintiff to the Indemnified Person of a written
    release from all liability in respect of such proceeding, claim
    or demand and (ii) an Indemnified Person shall not without
    the Indemnifying Person’s prior written consent, which
    consent will not be unreasonably be withheld or delayed, settle
    or compromise any such proceeding, claim or demand, or consent
    to the entry of any judgment.

     
6.6     Survival of
Representations, Warranties and Covenants. The
representations and warranties made by the parties in this
Agreement or in any Related Agreement shall survive the Closing
Date for a period of six (6) months, provided that the
representations and warranties set forth in Section 3.1(d)
shall survive the Closing for a period of twelve
(12) months and the representations and warranties set
forth in Sections 3.1(e) and 3.1(i) shall survive the
Closing for a period of twenty-four (24) months, and the
covenants made by the parties in this Agreement or in any
Related Agreement shall survive the Closing indefinitely (or for
such shorter period as may be expressly set forth herein). For
convenience of reference, the date upon which any
representation, warranty or covenant contained herein or in any
Related Agreement shall terminate is referred to herein as the
“Survival Date.”

     
6.7     Sole and Exclusive
Remedy. Notwithstanding any provision of this Agreement
to the contrary, from and after the Closing Date, the sole and
exclusive remedy for any and all Actions (including, without
limitation, any Event of Indemnification) arising out or
relating to this Agreement or any Related Agreement, or the
transactions contemplated hereby and thereby, shall be the
indemnification provisions set forth in this Article VI;
provided, however, that nothing contained herein
shall limit the remedies of any party in respect of fraud
committed by any other party in connection herewith or prohibit
any party from bringing an action to specifically enforce any
provision of this Agreement.

ARTICLE VII

TERMINATION

     
7.1     Termination. This
Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:

		
	 	     
    (a) by mutual written consent of the Buyer and the Company;
	 
	 	     
    (b) subject to the provisions of Sections 5.1(g) and
    5.2(g), by either the Buyer or the Company if the Closing shall
    not have occurred on or before June 15, 2005, or such later
    date as is determined in accordance with Section 4.3(b)
    (the “Outside Date”); provided,
    however, that the right to terminate this Agreement under
    this Section 7.1(b) shall not be available to a party
    (which, for purposes of the Buyer, shall include the Members)
    whose breach of or failure to fulfill any obligation under this
    Agreement has been the cause of, resulted in, or contributed in
    any material way to the failure of the Closing to occur on or
    before such date;
	 
	 	     
    (c) by either the Buyer or the Company, if a Governmental
    Authority shall have issued an order or taken any other action,
    in each case, which has become final and non-appealable and
    which restrains, enjoins or otherwise prohibits the Closing;

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

24

 

		
	 	     
    (d) by the Buyer, if neither it nor any of the Members is
    in material breach of any its obligations under this Agreement,
    and if the Company shall have breached in any material respect
    any of its representations or warranties or failed to perform in
    any material respect any of its covenants or other agreements
    contained in this Agreement, which breach or failure to perform
    would render unsatisfied any condition contained in
    Section 5.1 and (i) is incapable of being cured or
    (ii) if capable of being cured is not cured prior to the
    earlier of (A) the Business Day prior to the Outside Date
    or (B) the date that is thirty (30) days from the date
    that the Company is notified of such breach;
	 
	 	     
    (e) by the Company, if it is not in material breach of any
    of its obligations under this Agreement, and if the Buyer or a
    Member shall have breached in any material respect any of its
    representations or warranties or failed to perform in any
    material respect any of its covenants or other agreements
    contained in this Agreement, which breach or failure to perform
    would render unsatisfied any condition contained in
    Section 5.2 and (i) is incapable of being cured or
    (ii) if capable of being cured is not cured prior to the
    earlier of (A) the Business Day prior to the Outside Date
    or (B) the date that is thirty (30) days from the date
    that the Buyer is notified of such breach; or
	 
	 	     
    (f) by the Buyer pursuant to Section 4.3 or by the
    Company pursuant to Section 4.4.

     
7.2     Effect of
Termination.

     
(a) In the event of the termination of this Agreement
pursuant to Section 7.1, this Agreement (other than this
Section 7.2, Section 4.5 and Article VIII, which
shall survive such termination) will forthwith become void, and,
subject to the provisions of Sections 7.2(b) and (c), there
will be no liability on the part of any party hereto to the
other and all rights and obligations of any party hereto will
cease, except that nothing herein will relieve any party from
any Losses arising out of or resulting from any material breach,
prior to termination of this Agreement in accordance with its
terms, of any representation, warranty or covenant contained in
this Agreement; provided, however, that neither
the Buyer nor the Members shall be entitled to recover any such
Losses with respect to any claim against the Company if the
Buyer or any Member had actual knowledge or notice of the facts
giving rise to such claim, provided that, for purposes of
Section 3.1(i), the Buyer and the Members shall be deemed
to have actual knowledge of an Action pending against the
Company if notice of such Action had been delivered to the
Company’s offices in Mt. Vernon, Indiana or to any of its
employees principally located at such offices at any time on or
prior to the Closing Date.

     
(b) If the Company shall have terminated this Agreement
pursuant to Section 4.4(a), the Company shall, promptly
following such termination, (i) instruct the Escrow Agent
to return the Deposit to the Buyer and (ii) pay to the
Buyer a break-up fee in the amount of Four Hundred Thousand
Dollars $400,000.

     
(c) If the Company shall have terminated this Agreement
pursuant to Section 4.4(b), 7.1(b) or 7.1(e), the Company
shall be entitled to retain the Deposit as liquidated damages
and, immediately following such termination, the Buyer and the
Members shall take all action necessary to cause the Escrow
Agent to deliver the Deposit to the Company. If this Agreement
is terminated for any other reason, the Company shall instruct
the Escrow Agent to promptly return the Deposit to the Buyer.
Upon the breach of any party of the provisions of this
Section 7.2(c), the non-breaching party shall be entitled
to recover all costs incurred by such party in enforcing its
rights under this Agreement and the Escrow Agreement including,
without limitation, reasonable attorneys’ fees.

ARTICLE VIII

MISCELLANEOUS

     
8.1     Expenses. Each
party shall bear all out-of-pocket costs and expenses incurred
by such party to third parties in connection with the
negotiation, preparation, execution, delivery and performance of
this Agreement and the Related Agreements to which such Person
is a party, and in connection with the

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

25

 

consummation of the transactions contemplated hereby and thereby
including, without limitation, legal, accounting and
broker’s fees.

     
8.2     Entire Agreement.
This Agreement (including the Disclosure Schedule and the
exhibits and other schedules attached hereto) and the Related
Agreements contain the entire agreement among the parties hereto
with respect to the transactions contemplated hereby and
supersede all prior agreements or understandings, written or
oral, among the parties with respect thereto. WITHOUT LIMITING
THE GENERALITY OF THIS SECTION 8.2 AND NOTWITHSTANDING
ANYTHING IN THIS AGREEMENT TO THE CONTRARY, NO PARTY IS MAKING
ANY REPRESENTATION OR WARRANTY WHATSOEVER, ORAL OR WRITTEN,
EXPRESS OR IMPLIED, IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT AND THE RELATED AGREEMENTS OTHER
THAN THOSE SET FORTH IN ARTICLE III OF THIS AGREEMENT OR IN
THE RELATED AGREEMENTS AND NO PARTY IS RELYING ON ANY STATEMENT,
REPRESENTATION OR WARRANTY, ORAL OR WRITTEN, EXPRESS OR IMPLIED,
MADE BY ANY OTHER PARTY EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES SET FORTH IN ARTICLE III OF THIS AGREEMENT OR IN
THE RELATED AGREEMENTS. FURTHER, THE BUYER AND THE MEMBERS
ACKNOWLEDGE THAT THE MEMBERS CURRENTLY SERVE AS THE SENIOR
MANAGEMENT TEAM OF THE COMPANY AND, AS SUCH, THE BUYER AND THE
MEMBERS ARE FAMILIAR WITH AND HAVE CONDUCTED A COMPLETE AND
THOROUGH INVESTIGATION OF THE COMPANY AND ITS BUSINESS AND
AFFAIRS. ACCORDINGLY, NOTWITHSTANDING ANY PROVISION OF THIS
AGREEMENT TO THE CONTRARY, THE BUYER AND THE MEMBERS ACKNOWLEDGE
THAT THEY ARE ENTERING INTO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY BASED UPON SUCH INDEPENDENT INVESTIGATION
AND THE REPRESENTATIONS AND WARRANTIES SET FORTH IN
SECTION 3.1 HERETO.

     
8.3     Interpretation.
Descriptive headings are for convenience only and shall not
control or affect the meaning or construction of any provision
of this Agreement. The words “include,”
“includes” and “including” when used herein
shall be deemed in each case to be followed by the words
“without limitation.” The word “herein” and
similar references mean, except where a specific Section or
Article reference is expressly indicated, the entire Agreement
rather than any specific Section or Article. The table of
contents and the headings contained in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

     
8.4     Notices. All
notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered
personally or sent by nationally-recognized overnight courier or
by facsimile, with confirmation as provided above addressed as
follows:

     
(i) if to the Company, to:

		
	 	
    c/o Alloy, Inc.
	 	
    151 West
    26th
    Street,
    11th
    Floor
	 	
    New York, NY 10001
	 	
    Attention: Chief Executive Officer
	 	
    Facsimile: (212) 244-4311

     
with a copy to (which shall not constitute notice):

		
	 	
    Alloy, Inc.
	 	
    151 West
    26th
    Street,
    11th
    Floor
	 	
    New York, NY 10001
	 	
    Attention: General Counsel
	 	
    Facsimile: (212) 244-4311

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

26

 

     
and

		
	 	
    Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
	 	
    One Financial Center
	 	
    Boston, MA 02111
	 	
    Attention: Dean G. Zioze, Esq.
	 	
    Facsimile: (617) 542-2241

     
(ii) if to the Buyer, to:

		
	 	
    XP Innovation LLC
	 	
    1 Competition Way
	 	
    Mt. Vernon, IN 47620
	 	
    Attention: Steven A. Kalsch
	 	
    Facsimile: (812) 833-3580

     
with a copy to (which shall not constitute notice):

		
	 	
    Bamberger, Foreman, Oswald and Hahn, LLP
	 	
    P.O. Box 657
	 	
    Evansville, IN 47704
	 	
    Attn: Thomas Kimpel or Laura Scott
	 	
    Facsimile: (812) 421-4936

     
or to such other address as the party to whom notice is to be
given may have furnished to the other party in writing in
accordance herewith. All such notices or communications shall be
deemed to be received (a) in the case of personal delivery,
on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business
day after the date when sent and (c) in the case of
facsimile transmission, upon confirmed receipt.

     
8.5     Counterparts.
This Agreement may be executed in any number of counterparts by
original or facsimile signature, each such counterpart shall be
an original instrument, and all such counterparts together shall
constitute one and the same agreement.

     
8.6     Governing Law;
Venue. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without
reference to its conflicts of laws provisions. The parties
irrevocably and unconditionally submit to the jurisdiction of
the Federal courts sitting in Chicago, Illinois over any suit,
action or proceeding arising out of or relating to this
Agreement or any Related Agreement. The parties irrevocably and
unconditionally waive any objection to the laying of venue of
any such suit, action or proceeding brought in such court and
any claim that any such suit, action or proceeding brought in
such court has been brought in an inconvenient forum. The
parties agree that a final judgment in any such suit, action or
proceeding brought in such court shall be conclusive and binding
upon the parties and may be enforced in any other courts to
whose jurisdiction other parties are or may be subject, by suit
upon such judgment.

     
8.7     Benefits of
Agreement. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by any party without
the consent of the other parties hereto; provided,
however, that (i) the Company and/or Parent may
assign its rights and delegate its obligations (other than its
obligations under Section 4.10) without the consent of any
party to an assignee whose securities have been registered under
the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, or the rules and regulations
promulgated thereunder, in connection with sale, transfer,
assignment or disposition of any material portion of the assets
relating to the merchandising business of Parent or any of its
Affiliates, provided that, any such assignee shall agree in
writing to be bound by the provisions of this Agreement
(including the provisions of Section 4.10) and such
assignee shall not subsequently assign its rights or delegate
its obligations hereunder without the consent of the other
parties hereto, and (ii) the Buyer

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

27

 

may assign its rights under this Agreement to the Buyer’s
lender that provides acquisition financing necessary for the
Buyer to consummate the transactions contemplated by this
Agreement. Upon any assignment and delegation by Parent and/or
the Company hereunder, Parent and/or the Company (as applicable)
shall be fully and forever released and discharged from all
obligations and liabilities under this Agreement (other than its
obligations pursuant to Section 4.10 hereof). Notice of any
permitted assignment pursuant to this Section 8.7 shall be
provided to all other parties to this Agreement promptly
following such assignment.

     
8.8     Pronouns. As used
herein, all pronouns shall include the masculine, feminine,
neuter, singular and plural thereof whenever the context and
facts require such construction.

     
8.9     Amendment, Modification
and Waiver. This Agreement shall not be altered or
otherwise amended except pursuant to an instrument in writing
signed by the Buyer, Parent and the Company. Any party to this
Agreement may waive in writing any obligation owed to it by any
other party under this Agreement. The waiver by any party hereto
of a breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach.

     
8.10     No Third Party
Beneficiaries. Nothing express or implied in this
Agreement is intended to confer, nor shall anything herein
confer, upon any Person other than the parties hereto and the
respective successors or assigns of the parties, any rights,
remedies, obligations or liabilities whatsoever, except to the
extent that such Person is an Indemnified Person or Indemnifying
Person in respect of the indemnification provided in accordance
with Article VI of this Agreement.

     
8.11     Interpretation.
This Agreement has been negotiated between the parties and will
not be deemed to be drafted by, or the product of, any party. As
such, this Agreement will not be interpreted in favor of, or
against, any party.

     
8.12     No Joint
Venture. No party hereto shall make any warranties or
representations, or assume or create any obligations, on the
other party’s behalf except as may be expressly permitted
hereunder or in writing by such other party.

     
8.13     Severability. In
the event that any court of competent jurisdiction shall
determine that any provision, or any portion thereof, contained
in this Agreement shall be unenforceable in any respect, then
such provision shall be deemed limited to the extent that such
court deems it enforceable, and as so limited shall remain in
full force and effect. In the event that such court shall deem
any such provision, or portion thereof, wholly unenforceable,
the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.

     
8.14     Specific
Performance. The rights and remedies of the parties
hereto shall be cumulative. The transactions contemplated by
this Agreement are unique transactions and any failure on the
part of any party to complete the transactions contemplated by
this Agreement on the terms of this Agreement will not be fully
compensable in damages and the breach or threatened breach of
the provisions of this Agreement would cause the other parties
hereto irreparable harm. Accordingly, in addition to and not in
limitation of any other remedies available to the parties hereto
for a breach or threatened breach of this Agreement, the parties
shall be entitled to seek specific performance of this Agreement
and seek an injunction restraining any such party from such
breach or threatened breach.

     
8.15     Waiver of Jury
Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUR OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

[Remainder of Page Intentionally Left Blank]

Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission Pursuant to the
Company’s application requesting confidential treatment
under Rule 24b-2 under the Securities Exchange Act of 1934.

28

 

     
IN WITNESS WHEREOF, each of the parties hereto has caused
this Asset Purchase Agreement to be executed on its behalf as of
the day and year first above written.

		
	 	
    THE BUYER:
	 
	 	
    XP INNOVATION LLC

			
	 	By: 	
    /s/ Steven A. Kalsch

		
	 	
     

	 	
    Name: Steven A. Kalsch

			
	 	Title:	
    Authorized Member

		
	 	
    THE COMPANY:
	 
	 	
    DAN’S COMPETITION, LLC

			
	 	By: 	
    /s/ James K. Johnson, Jr.

		
	 	
     

	 	
    Name: James K. Johnson, Jr.

			
	 	Title:	
    President

		
	 	
    PARENT:
	 
	 	
    ALLOY, INC.

			
	 	By: 	
    /s/ James K. Johnson, Jr.

		
	 	
     

	 	
    Name: James K. Johnson, Jr.

			
	 	Title:	
    President

		
	 	
    THE MEMBERS:
	 
	 	
    /s/ Steven Kalsch
	 	
     

	 	
    Steven Kalsch
	 
	 	
    /s/ William Cartwright
	 	
     

	 	
    William Cartwright
	 
	 	
    /s/ Dustin Wilson
	 	
     

	 	
    Dustin Wilson

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