Document:

Exhibit 10.1

 

 

AGREEMENT AND PLAN OF MERGER

 

 

By and Among

 

 

PERFICIENT, INC.,

 

PERFICIENT GENISYS, INC.,

 

GENISYS CONSULTING, INC.

 

and

 

CERTAIN SHAREHOLDERS OF GENISYS CONSULTING, INC.

 

 

Dated as of April 2, 2004

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I
THE
  MERGER

  
	
  1.01

  	
  The
  Merger

  	
   

  
	
  1.02

  	
  Plan
  of Merger

  	
   

  
	
  1.03

  	
  Effective
  Time

  	
   

  
	
  1.04

  	
  Effect of the Merger

  	
   

  
	
  1.05

  	
  Conversion of Company Common Stock

  	
   

  
	
  1.06

  	
  Cash Holdback Amount; Stock Holdback
  Amount; Escrowed Shares

  	
   

  
	
  1.07

  	
  Certificate of Incorporation

  	
   

  
	
  1.08

  	
  Bylaws

  	
   

  
	
  1.09

  	
  Additional Actions

  	
   

  
	
  1.10

  	
  Accounting and Tax Treatment

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  PAYMENT OF MERGER CONSIDERATION

  
	
   

  	
   

  	
   

  
	
  2.01

  	
  Exchange of Shares

  	
   

  
	
  2.02

  	
  Stock Restriction Agreements

  	
   

  
	
  2.03

  	
  Adjustment of Merger Consideration

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III

  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

  AND THE SHAREHOLDERS

  
	
   

  	
   

  	
   

  
	
  3.01

  	
  Corporate Organization and Qualification

  	
   

  
	
  3.02

  	
  Capitalization

  	
   

  
	
  3.03

  	
  Authority; No Violation

  	
   

  
	
  3.04

  	
  Consents and Approvals

  	
   

  
	
  3.05

  	
  Financial Statements

  	
   

  
	
  3.06

  	
  Absence of Certain Changes or Events

  	
   

  
	
  3.07

  	
  Legal Proceedings

  	
   

  
	
  3.08

  	
  Taxes and Tax Returns

  	
   

  
	
  3.09

  	
  Employee Benefit Plans

  	
   

  
	
  3.10

  	
  Compliance with Applicable Law; Certain Agreements; Licensing

  	
   

  
	
  3.11

  	
  Certain Contracts

  	
   

  
	
  3.12

  	
  Agreements with Regulatory Agencies

  	
   

  
	
  3.13

  	
  Environmental Matters

  	
   

  
	
  3.14

  	
  Properties

  	
   

  
	
  3.15

  	
  Insurance

  	
   

  
	
  3.16

  	
  Labor
  Matters

  	
   

  
	
  3.17

  	
  Intellectual Property

  	
   

  
	
  3.18

  	
  Broker’s
  Fees

  	
   

  
	
  3.19

  	
  Bank
  Accounts

  	
   

  

 

i

 

	
  3.20

  	
  Disclosure

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB

  
	
   

  	
   

  	
   

  
	
  4.01

  	
  Corporate Organization and Qualification

  	
   

  
	
  4.02

  	
  Capitalization

  	
   

  
	
  4.03

  	
  Authority; No Violations

  	
   

  
	
  4.04

  	
  Consents
  and Approvals

  	
   

  
	
  4.05

  	
  Broker’s
  Fees

  	
   

  
	
  4.06

  	
  No Prior Activities

  	
   

  
	
  4.07

  	
  Labor
  Matters

  	
   

  
	
  4.08

  	
  Reports; Financial Statements

  	
   

  
	
  4.09

  	
  No Undisclosed Material Liabilities

  	
   

  
	
  4.10

  	
  Legal Proceedings

  	
   

  
	
  4.11

  	
  Continued Listing of Stock

  	
   

  
	
  4.12

  	
  Securities Laws

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  COVENANTS RELATING TO CONDUCT OF BUSINESS

  
	
   

  	
   

  	
   

  
	
  5.01

  	
  Covenants of the Company

  	
   

  
	
  5.02

  	
  No Solicitation; Non-Disclosure

  	
   

  
	
  5.03

  	
  Covenants
  of Parent and Sub

  	
   

  
	
  5.04

  	
  All
  Necessary Action

  	
   

  
	
  5.05

  	
  Notification

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  ADDITIONAL AGREEMENTS

  
	
   

  	
   

  	
   

  
	
  6.01

  	
  Regulatory
  Matters

  	
   

  
	
  6.02

  	
  Securities
  Matters

  	
   

  
	
  6.03

  	
  Shareholder
  Approval

  	
   

  
	
  6.04

  	
  Access
  to Information

  	
   

  
	
  6.05

  	
  Legal
  Conditions to Merger

  	
   

  
	
  6.06

  	
  Additional
  Agreements

  	
   

  
	
  6.07

  	
  Disclosure Supplements

  	
   

  
	
  6.08

  	
  No Inconsistent Actions

  	
   

  
	
  6.09

  	
  Tax
  Matters

  	
   

  
	
  6.10

  	
  Employment Agreements

  	
   

  
	
  6.11

  	
  Committees
  of the Parent

  	
   

  
	
  6.12

  	
  Noncompetition

  	
   

  
	
  6.13

  	
  Shareholder Representation Letters

  	
   

  
	
  6.14

  	
  Benefit
  Plans and Employee Matters

  	
   

  
	
  6.15

  	
  Publicity

  	
   

  
	
  6.16

  	
  Completion of Audit

  	
   

  
	
  6.17

  	
  Indemnification

  	
   

  

 

ii

 

	
  ARTICLE
  VII

  CONDITIONS PRECEDENT

  
	
   

  	
   

  	
   

  
	
  7.01

  	
  Conditions to Each Party’s Obligation to
  Effect the Merger

  	
   

  
	
  7.02

  	
  Conditions to Obligations of Parent and Sub

  	
   

  
	
  7.03

  	
  Conditions to Obligations of the Company

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII

  TERMINATION AND AMENDMENT

  
	
   

  	
   

  	
   

  
	
  8.01

  	
  Termination

  	
   

  
	
  8.02

  	
  Effect of Termination

  	
   

  
	
  8.03

  	
  Expenses

  	
   

  
	
  8.04

  	
  Amendment

  	
   

  
	
  8.05

  	
  Extension; Waiver

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  INDEMNIFICATION

  
	
   

  	
   

  	
   

  
	
  9.01

  	
  Agreement to Indemnify

  	
   

  
	
  9.02

  	
  Survival of Indemnity

  	
   

  
	
  9.03

  	
  Additional Provisions

  	
   

  
	
  9.04

  	
  Claim
  Notice; Definitions; Third Party Claim Procedures

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  SHAREHOLDERS’ REPRESENTATIVE

  
	
   

  	
   

  	
   

  
	
  10.01

  	
  Appointment of Shareholders’ Representative

  	
   

  
	
  10.02

  	
  Authority

  	
   

  
	
  10.03

  	
  Reliance

  	
   

  
	
  10.04

  	
  Indemnification of Parent, Sub and Their Affiliates

  	
   

  
	
  10.05

  	
  Indemnification of Shareholders’
  Representative

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  GENERAL PROVISIONS

  
	
   

  	
   

  	
   

  
	
  11.01

  	
  Notices

  	
   

  
	
  11.02

  	
  Interpretation

  	
   

  
	
  11.03

  	
  Counterparts

  	
   

  
	
  11.04

  	
  Entire Agreement

  	
   

  
	
  11.05

  	
  Governing
  Law

  	
   

  
	
  11.06

  	
  Enforcement
  of Agreement

  	
   

  
	
  11.07

  	
  Severability

  	
   

  
	
  11.08

  	
  Assignment

  	
   

  
	
  11.09

  	
  Amendment

  	
   

  

 

iii

 

EXHIBIT LIST

 

	
  EXHIBIT A

  	
   

  	
  Purchase Price Certificate

  
	
   

  	
   

  	
   

  
	
  EXHIBIT B

  	
   

  	
  Escrow Agreement

  
	
   

  	
   

  	
   

  
	
  EXHIBIT C

  	
   

  	
  Stock Restriction Agreement

  
	
   

  	
   

  	
   

  
	
  EXHIBIT D

  	
   

  	
  Employment Agreement

  
	
   

  	
   

  	
   

  
	
  EXHIBIT E

  	
   

  	
  Shareholder Representation Letter

  
	
   

  	
   

  	
   

  
	
  EXHIBIT F

  	
   

  	
  Stock Option Agreement

  
	
   

  	
   

  	
   

  
	
  EXHIBIT G

  	
   

  	
  Letter of Transmittal

  
	
   

  	
   

  	
   

  
	
  EXHIBIT H

  	
   

  	
  Current Geographic Markets

  

 

iv

 

AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF
MERGER (the “Agreement”) dated as of April
2, 2004, by and among Perficient, Inc., a Delaware corporation (“Parent”), Perficient Genisys, Inc., a Delaware
corporation and a wholly owned subsidiary of Parent (“Sub”), Genisys Consulting, Inc., an Illinois corporation
(the “Company”), and Jeffrey A.
Martini, Michael P. Reiss and David W. Stewart (each, a “Founder Shareholder” and collectively, the “Founder Shareholders”).

 

WHEREAS, the respective
Boards of Directors of Parent, Sub and the Company have determined that it is
advisable and in the best interests of their respective companies and their
shareholders to consummate the business combination transaction provided for
herein in which the Company will, subject to the terms and conditions set forth
herein, merge with and into Sub (the “Merger”);
and

 

WHEREAS, Parent, Sub, the
Company and the Founder Shareholders desire to make certain representations,
warranties and covenants in connection with the Merger; and

 

WHEREAS, the parties
hereto intend for the Merger to qualify, for federal income tax purposes, as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the “Code”).

 

NOW, THEREFORE, in
consideration of the mutual covenants, representations, warranties and
agreements contained herein, and intending to be legally bound hereby, the
parties agree as follows:

 

ARTICLE I

 

THE MERGER

 

1.01        The Merger.  Subject to the terms and conditions of this
Agreement, in accordance with the Delaware General Corporation Law (“DGCL”) and the Illinois Business Corporation Act of 1983
(“IBCA”), at the Effective Time
(as hereinafter defined), the Company shall merge with and into Sub.  Sub shall become the surviving corporation
(hereinafter sometimes called the “Surviving
Corporation”) in the Merger, and shall continue its corporate
existence under the laws of the State of Delaware.  The name of the Surviving Corporation shall be “Perficient
Genisys, Inc.”, a Delaware corporation. 
Upon consummation of the Merger, the separate corporate existence of the
Company shall terminate.

 

1.02        Plan of Merger.  This Agreement shall constitute an agreement
of merger for purposes of the DGCL and the IBCA.

 

1.03        Effective Time.  As promptly as practicable, but in no event
later than the third (3rd) business day after all of the conditions set forth
in ARTICLE VII shall have been
satisfied or, if permissible, waived by the party entitled to the benefit of
the same, the Company and Sub shall duly execute and file certificates/articles
of merger (collectively, the “Certificates of Merger”)
with the Secretary of State of the State of Delaware (the “Delaware Secretary”) in

 

1

 

accordance with the DGCL and
with the Secretary of State of the State of Illinois (the “Illinois Secretary”) in accordance with the IBCA.  The Merger shall become effective on the
date (the “Effective Date” or the “Closing Date”) and at the later of such time (the “Effective Time”) as the Certificates of Merger are filed
with the Delaware Secretary and the Illinois Secretary or at such later date
and time as is specified in such Certificates of Merger.  Subject to the terms and conditions of this
Agreement, the closing of the Merger (the “Closing”)
shall be held at the offices of Vinson & Elkins L.L.P., Terrace 7, 2801 Via
Fortuna, Suite 100, Austin, Texas 78746 or such other location as the parties
may mutually agree upon.

 

1.04        Effect of the Merger.  At the Effective Time, the effect of the
Merger shall be as provided herein and as set forth in Section 259 of the DGCL
and Section 11.50 of the IBCA.  Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, (a) all the property, rights, privileges, powers and franchises of the
Company shall vest in the Surviving Corporation, (b) all debts, liabilities,
obligations, restrictions, disabilities and duties of Sub and the Company shall
become the debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation and (c) the Surviving Corporation shall
remain a wholly-owned subsidiary of Parent.

 

1.05        Conversion of Company Common Stock.

 

(a)           At the Effective Time, each issued
and outstanding share of common stock, no par value per share, of the Company
(the “Company Common Stock”), immediately
prior to the Effective Time shall, by virtue of this Agreement and without any
action on the part of the holder thereof, be converted into the right to
receive and be exchangeable for (i) the Cash Consideration divided by the
number of shares of Company Common Stock outstanding as of the Closing Date,
and (ii) the Stock Consideration divided by the number of shares of Company
Common Stock outstanding as of the Closing Date.  The Cash Consideration and the Stock Consideration (collectively,
the “Merger
Consideration”) shall be subject to forfeiture and/or adjustment
as provided in Section 2.02 and Section 2.03.

 

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

 

(i)            “Cash
Consideration” means, subject to final determination based on
the Final Closing Date Balance Sheet (as defined in Section
2.03(a)), an amount of cash equal to (A) 20% of the excess of the Enterprise Value over the
Estimated Closing Date Company Tax Liability, (B) increased by the Estimated
Closing Date Cash, (C) decreased by the Estimated Closing Date Debt, and (D)
either (1) further decreased by the amount, if any, by which Estimated Closing
Date Net Working Capital is less than $1,210,000, or (2) further increased by
the amount, if any, by which Estimated Closing Date Net Working Capital is in
excess of $1,210,000.

 

(ii)           “Employee Stock Option Adjustment Amount” means $413,006, as calculated pursuant
to the Purchase Price Certificate attached hereto as Exhibit A.

 

(iii)          “Enterprise Value” means an amount
equal to $8,860,040, as calculated pursuant to the Purchase Price Certificate
attached hereto as Exhibit A.

 

2

 

(iv)          “Estimated
Closing Date Balance Sheet” means the estimated balance sheet as
at the close of business on the Closing Date, prepared in accordance with
generally accepted accounting principles (“GAAP”),
and in accordance with the same principles and methods followed in preparing
the Financial Statements referred to in Section
3.05 hereof, except that the Estimated Closing Date Balance Sheet
shall be prepared on an accrual basis method of accounting, in form and
substance reasonably acceptable to Parent, and delivered by the Company to
Parent no later than one (1) business days prior to the expected Closing Date.

 

(v)           “Estimated Closing Date Cash” means the amount of cash reflected on
the Estimated Closing Date Balance Sheet.

 

(vi)          “Estimated
Closing Date Company Tax Liability” means all  tax liabilities arising from the change in
the Company’s method of accounting from cash basis to accrual basis measured at
a tax rate of 38.5%.

 

(vii)         “Estimated
Closing Date Debt” means the amount of all interest-bearing
liabilities and tax-related liabilities of the Company, except for Estimated
Closing Date Company Tax Liability, as reflected on the Estimated Closing Date
Balance Sheet.

 

(viii)        “Estimated
Closing Date Net Working Capital” means the amount of all
accounts receivable, net, of the Company, increased by all pre-paid expenses of
the Company, less the amount of all liabilities (excluding Estimated Closing
Date Debt and the Estimated Closing Date Company Tax Liability) of the Company,
as reflected on the Estimated Closing Date Balance Sheet.

 

(ix)           “Excluded Liabilities” means any
Company liabilities related to James E. Sadowski, any Shareholder buy/sell
trust insurance, any Shareholder auto leases, any professional fees payable
with respect to the transactions contemplated by this Agreement (including any
such fees borne by the Company on behalf of the Shareholders), or any other
Shareholder-related liabilities which the parties mutually agree shall be
assigned to the Shareholders prior to the Closing.

 

(x)            “Parent Stock Per Share Price” means
the average closing price for the Parent’s outstanding common stock on the
Nasdaq SmallCap Market (“Nasdaq”) for the
thirty (30) consecutive trading days ending on the trading day immediately
before the Closing Date.

 

(xi)           “Stock
Consideration” means, subject to final determination based on
the Final Closing Date Balance Sheet (as defined in Section
2.03(a)), that number of shares of common stock, par value $0.001
per share, of the Company (“Parent Common Stock”)
equal to (A) 80% of the excess of the Enterprise Value over the Estimated
Closing Date Company Tax Liability, (B) decreased by the Employee Stock Option
Adjustment Amount, and (C) divided by the Parent Stock Per Share Price.

 

(c)           Each share of Company Common Stock
converted into the right to receive Merger Consideration pursuant to this ARTICLE I shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
certificate (each a “Certificate,” and
collectively, the “Certificates”)
previously representing any such shares of

 

3

 

Company Common Stock shall
thereafter represent the right to receive Merger Consideration, a portion of
which shall be subject to forfeiture or adjustment as provided in Section 2.02 and Section
2.03.

 

(d)           If, between the date of this Agreement
and the Effective Time, the outstanding shares of Parent Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization or exchange of shares or if a stock split, combination, stock
dividend, stock rights or dividend thereon shall be declared with a record date
within said period, the Parent Stock Per Share Price shall be correspondingly
adjusted, as applicable.  No fractional
shares of Parent Common Stock will be issued, provided, however, that the Company
shall provide cash in an amount equal to the value of such fractional share of
Parent Common Stock based upon the Parent Stock Per Share Price.

 

1.06        Cash Holdback Amount; Stock Holdback
Amount; Escrowed Shares.

 

(a)           Fifteen percent (15%) of the Cash
Consideration (the “Cash
Holdback Amount”) to be paid to the Shareholders at Closing
shall be held back by counsel for Parent, on behalf of Parent, until such time
as a Final Closing Date Balance Sheet has been determined pursuant to Section
2.03 hereof.

 

(b)           Five percent (5%) of the Stock
Consideration (the “Stock Holdback Amount”)
to be delivered to the Shareholders at Closing shall be held back by counsel
for Parent, on behalf of Parent, until such time as a Final Closing Date
Balance Sheet has been determined pursuant to Section 2.03 hereof.

 

(c)           Such number of shares of Parent
Common Stock to be issued to the Shareholders at Closing equal to fifteen
percent (15%) of the Enterprise Value divided by the Parent Stock Per Share
Price (the “Escrowed Shares”) shall be
held in escrow for a period of one (1) year from the Closing Date, subject to
the provisions of ARTICLE IX hereof,
pursuant to the terms and subject to the conditions set forth in an escrow
agreement to be entered into among the parties hereto and Continental Stock
Transfer & Trust Company, as Escrow Agent, pursuant to Section 7.02(m) hereof in the form attached
hereto as Exhibit B, with such
modifications as may be reasonably acceptable to the Company and Parent, as
requested by the Escrow Agent (the “Escrow
Agreement”).

 

1.07        Certificate of Incorporation.  Unless otherwise agreed to by the parties
prior to the Effective Time, at and after the Effective Time, the Certificate
of Incorporation of Sub shall be the Certificate of Incorporation of the
Surviving Corporation, until thereafter amended as provided by law and such
Certificate of Incorporation.

 

1.08        Bylaws.  Unless otherwise agreed to by the parties
prior to the Effective Time, at and after the Effective Time, the Bylaws of Sub
shall be the Bylaws of the Surviving Corporation, until thereafter amended as
provided by law, the Certificate of Incorporation of the Surviving Corporation
and such Bylaws.

 

1.09        Additional Actions.  If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any further
assignments or assurances in law or any other acts are necessary or desirable
(a) to vest, perfect or confirm, of record or otherwise, in the

 

4

 

Surviving Corporation, title to
and possession of any property or right of the Company acquired or to be
acquired by reason of, or as a result of, the Merger, or (b) otherwise to carry
out the purposes of this Agreement, the Company and its proper officers and
directors shall be deemed to have granted to the Surviving Corporation an
irrevocable power of attorney to execute and deliver all such proper deeds,
assignments and assurances in law and to do all acts necessary or proper to
vest, perfect or confirm title to and possession of such property or rights in
the Surviving Corporation and otherwise to carry out the purposes of this
Agreement; and the proper officers and directors of the Surviving Corporation
are fully authorized in the name of the Company or otherwise to take any and
all such action.

 

1.10        Accounting and Tax Treatment.  The parties to this Agreement intend that
the Merger shall be treated as a reorganization under Section 368(a) of the
Code.

 

ARTICLE II

 

PAYMENT OF MERGER CONSIDERATION

 

2.01        Exchange of Shares.

 

(a)           At the Effective Time, upon surrender
of all the Certificates representing all issued and outstanding shares of
Company Common Stock to Parent (or affidavits and bonds relating thereto in
accordance with Section 2.01(c)),
Parent shall deliver to each Shareholder such Shareholder’s pro rata portion of
the Merger Consideration that is not subject to hold back or placed in escrow
pursuant to Section 1.06 hereunder,
calculated in the manner set forth in Section 1.05
hereof.  At the Effective Time, (i) each
Shareholder will be deemed to have received and deposited with Parent each
Shareholder’s pro rata interest in the Cash Holdback Amount, subject to the
conditions contained in Section 1.06(a), and (ii) each Shareholder shall
also be deemed to have received such Shareholder’s proportionate share of the
Escrowed Shares, which shall be deposited in escrow in accordance and subject
to the conditions contained in Section 1.06(b) and
ARTICLE IX hereof and the Escrow
Agreement.

 

(b)           After the date of this Agreement,
there shall be no transfers on the stock transfer books of the Company of the
shares of Company Common Stock which were issued and outstanding immediately
prior to the date hereof.

 

(c)           In the event any Certificate shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen or destroyed
and, if required by Parent, the posting by such person of a bond in such amount
as Parent may direct as indemnity against any claim that may be made against it
with respect to such Certificate, Parent will deliver in exchange for such
lost, stolen or destroyed Certificate, the Merger Consideration specified in Section 2.01(a).

 

2.02        Stock Restriction Agreements.  Fifty
percent (50%) of the Stock Consideration (the “Restricted
Shares”) to be issued to each Shareholder at Closing shall be
subject to forfeiture for a period of three (3) years from the Closing Date
pursuant to the terms and conditions of a Stock Restriction Agreement to be
entered into by the Parent and such Shareholder, pursuant to Section 7.02
hereof, in the form attached hereto as Exhibit C (the

 

5

 

“Stock Restriction Agreement”).  Any forfeiture of Restricted Shares by a
Shareholder pursuant to this Section 2.02
shall be treated as an adjustment to the Stock Consideration payable to such
Shareholder only.

 

2.03        Adjustment of Merger Consideration.

 

(a)           As soon as practicable but in no
event later than thirty (30) days following the Closing Date, Parent, at its
expense, shall cause the preparation of a final balance sheet of the Company,
as at the close of business on the Closing Date (the “Final Closing Date Balance Sheet”), prepared in
accordance with GAAP and in accordance with the same principles and methods
followed in preparing the Financial Statements referred to in Section 3.05 hereof, except that the Final
Closing Date Balance Sheet shall be prepared on an accrual basis method of
accounting.  Parent shall share with the
Shareholders’ Representative (as defined Section 10.01) such detailed
calculations and supporting documents as the Shareholders’ Representative shall
reasonably request in connection with its review of any calculations made
thereunder.  The Shareholders’
Representative may submit to Parent, not later than ten (10) days from the
receipt of the Final Closing Date Balance Sheet from Parent, a list of any
components of the Final Closing Date Balance Sheet appearing thereon with which
the Shareholders’ Representative disagrees, if any (a “Dispute Notice”). 
If the Shareholders’ Representative does not issue a Dispute Notice
prior to such date, the Final Closing Date Balance Sheet, as supplied to the
Shareholders’ Representative, shall be deemed to have been accepted and agreed
to by the Shareholders’ Representative on behalf of the Shareholders, and shall
be final and binding on the parties to this Agreement.  In the event of a Dispute Notice by the
Shareholders’ Representative, Parent and the Shareholders’ Representative shall
thereafter have twenty (20) days to discuss and reach resolution on any items
of dispute.  Any items of dispute
regarding the Final Closing Date Balance Sheet which are not so resolved shall
be submitted to Deloitte (the “Arbitrating Accountant”)
or another nationally recognized so called “big-four” firm of public
accountants mutually acceptable to Parent and the Shareholders’ Representative,
who shall serve as an arbitrator hereunder, the expenses of which shall be
shared one-half by Parent and one-half by the Shareholders’ Representative, on
behalf of the Shareholders.  If Parent
and the Shareholders’ Representative are unable to agree on an Arbitrating
Accountant pursuant to the foregoing, each of (x) Parent and (y) the
Shareholders’ Representative shall, within thirty (30) days after delivery of
the Dispute Notice select a disinterested arbitrator with relevant experience
of its choice, and the two disinterested arbitrators so selected shall select,
within ten (10) days of the selection of such arbitrators, an Arbitrating
Accountant.  In connection with the
resolution of any dispute, the arbitrator or arbitrators shall have access to
all documents, records, work papers, facilities and personnel necessary to
perform its function as arbitrator.  The
arbitrator or arbitrators so selected shall render a written decision as
promptly as practicable, but in no event later than twenty (20) days after
submission of the matter to the Arbitrating Accountant.  The decision of the arbitrator shall be
final and binding upon the parties, and judgment may be entered on such
decision in a court of competent jurisdiction. 
To the extent not otherwise provided herein, the commercial arbitration
rules of the American Arbitration Association as in effect at the time of any
arbitration shall govern such arbitration in all respects.  The determination of such firm with respect
to any and all disputes shall be conclusive and binding upon all parties.

 

(b)           If the Cash Consideration, as finally
determined pursuant to the Final Closing Date Balance Sheet, exceeds the Cash
Consideration determined pursuant to the

 

6

 

Estimated Closing Date Balance
Sheet delivered to Parent prior to Closing, Parent shall pay the difference in
cash to the Shareholders, together with the Cash Holdback Amount, pro rata
based on the number of shares of Company Common Stock held by each Shareholder
immediately prior to the Closing, within ten (10) days after the Final Closing
Date Balance Sheet is determined.  If
the Cash Consideration, as finally determined pursuant to the Final Closing
Date Balance Sheet, is less than the Cash Consideration determined pursuant to
the Estimated Closing Date Balance Sheet, Parent shall deduct the difference from
the Cash Holdback Amount and pay the remaining balance, if any, of the Cash
Holdback Amount to the Shareholders, pro rata based on the number of shares of
Company Common Stock held by each Shareholder immediately prior to the Closing,
within ten (10) days after the Final Closing Balance Sheet is determined.  To the extent the Cash Holdback Amount is
insufficient to satisfy such difference to be retained by Parent, the
Shareholders shall be jointly and severally liable to Parent for the amount
such difference exceeds the Cash Holdback Amount.

 

(c)           If the Stock Consideration, as
finally determined pursuant to the Final Closing Date Balance Sheet, exceeds
the Stock Consideration determined pursuant to the Estimated Closing Date
Balance Sheet delivered to Parent prior to Closing, Parent shall pay the
difference in Parent Common Stock to the Shareholders, together with the Stock
Holdback Amount, pro rata based on the number of shares of Company Common Stock
held by each Shareholder immediately prior to the Closing, within ten (10) days
after the Final Closing Date Balance Sheet is determined.  If the Stock Consideration, as finally
determined pursuant to the Final Closing Date Balance Sheet, is less than the
Stock Consideration determined pursuant to the Estimated Closing Date Balance
Sheet, Parent shall deduct the difference from the Stock Holdback Amount and
deliver the remaining balance, if any, of the Stock Holdback Amount to the
Shareholders, pro rata based on the number of shares of Company Common Stock held
by each Shareholder immediately prior to the Closing, within ten (10) days
after the Final Closing Balance Sheet is determined.  To the extent the Stock Holdback Amount is insufficient to
satisfy such difference to be retained by Parent, the Shareholders shall be
jointly and severally liable to Parent for the amount such difference exceeds
the Stock Holdback Amount.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

OF THE COMPANY AND THE SHAREHOLDERS

 

The Company and the
Founder Shareholders represent and warrant to Parent and Sub that the
statements contained below are true and correct, except as set forth in the
disclosure schedule (the “Disclosure Schedule”)
delivered by the Company and the Founder Shareholders to Parent and Sub, on the
date hereof and as of the Effective Date. 
Descriptive headings and cross-references in the Disclosure Schedule are
inserted for reference purposes and for convenience of the reader only and
disclosure in one section shall constitute disclosure for all sections;
provided, however, that the listing of a contract, license, agreement or
commitment on the Disclosure Schedule shall not in itself be sufficient to
disclose any breach, termination, dispute, investigation or similar matter
relating thereto.

 

If the disclosure
provided by the Company and the Founder Shareholders in the Disclosure Schedule
is in greater detail than is required by the particular representation and

 

7

 

warranty of the Company and
Founder Shareholders in ARTICLE III of
the Agreement, such disclosure is not an admission by the Company and Founder
Shareholders that they believe the disclosed information is material.  Furthermore, a threshold of materiality
being provided by the Company and Founder Shareholders on a particular section
of the Disclosure Schedule is not intended to be an indication of the threshold
of materiality for any other section of the Disclosure Schedule.  Nothing in the Disclosure Schedule
constitutes an admission of any liability or obligation of the Company and
Founder Shareholders to any third party or an admission against the Company’s
and Founder Shareholders’ interest for any reason other than as set forth in
their Agreement. For purposes of this
Agreement, “Company Material Adverse Effect”
shall mean a material, adverse effect on the Company, its business or financial
condition, taken as a whole.  When used
herein, the term “to the knowledge of the Company
and the Founder Shareholders” shall mean the actual knowledge of
the Founder Shareholders after having conducted a commercially reasonable
inquiry.

 

3.01        Corporate Organization and
Qualification.

 

(a)           The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois.  The Company has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification
necessary.  The Articles of
Incorporation and Bylaws of the Company, copies of which have previously been
delivered to Parent, are true, accurate and complete copies of such documents
as in effect as of the date of this Agreement.

 

(b)           The Company has no direct or indirect
Subsidiaries.  The Company does not own,
control or hold with the power to vote, directly or indirectly of record,
beneficially or otherwise, any capital stock or any equity or ownership
interest in any corporation, partnership, association, joint venture or other
entity, except for less than five percent (5%) of any equity security
registered under the Exchange Act.  As
used in this Agreement, the word “Subsidiary”
means any corporation, partnership, limited liability company, or other
organization, whether incorporated or unincorporated, which is or was
consolidated with such party or with which such party is or was consolidated
for financial reporting purposes.

 

(c)           The minute books of the Company
contain records of all actions taken at meetings of, and corporate actions or
written consents taken by its shareholders and board of directors (including
committees thereof).

 

3.02        Capitalization.

 

(a)           The authorized capital stock of the
Company consists of 5,000,000 shares of Company Common Stock.  As of the date of this Agreement, there are
364,825.44 shares of Company Common Stock issued and outstanding all of which
are owned by the holders and in the amounts as set forth in Schedule 3.02 annexed hereto (the “Shareholders”). 
All of the issued and outstanding shares of Company Common Stock have
been duly authorized and validly issued and are fully paid, non-assessable and
free of preemptive rights.  Except as
set forth in

 

8

 

Schedule 3.02 hereto, the Company does
not have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any shares of Company Common Stock or any other equity security of
the Company or any securities representing the right to purchase or otherwise
receive any shares of Company Common Stock or any other equity security of the
Company other than as provided for in this Agreement.  There are no bonds, debentures, notes, shares of preferred stock
or other indebtedness of the Company having the right to vote (or convertible
into, or exchangeable for securities having the right to vote) on any matters
on which the Shareholders of the Company may vote.

 

(b)           Except as disclosed on Schedule 3.02(b) hereto, there are no
agreements or understandings, with respect to the voting of any shares of
Company Common Stock or which restrict the transfer of such shares, to which
the Company is a party and there are no such agreements or understandings to
which the Company is a party with respect to the voting of any such shares or
which restrict the transfer of such shares, other than applicable federal and
state securities laws.

 

(c)           Except as set forth on Schedule 3.02(c), all dividends on Company
Common Stock which have been declared prior to the date of this Agreement have
been paid in full.

 

3.03        Authority; No Violation.

 

(a)           The Company has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.  The
execution and delivery of this Agreement and the consummation by the Company of
the transactions contemplated by this Agreement have been duly and validly
authorized by all requisite corporate action on the part of the Company, have
been approved by the vote or consent of the Shareholders of the Company
required by the Company’s Articles of Incorporation and Bylaws and, except for
the filing of the Certificates of Merger, no other corporate proceedings on the
part of the Company are necessary to approve this Agreement and to consummate
the transactions contemplated hereby. 
This Agreement has been duly and validly executed and delivered by the
Company and each of the Founder Shareholders and constitutes a valid and
binding obligation of the Company and each of the Founder Shareholders,
enforceable against each of the Company and each Founder Shareholder in
accordance with its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency (including, without limitation, all laws relating to
fraudulent transfers), moratorium or similar laws affecting creditors’ rights
and remedies generally and subject, as to enforceability, to the effect of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

 

(b)           Neither the execution and delivery of
this Agreement by the Company, nor the consummation by the Company of the
transactions contemplated hereby, nor compliance by the Company with any of the
terms or provisions, hereof, will (i) violate, conflict with or result in a
breach of any provision of the Articles of Incorporation or Bylaws of the
Company, (ii) to the knowledge of the Company and the Founder Shareholders,
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree, license or injunction applicable to the Company or any of its properties
or assets, or (iii) violate, conflict with, result in a breach of any

 

9

 

provisions of or the loss of
any benefit under, constitute a default (or any event, which, with notice or
lapse of time, or both would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, material
agreement or other material instrument or obligation to which the Company is a
party, or by which the Company or any of its properties or assets may be bound
or affected.

 

3.04        Consents and Approvals.  Except for (a) the filing of the
Certificates of Merger with the Delaware Secretary and the Illinois Secretary,
respectively, pursuant to the DGCL and the IBCA, respectively, to effect the
Merger, (b) such filings as may be necessary as a result of any facts or
circumstances relating solely to Parent or Sub, and (c) such filings,
authorizations, consents or approvals as may be set forth in the Disclosure
Schedule hereto, no consents or approvals of, or filings or registrations with,
any court, administrative agency, regulatory agency or commission or other
governmental authority or instrumentality (each a “Governmental
Entity”) or with any third party are necessary in connection
with the execution and delivery by the Company of this Agreement and the
consummation by the Company of the Merger and the other transactions
contemplated hereby.

 

3.05        Financial Statements.

 

(a)           Attached to Schedule 3.05(a) are copies of the unaudited
balance sheet of the Company as at December 31, 2003, and the related statement
of income for the fiscal year ended December 31, 2003, and the unaudited
balance sheet of the Company dated as of January 31, 2004 and the related
statement of income for the twelve (12) month period ended January 31,
2004.  All such financial statements
delivered under this Section 3.05(a) to
Parent shall be collectively referred to herein as the “Financial Statements.” 
The Financial Statements have been prepared by the Company as of their
respective dates in accordance with GAAP during the periods involved (except as
may be indicated therein or in the notes thereto), subject to the absence of
notes and to year-end adjustments, and fairly present the financial position of
the Company as of the dates thereof and the income of the Company for the
periods then ended.

 

(b)           Except (i) as set forth in the
Disclosure Schedule hereto, (ii) for liabilities incurred since
January 31, 2004 in the ordinary course of business consistent with past
practice, or (iii) for liabilities contemplated herein or in connection
herewith, the Company does not have any liabilities or obligations of any
nature whatsoever (whether absolute, accrued, contingent or otherwise) which
are not adequately reserved or reflected on the balance sheet of the Company as
at January 31, 2004.

 

(c)           Schedule
3.05(c) contains the Company’s accounts receivable report as of
January 31, 2004, which report is true and accurate in all material respects
and has been prepared in accordance with the Company’s normal practice.  The accounts receivable reflected in the
January 31, 2004 report contained in Schedule
3.05(c)(i) and all the accounts receivable arising after such date
and prior to the Effective Time are valid, genuine and collectible, and arose
from bona fide transactions in the ordinary course of the Company’s
business.  No account receivable has
been assigned or pledged to any other person and no defense or set off to any
such account

 

10

 

receivable has to the knowledge
of the Company and the Founder Shareholders, been asserted by the account
obligor.  The allowance for bad debt for
the Company’s accounts receivable set forth on the January 31, 2004
unaudited balance sheet is in accordance with GAAP and in accordance with the
historical accounting practices of the Company.

 

(d)           Except as set forth on Schedule 3.05(d), since January 31,
2004, the Company has not declared or paid any dividends, or made any other
distribution on or in respect of, or directly or indirectly purchased, retired,
redeemed or otherwise acquired any shares of the capital stock of the Company
or issued or sold any such shares of capital stock.

 

3.06        Absence of Certain Changes or Events.  Since January 31, 2004, there has not
been any Company Material Adverse Effect (including without limitation any
loss, or event that might result in the loss, of employees or customers) and,
to the knowledge of the Company and the Founder Shareholders, no fact or
condition specific to the Company exists which is reasonably likely to cause
such a Company Material Adverse Effect in the foreseeable future.

 

3.07        Legal Proceedings.  The Company is not a party to any, and there
are no pending or, to the knowledge of the Company and the Founder
Shareholders, threatened, legal, administrative, arbitrable or other
proceedings, claims, actions or governmental or regulatory investigations of
any nature against or affecting the Company or any property or asset of the
Company, before any court, arbitrator, administrative agency or Governmental
Entity, domestic or foreign.  To the
knowledge of the Company and the Founder Shareholders, neither the Company nor
any property or asset of the Company is subject to any order, writ, judgment,
injunction, decree, determination or award which restricts its ability to
conduct business in any area in which it presently does business.

 

3.08        Taxes and Tax Returns.

 

(a)           For purposes of this Agreement, the
terms “Tax” and “Taxes” shall mean any and all taxes, charges, fees,
levies or other assessments, including, without limitation, all net income,
gross income, gross receipts, premium, sales, use, ad valorem, value added,
transfer, franchise, profits, license, withholding, payroll, employment,
excise, estimated, severance, stamp, occupation, property or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties (including penalties for failure to file in accordance with
applicable information reporting requirements), and additions to tax by any
authority, whether federal, state, local, domestic or foreign.  The term “Tax
Return” shall mean any report, return, form, declaration or
other document or information required to be supplied to any authority in
connection with Taxes.

 

(b)           The Company has filed all Tax Returns
that were required to be filed. 
Assuming that the transactions contemplated by this Agreement will
qualify for tax-free reorganization treatment under Code Section 368(a)(1) (by
reason of Code Section 368(a)(2)(D)), (i) all such Tax Returns were when filed,
and continue to be, correct and complete in all material respects, and (ii) all
Taxes owed by the Company (whether or not shown on any Tax Return) for any
taxable period or portion thereof ending on or before the Closing Date have
been timely paid or adequate provision has been or will be made therefor in the
Final Closing Date Balance Sheet.  The
Company currently is not the beneficiary of any extension of time

 

11

 

within which to file any Tax
Return.  No claim has ever been made by
an authority in a jurisdiction where the Company does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction.  There are no liens with respect to Taxes on
any of the assets or property of the Company.

 

(c)           The Company has withheld or collected
and paid all Taxes required to have been withheld or collected and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder, any other third party, or otherwise.

 

(d)           There is no dispute or claim
concerning any Tax liability of the Company either (i) claimed or raised by any
authority in writing or (ii) as to which the Company or the directors, officers
and employees responsible for Tax matters of the Company, or the Founder
Shareholders, has knowledge.  To the
knowledge of the Company and the Founder Shareholders, there are no proceedings
with respect to Taxes pending.

 

(e)           Schedule
3.08(e) annexed hereto sets forth an accurate, correct and complete
list of all federal, state, local, and foreign Tax Returns filed with respect
to the Company for taxable periods ended on or after December 31, 1999 and
prior to the date hereof, indicates those Tax Returns that have been audited
and indicates those Tax Returns that currently are the subject of audit.  The Company has delivered to Parent correct
and complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by or on behalf of the
Company since December 31, 1999 and prior to the date hereof.

 

(f)            No claim, assessment, deficiency,
audit, investigation, or administrative proceeding with respect to Taxes or any
Tax Return of the Company is pending or, to the knowledge of the Company and
the Founder Shareholders, has been threatened.

 

(g)           The Company has not waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.

 

(h)           The Company has not agreed to make,
nor is it required to make, any adjustments under Section 481(a) of the Code by
reason of a change in accounting method or otherwise, except for the change
from a cash basis method of accounting to an accrual basis method of accounting
as a result of the Merger contemplated by this Agreement.

 

(i)            The Company is not a party to any
contract, arrangement or plan that has resulted or could result, separately or
in the aggregate, in the payment of any “excess parachute payments” within the
meaning of Section 280G of the Code.

 

(j)            The Company has not been a United
States real property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).

 

(k)           The Company is not a party to any
agreement, whether written or unwritten, providing for the payment of Tax
liabilities, payment for Tax losses, entitlements to refunds or similar Tax
matters.

 

12

 

(l)            No ruling with respect to Taxes
relating to the Company has been requested by or on behalf of the Company.

 

(m)          The Company (i) has never been a
member of an affiliated group (within the meaning of Section 1504 of the Code,
or any similar group as defined for state, local or foreign tax purposes)
filing a consolidated federal (or combined or unitary state, local or foreign)
income Tax Return or (ii) does not have any liability for the taxes of any
Person (other than the Company’s) under Treasury Regulations Section 1.1502-6
(or any similar provision of state, local or foreign Law), as a transferee or
successor, by contract, or otherwise.

 

(n)           The unpaid Taxes of the Company (i)
did not, as of the most recent fiscal quarter end, exceed the reserves for Tax
liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) on its books at such time and
(ii) do not exceed the reserve as adjusted for the passage of time through the
Effective Date in accordance with the past custom and practice of the Company
in filing its Tax Returns.

 

(o)           The Company has been a validly
electing S corporation within the meaning of Sections 1361 and 1362 of the Code
at all times during its existence and will continue to be a validly electing S
corporation until terminated by reason of the transactions contemplated by this
Agreement.  The company does not have
and has never had a “qualified subchapter S subsidiary” (“QSSS”) within the meaning of Section 1361(b)(3)(B) of
the Code.  Except as set forth on Schedule 3.08(o) hereto, neither the Company
nor any of its subsidiaries (a) is or has ever been liable for, or taken any
action prior to the Effective Time that has or could result in the imposition
or incurrence of any liability for, any Tax under Section 1374 of the Code or
any similar state or local tax law or (b) will become liable for any Tax under
Section 1374 of the Code or any similar state or local law as a result of the
consummation of the transactions contemplated by this Agreement.

 

(p)           Except as set forth on Schedule
3.08(p) hereto, the Company will not be required to include in any period
ending after the Closing Date any income that accrued in a prior period but was
not recognized in any prior period as a result of the installment method of
accounting, the completed contract method of accounting, the long-term contract
method of accounting or the cash method of accounting.

 

(q)           Neither the Company nor the Founder
Shareholders has taken or agreed to take any action that would prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.

 

(r)            Except as set forth on Schedule
3.08(r) hereto, the Company has not redeemed and will not redeem, and
persons related to the Company (within the meaning of Treasury Regulations
Section 1.368-1(e)(3)) have not acquired and will not acquire, any Company
stock, and the Company has not made any distributions with respect to its
stock, prior to and in connection with the Merger, that would be treated as
other property or money received within the meaning of Treasury Regulations
Section 1.368-1(e)(1)(ii).

 

(s)           Except for Parent Common Stock that
may be reacquired pursuant to the Escrow Agreement, to the knowledge of the
Company and the Founder Shareholders, there is no

 

13

 

plan or intention on the part
of any stockholder of the Company, directly or indirectly, to sell, exchange,
transfer, or otherwise dispose of, to Parent, Sub, or any persons related to
Parent or Sub within the meaning of Section 1.368-1(e)(3) of the Treasury
Regulations, any shares of Parent Common Stock received in the Merger.

 

(t)            In the Merger, Sub will acquire at
least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held
by the Company immediately prior to the Merger.  For the purposes of this representation, the following assets
will be treated as property held by the Company immediately prior to the Merger
but not acquired in the Merger:  (i)
assets disposed of by Company (other than assets transferred by the Company to
Sub in the Merger) prior or subsequent to the Merger and in contemplation thereof
(including without limitation any asset disposed of by Company, other than in
the ordinary course of business, pursuant to a plan or intent existing during
the period ending at the Effective Time and beginning with the commencement of
negotiations (whether formal or informal) with Parent regarding the Merger (the
“Pre-Merger Period”)),
(ii) assets used by the Company to pay dissenters, to pay stockholders who
receive cash or other property in the Merger, or to pay other expenses or
liabilities incurred in connection with the Merger, and (iii) assets used to
make distributions (other than distributions of the Company’s accumulated
adjustments account balance), redemptions or other payments in respect of the
Company capital stock or rights to acquire such stock (including payments
treated as such for tax purposes) that are made in contemplation of the Merger
or related thereto.

 

(u)           The Company has made no transfer of
any of its assets in contemplation of the Merger or during the Pre-Merger
Period.

 

(v)           The Company and the Shareholders will
each pay separately its or their own expenses relating to the Merger, other
than the Company expenses solely and directly related to the Merger in
accordance with Rev. Rul. 73-54, 1973-1 C.B. 187.

 

(w)          The Company is not and will not be at
the Effective Time an investment company within the meaning of Section
368(a)(2)(F)(iii) and (iv) of the Code.

 

(x)            At the Effective Time, the fair
market value of the assets of the Company will exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which such assets are
subject.

 

(y)           The Company is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.

 

(z)            The liabilities of the Company
assumed by Sub and the liabilities to which the Company assets transferred to
Sub in the Merger are subject have been incurred by the Company in the ordinary
course of its business.

 

(aa)         None of the compensation received, or
to be received, by any shareholder-employees of the Company will be separate
consideration for, or allocable to, any of their shares of Company Common
Stock; none of the shares of Parent Stock received by any shareholder-employees
of the Company will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any shareholder-employees of
the Company will be for

 

14

 

services actually rendered, or
to be rendered, and will be commensurate with amounts paid to third parties
bargaining at arm’s length for similar services.

 

(bb)         The Company is participating in the
Merger for valid business purposes and not for the purpose of tax avoidance,
and the terms of the Merger are the product of arm’s length negotiations.

 

3.09        Employee Benefit Plans.

 

(a)           Schedule
3.09 hereto sets forth a true and complete list of all Plans
maintained or contributed to by the Company during the five (5) years preceding
this Agreement.  The term “Plans” for purposes of this ARTICLE
III means all “employee benefit plans” (as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974 as amended (“ERISA”) and each other plan, arrangement, agreement or
policy relating to employment, bonus, deferred compensation, retirement, profit
sharing, 401(k), stock option, stock purchase, employee stock ownership, stock
appreciation rights, savings, severance, termination, collective bargaining,
group insurance, fringe benefit, and other employee benefit, incentive and
welfare plans, written or oral, and all trusts related thereto, that are
maintained or contributed to, or that were maintained or contributed to at any
time during the five (5) years preceding the date of this Agreement, by the
Company, or by any trade or business, whether or not incorporated (an “ERISA Affiliate”), all of which together with the
Company would be deemed a “single employer” within the meaning of Section 4001
of ERISA.

 

(b)           The Company has heretofore delivered
to Parent true and complete copies of each of the Plans and all related
documents, including but not limited to (i) all required Forms 5500 and all
related schedules for such Plans (if applicable) for each of the last two (2)
years, (ii) the actuarial report for such Plan (if applicable) for each of
the last two (2) years, and (iii) the most recent determination letter from the
IRS (if applicable) for such plan.

 

(c)           Except as set forth in Schedule 3.09, (i) each of the Plans has been
operated and administered in all material respects in accordance with
applicable laws, including but not limited to ERISA and the Code, (ii) each of
the Plans intended to be “qualified” within meaning of Section 401(a) of the
Code has been maintained so as to qualify from the effective date of such Plan
to the Effective Time, (iii) with respect to each Plan which is subject to
Title IV of ERISA, the present value of “benefit liabilities” (within the
meaning of Section 4001(a)(16) of ERISA) under such Plan, based upon the
actuarial assumptions currently used by the Plan for IRS funding purposes did
not, as of its latest valuation date, exceed the then current value of the
assets of such Plan allocable to such accrued benefits, and there has been no
“accumulated funding deficiency” (whether or not waived), (iv) no Plan provides
benefits, including without limitation death, medical or other benefits
(whether or not insured), with respect to current or former employees of the
Company or any ERISA Affiliate beyond their retirement or other termination of
service, other than (A) coverage mandated by applicable law, (B) life insurance
death benefits payable in the event of the death of a covered employee,
(C) disability benefits payable to disabled former employees, (D) death
benefits or retirement benefits under any “employee pension plan,” as that term
is defined in Section 3(2) of ERISA, (E) deferred compensation benefits accrued
as liabilities on the books of the Company, any of its Subsidiaries or any
ERISA Affiliate or (F) benefits the full cost of which is borne by the current

 

15

 

or former employee (or his
beneficiary), (v) with respect to each Plan subject to Title IV of ERISA no
liability under Title IV of ERISA has been incurred by the Company or any ERISA
Affiliate that has not been satisfied in full, no condition exists that
presents a material risk to the Company or any ERISA Affiliate of incurring a
material liability to or on account of such Plan, and there has been no
“reportable event” (within the meaning of Section 1013 of ERISA and the
regulations thereunder), (vi) none of the Company or any ERISA Affiliate has
ever maintained or contributed to a “multiemployer pension plan,” as such term
is defined in Section 3(37) of ERISA, (vii) all contributions or other amounts payable
by the Company as of the Effective Time with respect to each Plan in respect of
current or prior plan years have been paid or accrued in accordance with GAAP
and Section 412 of the Code, (viii) none of the Company or any ERISA Affiliate
has engaged in a transaction in connection with which the Company, any of its
Subsidiaries or any ERISA Affiliate has any material liability for either a
civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax
imposed pursuant to Section 4975 or 4976 of the Code, (ix) consummation of the
transactions contemplated hereby will not cause any amounts payable under any
of the Plans to fail to be deductible for federal income tax purposes under
Sections 280G or 162(m) of the Code, and (x) there are no pending, or, to
the knowledge of the Company and the Founder Shareholders, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf of or
against any of the Plans or any trusts related thereto, and to the knowledge of
the Company and the Founder Shareholders, no Plan is under governmental
investigation or audit or under consideration with the Internal Revenue Service
under the Employee Plans Compliance Resolution System.

 

(d)           With respect to any Plan that is a
welfare plan (within the meaning of Section 3(l) of ERISA) (i) no such Plan is
funded through a “welfare benefit fund,” as such term is defined in Section
419(a) of the Code, and (ii) each such Plan complies in all material respects
with the applicable requirements of Section 4980B(f) of the Code, Part 6 of
Subtitle B of Title I of ERISA and any applicable state continuation coverage
requirements (“COBRA”).

 

(e)           Except as prohibited by law
(including Section 411(d)(6) of the Code), each Plan may be amended,
terminated, modified or otherwise revised by the Company or its ERISA
Affiliates as of the Effective Time to eliminate, without material effect, any
and all future benefit accruals under any Plan (except claims incurred under
any welfare plan).

 

(f)            The Company has not entered into,
adopted or amended in any respect any collective bargaining agreement or
adopted or amended any bonus, profit sharing, compensation, stock option or
other similar plan, agreement, trust, fund or arrangement for the benefit of
employees (whether or not legally binding).

 

(g)           The consummation of the transaction
contemplated herein will not (i) entitle any current or former employee of
the Company to severance benefits or any other compensation (including, without
limitation, golden parachute or bonus), except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting of any such
benefits, or increase the amount of compensation due any such employee or
service provider.

 

(h)           The Company has no material unfunded
liabilities for benefits or claims accrued pursuant to any Plan, which Plan is
not intended to be qualified under Section 401(a) of the Code.

 

16

 

3.10        Compliance with Applicable Law; Certain
Agreements; Licensing.  Except as set forth in Schedule 3.10(i) hereto, and solely with
respect to 3.10(a) below which shall be to the knowledge of the Company and the
Founder Shareholders, the Company holds all licenses, franchises, permits and
authorizations necessary for the lawful conduct of its business under and
pursuant to all, and has complied with and is not in conflict with, or in
default or violation of any (a) statute, code, ordinance, law, rule,
regulation, order, writ, judgment, injunction or decree, published policies and
guidelines of any Governmental Entity, applicable to the Company or by which
any property or asset of the Company is bound or affected or (b) any note,
bond, mortgage, indenture, deed of trust, lease, license, permit, franchise,
material agreement or other material instrument or obligation to which the
Company is a party or by which the Company or any property or asset of the
Company is bound or affected; and, to the knowledge of the Company and the
Founder Shareholders, neither the Company nor any Founder Shareholder has
received notice of, any violations of any the above.  Schedule 3.10(ii) hereto
contains a list of all federal and state licenses, franchises, permits and
authorizations necessary for the lawful conduct of the Company’s businesses.

 

3.11        Certain Contracts.

 

(a)           Except as set forth in Schedule 3.11(a) hereto, the Company is not a
party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral): (i) with respect to the employment of any director,
officer or employee, or with respect to the employment of any consultant which
cannot be terminated without payment, (ii) which, upon the consummation of the
transactions contemplated by this Agreement, will result in any payment
(whether of severance pay or otherwise) becoming due from the Company to any
officer or employee thereof, (iii) which is a material contract (as defined in
Item 601(b)(10) of Regulation S-K promulgated by the Securities and Exchange
Commission) (“SEC”) to be performed after
the date of this Agreement, (iv) which is a consulting or other agreement
(including agreements entered into in the ordinary course and data processing,
software programming and licensing contracts) not terminable on ninety (90)
days or less notice, (v) which restricts the conduct of any line of business by
the Company, (vi) with or to a labor union or guild (including any collective
bargaining agreement), or (vii) with respect to any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan any of
the benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by this
Agreement.  Other than as set forth in
the Disclosure Schedule or in this Agreement, no benefits under any of such
plans will be increased, or the vesting of the benefits of which, will be accelerated
by the occurrence of any of the transactions contemplated by this
Agreement.  The Company has previously
delivered to Parent true and complete copies of all such employment, consulting
and deferred compensation agreements which are in writing and to which the
Company is a party.  Each contract,
arrangement, commitment or understanding of the type described in this Section
is referred to herein as a “Company Contract”.

 

(b)           Except as set forth in Schedule 3.11(b) hereto, (i) each Company
Contract is legal, valid and binding upon the Company and in full force and
effect, subject to the effect of any applicable bankruptcy, reorganization,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), moratorium or similar laws affecting creditors’ rights and

 

17

 

remedies generally and subject,
as to enforceability, to the effect of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law), (ii) the Company has performed all material obligations required to
be performed by it to date under each such Company Contract, (iii) to the
knowledge of the Company and the Founder Shareholders, no party is in breach or
default and (iv) no event or condition exists which constitutes or, after
notice or lapse of time or both, would constitute, a material default on the
part of the Company under any such Company Contract.

 

3.12        Agreements with Regulatory Agencies.  To the knowledge of the Company and the
Founder Shareholders, the Company is not subject to any cease-and-desist or
other order issued in writing by, or is a party to any written agreement,
consent agreement or memorandum of understanding, commitment letter, suspension
order, or similar undertaking (each, a “Regulatory
Agreement”) with any regulatory agency or any other Governmental
Entity, nor has the Company been notified in writing or, to the knowledge of
the Company and the Founder Shareholders, otherwise by any regulatory agency or
any other Governmental Entity that it is considering issuing or requesting any
Regulatory Agreement.

 

3.13        Environmental Matters.

 

(a)           The Company is, and has been, in
material compliance with all applicable environmental laws and with all rules,
regulations, standards and requirements of the United States Environmental
Protection Agency (the “EPA”) and of state
and local agencies with jurisdiction over pollution or protection of the
environment.

 

(b)           There is no suit, claim, action or
proceeding pending or, to the knowledge of the Company and the Founder
Shareholders, threatened, before any Governmental Entity or other forum in
which the Company has been or, with respect to threatened proceedings, may be
named as a defendant, responsible party or potentially responsible party in any
way relating to any environmental law, rule, regulation, standard or
requirement.

 

3.14        Properties.

 

(a)           The Company does not own nor have any
ownership interest in any real property.

 

(b)           Except as set forth in Schedule 3.14 hereto, to the knowledge of the
Company and the Founder Shareholders, all buildings and structures leased and
used by the Company conform in all material respects with all applicable
ordinances, codes or regulations.

 

(c)           Schedule
3.14 contains a true, complete and correct list of all leases
pursuant to which the Company leases any real or personal property, either as
lessee or as lessor which leases call for an annual payment in excess of
$10,000 (the “Company Leases”).  Assuming due authorization of the other
party or parties thereto, each of the Company Leases is valid and binding on
the Company and, to the knowledge of the Company and the Founder Shareholders,
valid and binding on and enforceable against all other respective parties to
such leases, in accordance with their respective terms, subject to the effect
of any applicable bankruptcy, reorganization, insolvency (including, without
limitation, all laws relating to fraudulent transfers), moratorium or similar
laws affecting creditors’ rights and remedies

 

18

 

generally and subject, as to
enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
 There are not under such Company Leases
any existing material breaches, defaults or events of default by the Company
nor has the Company received notice of, or made a claim with respect to, any
breach or default by any other party to such Company Leases.  The Company enjoys quiet and peaceful
possession of all such leased properties occupied by it as lessee.

 

3.15        Insurance.  The Company has made available to Parent
true and complete copies of all policies of insurance of the Company currently
in effect, a list of which is attached as Schedule
3.15.  All of the policies
relating to insurance maintained by the Company with the respect to its
properties and the conduct of its business (or any comparable policies entered
into as a replacement thereof) are in full force and effect and the Company has
not received any notice of cancellation with respect thereto.  All life insurance policies on the lives of
any of the current and former officers of the Company which are maintained by
the Company or which are otherwise included as assets on the books of the
Company are, or will at the Effective Time be, owned by the Company, free and
clear of any claims thereon by the officers or members of their families,
except with respect to the death benefits thereunder, as to which the Company
agrees that there will not be an amendment prior to the Effective Time without
the consent of Parent.  The Company does
not have any liability for unpaid premium or premium adjustments not properly
reflected on the Company’s January 31, 2004 balance sheet.  All claims under any policy or bond have
been duly and timely filed.

 

3.16        Labor Matters.  The Company is not a party to any collective
bargaining or other labor union or guild contract nor has the Company been
approached by any collective bargaining or other labor union or guild seeking
to enter into a contract with the Company. 
There is no pending or, to the knowledge of the Company or the Founder
Shareholders, threatened, labor dispute, strike or work stoppage against the
Company.  Neither the Company nor any of
its representatives or employees has committed any unfair labor practices in
connection with the operation of the business of the Company, and there is no
pending or, to the knowledge of the Company or the Founder Shareholders,
threatened charge or complaint against the Company by the National Labor
Relations Board or any comparable state agency.  To the knowledge of the Company and the Founder Shareholders, the
Company has not hired any illegal aliens as employees.  The Company has not discriminated on the
basis of race, age, sex or otherwise in its employment conditions or practices
with respect to its employees.  There
are no race, age, sex or other discrimination complaints pending or, to the
knowledge of the Company and the Founder Shareholders, threatened against the
Company by any employee, former or current, before any domestic (federal, state
or local) or foreign board, department, commission or agency nor, to the
knowledge of the Company and the Founder Shareholders, does any basis therefor
exist.

 

3.17        Intellectual Property.  The Company owns or possesses a license or
other right to use without payment of any amount all patents, copyrights, trade
secrets, trade names, service marks, trademarks, domain names, know-how, software
and other intellectual property necessary to the operation of its business as
presently conducted (collectively, the “Intellectual
Property Rights”).  Schedule 3.17 sets forth a list of all
patents, pending patent applications, registered copyrights, registered
trademarks and service marks and applications for the registration of
trademarks and service marks which are owned by the Company as well as all
intellectual property license agreements. 
The Company has not received any notice of conflict with the

 

19

 

Intellectual Property Rights
from any third party.  The Company is
not in default under any contract, agreement, arrangement or commitment
relating to any of the Intellectual Property Rights, except where the existence
of a default would not have a Company Material Adverse Effect.  The Intellectual Property Rights are valid
and enforceable and, to the knowledge of the Company and the Founder
Shareholders, do not infringe upon the rights of any third parties.

 

3.18        Broker’s Fees.  Neither the Company nor any of its officers
or directors, has employed any broker or finder or incurred any liability for
any broker’s fees, commissions or finder’s fees in connection with any of the
transactions contemplated by this Agreement.

 

3.19        Bank Accounts.  The Company has provided or made available
to Parent complete and current summaries of information regarding all accounts,
lock boxes and safe deposits maintained by the Company at banks, trust
companies, securities firms or other brokers or other financial institutions.

 

3.20        Disclosure.  No representation or warranty contained in
this Agreement or any schedule to this Agreement contains any untrue statement
of a fact or omits to state a fact necessary in order to make the statements
herein or therein, in light of the circumstances in which they are made, not
misleading.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB

 

Parent and Sub hereby,
jointly and severally, represent and warrant to the Company as follows:

 

4.01        Corporate Organization and Qualification.  Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.  Each of Parent and Sub has
the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature
of the business conducted by it or the character or location of the properties
and assets owned or leased by it makes such licensing or qualification
necessary.  The Certificate of
Incorporation and Bylaws of each of Parent and Sub, copies of which have
previously been delivered to the Company, are true and complete copies of such
documents as in effect as of the date of this Agreement.  Schedule 4.01
sets forth the name and address of all of the Parent’s Subsidiaries.  Neither Parent nor any of its Subsidiaries
owns, controls or holds with the power to vote, directly or indirectly of
record, beneficially or otherwise, any capital stock or any equity or ownership
interest in any corporation, partnership, association, joint venture or other
entity, except for less than five percent (5%) of any equity security registered
under the Exchange Act.

 

4.02        Capitalization.

 

(a)           The authorized capital stock of
Parent consists of 20,000,000 shares of Parent Common Stock and 5,000,000
shares of preferred stock, par value $0.001 per share (“Parent Preferred Stock”).  As of the date hereof, 15,087,566 shares of Parent Common Stock
and no shares of Parent Preferred Stock are issued and outstanding.  All of the issued and outstanding shares of
Parent Common Stock have been duly authorized and validly issued and

 

20

 

are fully paid, nonassessable
and free of preemptive rights.  Except
as set forth in Schedule 4.02 hereto,
Parent does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling
for the purchase or issuance of any shares of Parent Common Stock or any other
equity security of Parent or any of its Subsidiaries or any securities
representing the right to purchase or otherwise receive any shares of Parent
Common Stock or any other equity security of Parent or any of its Subsidiaries
other than as provided for in this Agreement. 
There are no bonds, debentures, notes, shares of preferred stock or
other indebtedness of Parent having the right to vote (or convertible into, or
exchangeable for securities having the right to vote) on any matters on which
the stockholders of Parent may vote.  To
Parent’s knowledge there are no agreements or understandings, with respect to
the voting of any shares of Parent Common Stock or any Subsidiary of Parent or
which restrict the transfer of such shares, to which Parent or any of its
Subsidiaries is a party and there are no such agreements or understandings to
which Parent or any of its Subsidiaries is a party with respect to the voting
of any such shares or which restrict the transfer of such shares, other than
applicable federal and state securities laws. 
As used in this Agreement, Parent’s “knowledge”
shall mean the knowledge of Parent’s executive officers and directors.

 

(b)           The authorized capital stock of Sub
consists of 1,000 shares of common stock, par value $0.001 per share (“Sub Common Stock”). 
As of the date hereof, 1,000 shares of Sub Common Stock are
outstanding.  All of the issued and
outstanding shares of capital stock of Sub are owned by Parent, have been duly
authorized and validly issued and are fully paid, non-assessable and free of
preemptive rights.

 

4.03        Authority; No Violations.

 

(a)           Each of Parent and Sub have full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby.  The execution and delivery of this Agreement by Parent and Sub
and the consummation by Parent and Sub of the transactions contemplated hereby
have been duly and validly authorized by all requisite corporate action on the
part of each of Parent and Sub.  Except
for the filing of the Certificates of Merger, no other corporate proceedings on
the part of Parent or Sub are necessary to approve this Agreement and to consummate
the transactions contemplated hereby. 
This Agreement has been duly and validly executed and delivered by
Parent and Sub and, assuming the due authorization, execution and delivery by
the Company, constitutes a valid and binding obligation of Parent and Sub,
enforceable against Parent and Sub in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency (including,
without limitation, all laws relating to fraudulent transfers), moratorium or
similar laws affecting creditors’ rights and remedies generally and subject, as
to enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

 

(b)           Neither the execution and delivery of
this Agreement by each of Parent and Sub, nor the consummation by either Parent
or Sub, as the case may be, of the transactions contemplated hereby, nor
compliance by either Parent or Sub with any of the terms or provisions hereof,
will (i) violate, conflict with or result in a breach of any provision of the
Certificate of Incorporation or Bylaws of Parent, or Sub, as the case may be,
or (ii) violate any statute, code, ordinance, rule, regulations, judgment,
order, writ, decree or injunction applicable to Parent or

 

21

 

Sub or any of their respective
properties or assets, or (iii) violate, conflict with, result in a breach of
any provisions of or the loss of any benefit under, constitute a default (or
any event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of or a right of termination or
cancellation under, accelerate the performance required by, or result in the
creation of any lien, pledge, security interest, charge or other encumbrance
upon any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, material agreement or other
instrument or obligation to which Parent or Sub is a party, or by which they or
any of their respective properties or assets may be bound or affected.

 

4.04        Consents and Approvals.  Except for (a) the filing of the
Certificates of Merger with the Delaware Secretary and the Illinois Secretary,
respectively, pursuant to the DGCL and the IBCA, respectively, to effect the
Merger, (b) such filings as may be necessary as a result of any facts or
circumstances related solely to the Company, and (c) the consents and approvals
listed on Schedule 4.04 hereto, no
consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary in connection with the execution
and delivery by Parent and Sub of this Agreement and the consummation by Parent
and Sub of the Merger and the other transactions contemplated hereby.

 

4.05        Broker’s Fees.  Neither Parent nor Sub, nor any of their
respective officers or directors, has employed any broker or finder or incurred
any liability for any broker’s fee, commission or finder’s fee in connection
with any of the transactions contemplated by this Agreement, except as set
forth in Schedule 4.05 hereto.

 

4.06        No Prior Activities.  Sub has not incurred, directly or
indirectly, any liabilities or obligations, except those incurred in connection
with its incorporation or with the negotiation of this Agreement and
consummation of the transactions contemplated hereby.  Sub has not engaged, directly or indirectly, in any business or
activity of any type or kind, or entered into any agreement or arrangement with
any person or entity, or become subject to or bound by any obligation or
undertaking, that is not contemplated by or in connection with this Agreement
and the transactions contemplated hereby.

 

4.07        Labor Matters.  Neither Parent nor any of its Subsidiaries
is a party to any collective bargaining or other labor union or guild contract
nor, to Parent’s knowledge, has Parent or any of its Subsidiaries been
approached by any collective bargaining or other labor union or guild seeking
to enter into a contract with Parent or any of its Subsidiaries.  There is no pending, or to Parent’s
knowledge, threatened labor dispute, strike or work stoppage against Parent or
any of its Subsidiaries which may interfere with the business activities of
Parent or any of its Subsidiaries.  None
of Parent or any of its Subsidiaries or their respective representatives or
employees has committed any unfair labor practices in connection with the
operation of the business of Parent or any of its Subsidiaries, and there is no
pending or, to Parent’s knowledge, threatened charge or complaint against
Parent or any of its Subsidiaries by the National Labor Relations Board or any
comparable state agency.

 

4.08        Reports; Financial Statements.

 

(a)           Parent has filed all forms, reports,
registration statements and documents required to be filed by it with the SEC
since January 1, 1999 (such forms, reports, registration

 

22

 

statements and documents,
together with any amendments thereto, the “Parent
SEC Filings”).  As of
their respective dates, the Parent SEC Filings (i) comply as to form in all
material respects with the requirements of the Securities Act of 1933, as
amended (the “Securities Act”) and the
Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as the case may be, and (ii) do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.

 

(b)           The audited financial statements and
unaudited interim financial statements included or incorporated by reference in
the Parent SEC Filings (i) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto), (ii) complied as
of their respective dates in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, and (iii) fairly present the consolidated financial position of Parent
as of the dates thereof and the income, cash flows, and changes in
shareholder’s equity for the periods involved.

 

4.09        No Undisclosed Material Liabilities.  There are no liabilities, commitments or
obligations of the Parent or any of its Subsidiaries of any kind whatsoever
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances that
would reasonably be likely to result in such a liability commitment or
obligation, other than:

 

(a)           liabilities, commitments or
obligations disclosed or provided for in the Parent SEC Filings;

 

(b)           liabilities, commitments or
obligations incurred in the ordinary course of business consistent with past
practice;

 

(c)           liabilities, commitments or
obligations under this Agreement; and

 

(d)           liabilities, commitments or
obligations that individually or in the aggregate have not had and are not
reasonably likely to have a Parent Material Adverse Effect.

 

4.10        Legal Proceedings.  The Parent is not a party to any, and there
are no pending or to the knowledge of Parent threatened, legal, administrative,
arbitrable or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against or affecting the Parent or any of its
Subsidiaries or any property or asset of the Parent or any of its Subsidiaries,
before any court, arbitrator, administrative agency or Governmental Entity,
domestic or foreign which would have a material adverse effect on the Parent.

 

4.11        Continued Listing of Stock.  Parent’s Common Stock is listed for trading
on the Nasdaq and the Boston Stock Exchange and meets all maintenance criteria
for continued listing thereon, respectively. 
The Parent has not received any notices or correspondences in writing
from either the Nasdaq or the Boston Stock Exchange regarding any current
investigation or inquiry or providing any notice of a current proceeding with
respect to the delisting of the Parent’s securities.

 

23

 

4.12        Securities Laws.  Based in part on the representations made by
the Shareholders in the Shareholder Representation Letters, the issuance of the
Parent Common Stock pursuant to the Merger is exempt from the registration and
prospectus delivery requirements of the Securities Act.

 

ARTICLE V

COVENANTS RELATING TO CONDUCT OF BUSINESS

 

5.01        Covenants of the Company.  During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent
of Parent, the Company shall carry on its business in the ordinary course consistent
with past practice.  Prior to the
Closing the Company shall (x) pay all amounts owing with respect to the
Excluded Liabilities or cause such Excluded Liabilities to be assigned to and
assumed by the Founder Shareholders, and (y) terminate the Genisys Consulting,
Inc., Equity Incentive Plan and transfer all indebtedness payable to the
Company from any Shareholders pursuant to such Plan to the Founder
Shareholders.  The Company shall use all
reasonable efforts to preserve its business organization, keep available the
present services of its employees, continue to make regularly scheduled
payments on all of its existing debt and preserve for itself and Parent the
goodwill of the customers of the Company and others with whom business
relationships exist, including, but not limited to all Company Contracts.  Without limiting the generality of the
foregoing, and except as otherwise contemplated by this Agreement or consented
to in writing by Parent, the Company shall not:

 

(a)           except as specifically provided in
the Disclosure Schedule with regard to Section
3.05(d) hereof, declare or pay any dividends on, or make other
distributions in respect of, any of its capital stock;

 

(b)           (i) split, combine or reclassify any
shares of its capital stock; or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock except upon the exercise or fulfillment of rights or options
issued or existing pursuant to employee benefit plans, programs or
arrangements, all to the extent outstanding and in existence on the date of
this Agreement, or (ii) repurchase, redeem or otherwise acquire, any shares of
the capital stock of the Company, or any securities convertible into or
exercisable for any shares of the capital stock of the Company;

 

(c)           issue, deliver or sell, or authorize
or propose the issuance, delivery or sale of, any shares of its capital stock
or any securities convertible into or exercisable for, or any rights, warrants
or options to acquire, any such shares, or enter into any agreement with
respect to any of the foregoing;

 

(d)           amend its Articles of Incorporation
or Bylaws;

 

(e)           make any capital expenditures in
excess of $10,000;

 

(f)            enter into any new line of business;

 

(g)           acquire or agree to acquire, by
merging or consolidating with, or by purchasing a equity interest in or a
portion of the assets of or by any other manner, any business

 

24

 

or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire any assets other than in the ordinary course of business;

 

(h)           except as contemplated by this
Agreement, change its methods of accounting in effect at December 31, 2003,
except as required by changes in GAAP or regulatory accounting principles as
concurred to by the Company’s independent auditors;

 

(i)            except as set forth on Schedule 5.01(i) hereto, enter into, adopt,
amend, renew or terminate any Plan or any agreement, arrangement, plan or
policy between the Company and one or more of its current or former directors,
officers or employees, or increase in any manner compensation or fringe
benefits of any director, officer or employee or pay any benefit not required
by any plan or agreement as in effect as of the date hereof (including, without
limitation, the granting of stock options, stock appreciation rights,
restricted stock, restricted stock units or performance units or shares),
excluding, however, any increase in compensation or benefits for any employees
in the ordinary course of business and specifically approved in writing by
Parent; or enter into, modify or renew any employment, severance or other
agreement with any director, officer or employee of the Company or establish,
adopt, enter into, or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement providing for any benefit to any
director, officer or employee (whether or not legally binding);

 

(j)            incur any indebtedness for borrowed
money, assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or other
entity except in the ordinary course of business consistent with past practices
of the Company;

 

(k)           sell, lease, encumber, assign or
otherwise dispose of, or agree to sell, lease, encumber, assign or otherwise dispose
of, any of its assets, properties or other rights or agreements other than the
ordinary course of business;

 

(l)            make any Tax election or settle or
compromise any federal, state, local or foreign Tax liability;

 

(m)          pay, discharge or satisfy any claim,
liability or obligation other than the payment or satisfaction in the ordinary
course of business and consistent with past practices or as incurred in
connection with the Merger and the transactions expressly contemplated hereby,
or liabilities reflected or reserved against in the balance sheet date December
31, 2003, or subsequently incurred in the ordinary course of business and
consistent with past practices of the Company;

 

(n)           except as set forth on Schedule 5.01(n) hereto, enter into or renew,
amend or terminate, or give notice of a proposed renewal, amendment or
termination, or make any commitment with respect to, regardless of whether
consistent with past practices, any lease, contract, agreement or commitment
having a term of one (1) year or more from the time of execution or outside the
ordinary course of business consistent with past practices;

 

(o)           waive any right, whether in equity or
at law; or

 

25

(p)                                 agree
to do any of the foregoing.

 

5.02                        No
Solicitation; Non-Disclosure.

 

(a)                                  None
of the Company, the Founder Shareholders or any of their respective directors,
officers, employees, representatives, agents and advisors or other persons
controlled by the Company shall solicit or hold discussions or negotiations
with, or assist or provide any information to, any person, entity or group
(other than Parent, Sub and their affiliates and representatives) concerning
(i) any merger, consolidation, business combination, share exchange, or other
similar transaction involving the Company; (ii) any sale, lease, exchange,
mortgage, pledge, license transfer or other disposition of any shares of
Company Common Stock or significant assets of the Company; or (iii) the issuance
of any new shares of capital stock of the Company or any options, warrants or
other rights to acquire shares of capital stock of the Company.  The Company will promptly communicate to
Parent, Sub and their affiliates and representatives the terms of any proposal,
discussion, negotiation or inquiry relating to a merger or disposition of a
significant portion of its capital stock or assets or similar transaction
involving the Company and the identity of the party making such proposal or
inquiry, which it may receive with respect to any such transaction.

 

(b)                                 No
party (or its representatives, agents, counsel, accountants or investment
bankers) hereto shall disclose to any third party, other than either party’s
representatives, agents, counsel, accountants or investment bankers any
confidential or proprietary information about the business, assets or
operations of the other parties to this Agreement or the transactions
contemplated hereby, except as may be required by applicable law.  The parties hereto agree that the remedy at
law for any breach of the requirements of this subsection will be
inadequate and that any breach would cause such immediate and permanent damage
as would be impossible to ascertain, and, therefore, the parties hereto agree
and consent that in the event of any breach of this subsection, in addition to
any and all other legal and equitable remedies available for such breach,
including a recovery of damages, the non-breaching parties shall be entitled to
obtain preliminary or permanent injunctive relief without the necessity of
proving actual damage by reason of such breach and, to the extent permissible
under applicable law, a temporary restraining order may be granted immediately
on commencement of such action.

 

5.03                        Covenants
of Parent and Sub.  During
the period from the date of this Agreement and continuing until the Effective
Time, Parent and its Subsidiaries shall not:

 

(a)                                  declare
or pay any dividends on, or make other distributions in respect of, any of its
capital stock;

 

(b)                                 (i)
split, combine or reclassify any shares of its capital stock; or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of, or in substitution for shares of its capital stock except upon the
exercise or fulfillment of rights or options issued or existing pursuant to
employee benefit plans, programs or arrangements, all to the extent outstanding
and in existence on the date of this Agreement, or (ii) repurchase, redeem or
otherwise acquire, any shares of the capital stock of Parent or its
Subsidiaries, or any securities convertible into or exercisable for any shares
of the capital stock of Parent or its

 

26

 

Subsidiaries,
except, in all circumstances, if an appropriate adjustment is made to the
Parent Stock Per Share Price to reflect the effect on the Parent Stock Per
Share Price of any such event;

 

(c)                                  other
than as set forth on Schedule 4.02
hereof, issue, deliver or sell, or authorize or propose the issuance, delivery or
sale of, any shares of its capital stock or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any such
shares, or enter into any agreement with respect to any of the foregoing except
as permitted pursuant to Parent’s employee benefit plans;

 

(d)                                 amend
its Certificate of Incorporation or Bylaws;

 

(e)                                  change
its methods of accounting in effect at December 31, 2003, except as
required by changes in GAAP or regulatory accounting principles as concurred to
by Parent and its Subsidiaries’ independent auditors;

 

(f)                                    except
under the Parent’s credit facility or any equipment or capital lease
facilities, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other individual, corporation or other entity except in the ordinary
course of business consistent with past practice of Parent and its Subsidiaries
and except for indebtedness in an amount less than $100,000; or

 

(g)                                 agree
to do any of the foregoing.

 

5.04                        All
Necessary Action.  Each
of the parties hereto shall use its commercially reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate the transaction contemplated
hereby as soon as practicable.  No party
shall intentionally perform any act which, if performed, or omit to perform any
act which, if omitted to be performed, would prevent or excuse the performance
of this Agreement by any party hereto or which would result in any
representation or warranty herein contained of such party being untrue in any
material respect as if originally made on and as of the Closing Date.

 

5.05                        Notification.  Each party shall promptly give the other
party written notice of the existence or occurrence of any condition which
would make any representation or warranty herein contained of either party
untrue or which might reasonably be expected to prevent the consummation of the
transactions contemplated hereby.

 

ARTICLE VI

 

ADDITIONAL
AGREEMENTS

 

6.01                        Regulatory
Matters.  The parties hereto
shall cooperate with each other and use all reasonable efforts promptly to
prepare and file all necessary documentation, to effect all applications,
notices, petitions and filings, and to obtain as promptly as practicable all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities which are necessary or advisable to consummate the
transactions contemplated by this Agreement (including without limitation the
Merger).  The Company and Parent shall
have the right to review in advance, and to the extent practicable each will
consult with the other on, in each case

 

27

 

subject to
applicable laws relating to the exchange of information, all the information
relating to the Company, Parent or Sub, as the case may be, which appear in any
filing made with or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement.  In exercising the foregoing
right, each of the parties hereto shall act reasonably and as promptly as
practicable.  The parties hereto agree
that they will consult with each other with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other apprised of
the status of matters relating to completion of the transactions contemplated
herein.  Parent (or Sub as the case may
be) and the Company shall promptly furnish each other with copies of written
communications received by Parent, Sub or the Company, as the case may be, from
or delivered by any of the foregoing to, any Governmental Entity in respect of
the transactions contemplated hereby.

 

6.02                        Securities
Matters.

 

(a)                                  During
the two (2) year period following the Closing Date, Parent shall (i) use its
best efforts to make current public information available in accordance with
Rule 144(c) under the Securities Act and to maintain the continued listing of
its shares of Common Stock for trading on the Nasdaq and the Boston Stock
Exchange and (ii) furnish to any Shareholder upon written request, (x) a
written statement as to its compliance with the requirements of Rule 144(c) and
the reporting requirements of the Securities Act and the Exchange Act and (y) a
copy of the most recent annual or quarterly report of Parent.

 

(b)                                 Parent
shall file, within seventy five (75) days after the Closing Date, a
registration statement (“Registration Statement”)
on Form S-3, or other appropriate registration form, with the SEC under the
Securities Act with respect to the offer and sale by the Shareholders pursuant
to Rule 415 promulgated under the Securities Act of fifteen percent (15%) of
the Stock Consideration received by Shareholders pursuant to Section 1.05 and will use reasonable,
diligent efforts to cause such Registration Statement to become effective as
soon as practicable thereafter.  Parent
shall use its reasonable diligent efforts to cause the shares of Parent Common
Stock included in the Registration Statement to be listed on Nasdaq and the
Boston Stock Exchange.

 

(c)                                  Parent
shall prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement and to keep such registration statement effective
until the earlier of such time as all Shareholders have completed the
distribution described in the Registration Statement or two years from the
Closing Date.

 

(d)                                 Parent
shall, if required under applicable law at the time, use its best efforts to
register and qualify the shares of Parent Common Stock covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as shall be reasonably requested by the Holders; provided that
Parent shall not be required in connection with such registration and
qualification or as a condition to such registration and qualification (i)

 

28

 

to qualify to
do business or to file a general consent to service of process in any such
states or jurisdictions or (ii) to subject itself to taxation in any
jurisdiction.

 

(e)                                  Parent
shall notify each Shareholder covered by the Registration Statement at any time
when a prospectus relating to the Registration Statement is required to be
delivered under the Securities Act, of the happening of any event as a result
of which the prospectus included in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated in such prospectus or necessary to make the
statements in such prospectus not misleading in the light of the circumstances
then existing.

 

(f)                                    Parent
shall furnish to each Shareholder covered by the Registration Statement such
number of conformed copies of the Registration Statement and of each amendment
and supplement thereto (in each case including all exhibits and documents
incorporated by reference), such number of copies of the prospectus contained
in such registration statement (including each preliminary prospectus and any
prospectus supplement) and any other prospectus filed under Rule 424
promulgated under the Securities Act relating to such Shareholder’s shares
included in the Registration Statement.

 

(g)                                 Parent
shall notify each Shareholder covered by the Registration Statement (i) when
such Registration Statement or any prospectus used in connection therewith, or
any amendment or supplement thereto, has been filed and, with respect to such
Registration Statement or any post-effective amendment thereto, when the same
has become effective, (ii) of any written request by the SEC for amendments or
supplements to such Registration Statement or prospectus or for supplemental
information, (iii) of the notification to Parent by the SEC of its initiation
of any proceeding with respect to the issuance by the SEC of, or of the
issuance by the SEC of, any stop order suspending the effectiveness of such
Registration Statement; and (iv) of the receipt by Parent of any notification
with respect to the suspension of the qualification of the shares of Parent
Common Stock included in the Registration Statement for sale under the
applicable securities or “blue-sky” laws of any jurisdiction.

 

(h)                                 In
the event of the issuance of any stop order suspending the effectiveness of the
Registration Statement, or of any order suspending or preventing the use of any
related prospectus or suspending the qualification of the shares of Parent
Common Stock included in the Registration Statement for sale in any
jurisdiction, Parent shall use its reasonable efforts promptly to obtain the
withdrawal of such order.

 

(i)                                     All
expenses incurred in effecting the registration under Registration Statement
shall be borne by Parent.  All
underwriting discounts, selling commissions, and stock transfer taxes relating
to the Parent Common Stock registered under the Registration Statement shall be
borne by the Shareholders pro rata on the basis of the number of shares of
Parent Common Stock registered on their behalf.

 

(j)                                     Parent
may require any Shareholder to, and each such Shareholder, shall, furnish
Parent with such information regarding such Shareholder and the distribution of
the shares of Parent Common Stock included in the Registration Statement as
Parent may from time to time reasonably request in writing and to otherwise
cooperate in connection with such

 

29

 

registration.  At any time during the effectiveness of the
Registration Statement, if such Shareholder becomes aware of any change
materially affecting the accuracy of the information contained in such
Registration Statement or the prospectus (as then amended or supplemented) relating
to such Shareholder, including but not limited to the sale or disposition of
all shares of Parent Common Stock owned by each such Shareholder and included
in the Registration Statement, he or it will promptly notify Parent of such
change.

 

(k)                                  Upon
receipt of any notice from Parent of the happening of any event as a result of
which any prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
each Shareholder will forthwith discontinue such Shareholder’s disposition of
Parent Common Stock pursuant to the Registration Statement until such
Shareholder receives copies of a supplemented or amended prospectus from Parent
and, if so directed by Parent, shall deliver to Parent (at Parent’s expense)
all copies, other than permanent file copies, then in such Shareholder’s
possession of the prospectus relating to such Registration Statement current at
the time of receipt of such notice.

 

(l)                                     Parent
shall, to the full extent permitted by law, indemnify and hold harmless each
Shareholder included in the Registration Statement against any expenses,
claims, losses, damages or liabilities to which such Shareholder may become
subject under the Securities Act or otherwise, insofar as such expenses,
claims, losses, damages or liabilities or actions in respect thereof arise out
of or are based upon any untrue statement of any material fact contained in the
Registration Statement, final prospectus, preliminary prospectus, or prospectus
supplement contained therein or filed with the SEC, or any amendment or
supplement thereto, or any omission to state therein a material fact required
to be stated therein or. necessary to make the statements therein (in the case
of a prospectus, in the light of the circumstances under which they were made)
not misleading; provided, that Parent shall not be liable in any such case to
the extent that any such loss (or actions in respect thereof) arises out of or
is based upon an untrue statement or omission made in any such Registration
Statement, final prospectus, amendment or supplement in reliance upon and in
conformity with information furnished in writing to Parent by such Shareholder
and stated to be specifically for use therein.

 

(m)                               Each
Shareholder shall, to the full extent permitted by law, indemnify and hold
harmless Parent, its directors, officers, employees, agents and each other
person, if any, who controls Parent within the meaning of the Securities Act,
against any expenses, claims, losses, damages or liabilities to which Parent or
any such director, officer, employee, agent or controlling person may become
subject under the Securities Act or otherwise, insofar as such expenses,
claims, losses, damages or liabilities arise out of or are based upon any
untrue statement of any material fact contained in the Registration Statement,
final prospectus or prospectus supplement contained therein or filed with the
SEC, or any amendment or supplement thereto, or any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, if such untrue statement or omission was
made in reliance upon and in conformity with written information furnished to
Parent by such Shareholder specifically stating that it is for use in the
preparation of such Registration Statement, final prospectus, amendment or
supplement; provided, however, that the obligation to

 

30

 

provide
indemnification pursuant to this Section 6.02(m), shall be several
among such indemnifying parties on the basis of the number of shares of Parent
Common Stock of each such indemnifying party included in the Registration
Statement, and shall not exceed the value as of the date hereof of the Stock Consideration
received by such Shareholder. The foregoing indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of Parent
or any such director, officer, employee, agent or controlling person and shall
survive the transfer of such securities by such Shareholder.  Such Shareholders shall also indemnify each
Shareholder who participates in the offering or sale under the Registration
Statement, their officers, directors, employees, agents and each other person,
if any, who controls any such participating person within the meaning of the
Securities Act to the same extent as provided above with respect to Parent.

 

(n)                                 Promptly
after receipt by any party of notice of the commencement of any action or
proceeding involving a claim referred to in Section 6.02(l) or 6.02(m),
such party shall, if a claim in respect thereof is to be made against another
party pursuant to such paragraphs, give written notice to the latter of the
commencement of such action, provided that any failure of any person to give
notice as provided therein shall not relieve any other person of its
obligations under Section 6.02(l) or 6.02(m), as the case
may be, except to the extent that such other person is actually prejudiced by
such failure.  In case any such action
is brought, the party obligated to indemnify pursuant to Section 6.02(l)
or 6.02(m), as the case may be, shall be entitled to participate in and,
unless, in the reasonable judgment of any indemnified party, a conflict of
interest between such indemnified party and any indemnifying party exists with
respect to such claim, to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation; provided that the indemnified party may participate in such
defense at the indemnified party’s expense. Without the consent of the
indemnified party, no indemnifying party shall consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to each indemnified party of a
release from all liability in respect to such claim or litigation.  No indemnifying party shall be subject to
any liability for any settlement made without its consent, which consent shall
not be unreasonably withheld.

 

(o)                                 If
the indemnity and reimbursement obligation provided for in Section 6.02(l)
or 6.02(m) is unavailable or insufficient to hold harmless a party
entitled to indemnification hereunder in respect of any expenses, claims,
losses, damages or liabilities (or actions with respect thereto) referred to
therein, the party obligated to indemnify hereunder shall contribute to the
amount paid or payable by the indemnified party as a result of such expenses,
claims, losses, damages or liabilities (or actions) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other hand in connection with statements
or omissions which resulted in such expenses, claims, losses, damages or
liabilities as well as any other relevant equitable considerations.  Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party or the
indemnified party and the

 

31

 

parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. 
The parties hereto agree that it would not be just and equitable if
contributions pursuant to this paragraph were-to be determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the first sentence of this
paragraph.  No person guilty of
fraudulent misrepresentation within the meaning of the Securities Act shall be
entitled to contribution from any person not guilty of such fraudulent
misrepresentation.

 

(p)                                 Notwithstanding
the foregoing, each Shareholder in the Shareholder Representation Letters,
shall covenant and agree that during the thirty-six (36)-month period
commencing with the Closing, such Shareholder will not (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of Parent
Common Stock or any securities convertible into or exercisable or exchangeable
for Parent Common Stock, or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of Parent Common Stock; provided, however, that each Shareholder may
engage in any action described in (a) or (b) above only to the extent that no
more than an aggregate of fifteen percent (15%) of the Stock Consideration
received by such Shareholder has been the subject of actions described in (a)
or (b) above by the first anniversary of the Closing, no more than an aggregate
of thirty percent (30%) of the Stock Consideration received by such Shareholder
has been the subject of actions described in (a) or (b) above by the second
anniversary of the Closing; and no more than an aggregate of forty-five percent
(45%) of the Stock Consideration received by such Shareholder has been the
subject of actions described in (a) or (b) above by the third anniversary of
the Closing.  The restrictions on
transferability of Parent Common Stock set forth in this Section 6.02 shall survive any change of
control of the Parent.  Each share of
Parent Common Stock issued pursuant to this Agreement shall bear a restrictive
legend stating the above restrictions.

 

(q)                                 Each
Founder Shareholder covenants and agrees that, for a period of up to 180 days
after a registration statement of the Company is filed under the Securities Act
for a public offering of Parent Common Stock (other than the Registration
Statement), such Founder Shareholder shall be subject to the same restrictions
on transferability or lock-up of shares of Parent Common Stock as the
underwriter or placement agent of any such offering or placement shall require
of all of the executive officers and directors of Parent; provided however,
that this covenant shall expire upon the first to occur of (a) the third (3rd)
anniversary of the Closing Date or (b) any Change in Control of Parent.  For purposes of this Section 6.02(q), a “Change in Control” shall mean (i) the sale, lease,
exchange or other transfer, directly or indirectly, of substantially all of the
assets of the Parent (in one transaction or in a series of related
transactions) to a person or entity that is not controlled by the Parent; (ii)
the approval by the shareholders of the Parent of any plan or proposal for the
liquidation or dissolution of the Parent; (iii) a merger or consolidation to
which the Parent is a party if the shareholders of the Parent immediately prior
to the effective date of such merger or consolidation have “beneficial
ownership” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934
(the “Exchange Act”), immediately following the effective date of such merger
or consolidation, of securities of the surviving corporation representing fifty
percent (50%) or less of the combined voting power of the surviving
corporation’s then outstanding securities ordinarily having the right to vote
at elections of directors; (iv) any person becomes after the Effective Date the
“beneficial owner”

 

32

 

(as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent
(50%) or more of the combined voting power of the Parent’s outstanding
securities ordinarily having the right to vote at elections of directors other
than in connection with a public offering of the Parent’s securities; or (v)
any other change in control of the Parent of a nature that would be required to
be reported pursuant to Section 13 or 15(d) of the Exchange Act, whether
or not the Parent is then subject to such reporting requirements.

 

6.03                        Shareholder
Approval.  Each Founder
Shareholder acknowledges and agrees that by signing this Agreement, he has
voted all of his shares of Company Common Stock in favor of the approval of
this Agreement, the Merger and all aspects of the transactions contemplated
hereby, that such approval is irrevocable and cannot be rescinded and that each
such Founder Shareholder irrevocably agrees that he shall vote or cause to be
voted (in person or by proxy) all of his shares of Company Common Stock at each
meeting in which such matters are considered and subject to a vote in favor of
any such other matters that come before such meeting concerning the Agreement,
the Merger and the transactions contemplated thereby.

 

6.04                        Access to
Information.  Subject to Section 5.02, the Company shall afford
to Parent, and shall cause its independent accountants to afford to Parent and
Parent’s accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Closing to all of
the Company’s assets, properties, books, Company Contracts and records.  Subject to Section 5.02,
the Company shall permit Parent and its representatives to make abstracts from
and copies of such books and records. 
During such period, the Company shall use its reasonable best efforts to
furnish promptly to Parent all other information concerning the business,
properties and personnel of the Company as Parent may reasonably request.  Subject to Section 5.02,
following the Closing, Parent and the Surviving Corporation shall provide
access to the Surviving Corporation books and records for reasonable business
purposes including, without limitation, the preparation of the Company’s final
Tax returns and the Shareholders’ Tax returns.

 

6.05                        Legal
Conditions to Merger.  Each
of Parent, Sub and the Company shall use all reasonable efforts (a) to take, or
cause to be taken, all actions necessary, proper or advisable to comply
promptly with all legal requirements which may be imposed on such party with
respect to the Merger and, subject to the conditions set forth in ARTICLE VII hereof, to consummate the
transactions contemplated by this Agreement and (b) to obtain (and to cooperate
with the other party to obtain) any consent, authorization, order or approval
of or any exemption by, any Governmental Entity and any other third party which
is required to be obtained by Parent, Sub or the Company in connection with the
Merger and the other transactions contemplated by this Agreement.

 

6.06                        Additional
Agreements.  If at any time
after the Effective Time any further action is necessary or desirable to carry
out the purpose of this Agreement or to vest the Surviving Corporation with
full title to all properties, assets, rights, approvals, immunities and
franchises of any of the parties to the Merger, the proper officers and
directors of each party to this Agreement shall take all such necessary action
as may be reasonably requested by the Company or Parent.

 

33

 

6.07                        Disclosure
Supplements.  Prior to
the Effective Time, each party will supplement or amend the Disclosure
Schedule delivered in connection with the execution of this Agreement to
reflect any matter which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedule or which is necessary to correct any information in
such Disclosure Schedule which has been rendered inaccurate thereby.  No supplement or amendment to such
Disclosure Schedule shall have any effect for the purposes of determining
satisfaction of the conditions set forth in Section 7.02(a)
hereof or the compliance by the Company with the covenants set forth in Section 5.01 hereof (unless Parent
consents in writing to such satisfaction of conditions or compliance or elects
to waive such matter by closing the transactions contemplated hereby) or for
the purposes of determining satisfaction of the conditions set forth in Section 7.03(a) hereof or the compliance
by Parent with the covenants set forth in Section 5.03
hereof (unless the Company consents to such satisfaction of conditions or
elects to waive such matter by closing the transactions contemplated hereby).

 

6.08                        No
Inconsistent Actions. 
Prior to the Effective Time, except as otherwise permitted by this
Agreement, no party will enter into any transaction or make any agreement or
commitment and will use reasonable efforts not to permit any event to occur,
which could reasonably be anticipated to result in (a) a denial of the
regulatory approvals referred to in Section 7.01(a),
or (b) the imposition of any condition or requirement that would materially
adversely affect the economic or business benefits to the Surviving Corporation
of the transactions contemplated by this Agreement.

 

6.09                        Tax Matters.

 

(a)                                  Reorganization Issues. 
The parties shall not, before or after the Effective Time, purposefully
take any action or fail to take any action that would prevent, or would be
reasonably likely to prevent, the Merger from qualifying as a reorganization
and having each of the parties hereto from being parties to such reorganization
within the meaning of Section 368 of the Code.  Neither Parent, Sub, nor their affiliates shall file any refund
or similar claims for Taxes or amended Tax Returns related to the Company for
any taxable period of portion thereof ending on or prior to the Closing Date
without the express written consent of the Shareholders or the Shareholders’
Representative.

 

(b)                                 Tax Refunds. 
In the event that, after the Closing Date, Parent, any affiliate of
Parent, the Company or Sub receives (or, on a separate return basis, would
receive) a refund or a credit in respect of any Taxes attributable to the
business, property or operations of the Company with respect to any taxable
period or portion thereof ending on or prior to the Closing Date, such refund
or credit shall be the property of Shareholders and any portion thereof paid to
Parent, any affiliate of Parent, the Company or Sub shall promptly be paid over
to the Founder Shareholders.

 

(c)                                  Audits.  Each party hereto agrees to notify the other
party or parties promptly or any audits, investigations, or examinations of or
having a potential impact on the Taxes of the Company or Shareholders, by any federal,
state or local taxing authority with regard to any taxable periods or portions
thereof ending up to and including the Closing Date, if the audit,
investigation, or examination could affect the Taxes of the Company or any
parties’

 

34

 

indemnification
obligations hereunder.  In the event of
such an audit, investigation, or examination, Parent or Sub shall control such
proceedings and each such party agrees to (i) allow the other party and its
attorneys and accountants to participate in said audit, investigation or
examination in respect to items which may affect the Company or Shareholders,
at such other party’s expense, and (ii) provide the other party and its agents,
accountants, and attorneys, with reasonable access to such books and records as
they reasonably deem necessary to determine the validity of the items under
audit, investigation, or examination by said federal, state or local taxing
authority.  The parties agree to either
(x) obtain the written consent of the other party prior to agreeing to any
audit adjustment which would adversely affect such other party or its
affiliates or (y) waive their right to seek reimbursement from such other party
or its affiliates with respect to such audit adjustment.  Notwithstanding anything to the contrary
herein, a party hereto other than the Parent or Sub can control such
proceedings concerning an audit, investigation, or examination if and only if
such party expressly agrees to fully and totally indemnify and hold harmless
the Parent and the Sub for any tax liability attributable to periods prior to
the Closing Date.

 

(d)                                 Inspection of Tax
Records.  Following the
Closing Date, Parent, affiliates of Parent, the Company, and Surviving
Corporation shall, upon reasonable request, afford to the Shareholders and the
Shareholder Representative reasonable access during normal business hours to
the books, records and other data of or relating to the Company and Surviving
Corporation (and permit the Shareholders and their Shareholder Representative
to make copies thereof at their own expense) with respect to taxable periods or
portions thereof ending prior to the Closing Date, to the extent that such
access may be reasonably required by the Shareholders for the Company or
Surviving Corporation to prepare their individual federal, state and local tax
returns with respect to all taxable periods ending on or including the Closing
Date, and to defend an audit or other investigation or examination of any of
their personal federal, state or local Tax Returns for all taxable periods or
portions thereof ending on or including the Closing Date.

 

(e)                                  Retention of Tax
Records.  The Company,
Surviving Corporation, Parent and Parent’s affiliates agree to retain all books
and records with respect to Tax matters pertinent to the Company until the
expiration of three (3) months after the relevant statute of limitations of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority.

 

(f)                                    Preparation of Tax
Returns.

 

(i)                                     The
Company shall file at Company’s expense, on or prior to the due date thereof,
all Tax Returns required to be filed by the Company on or before the Closing
Date, with a copy thereof provided to Parent promptly after such filing, and
shall timely pay any Taxes due with respect to such Tax Return.

 

(ii)                                  Shareholders
shall bear the cost and expense of preparing federal and state income Tax
Returns of the Company for the taxable period ending on the Closing Date and shall
timely pay all Taxes due with respect to such Tax Return, to the extent such
Taxes constitute Parent Indemnified Taxes. 
Taxes due with respect to such Tax Returns that are not Parent
Indemnified Taxes shall be paid by the Surviving Corporation.  Such Tax Returns shall be prepared at the
direction of the Shareholder Representative and shall be signed by an officer
of

 

35

 

the Company
who was an officer prior to the Merger, subject to prior review and approval by
the appropriate tax officer(s) of the Parent and/or Surviving Corporation which
approval shall not be unreasonably withheld.

 

(iii)                               Parent,
Surviving Corporation or their affiliates will file (or cause to be filed) all
Tax Returns of the Company or Surviving Corporation due after the Closing Date
for taxable periods ending after the Closing Date.  With respect to any such Tax Return for a taxable period that
begins prior to the Closing Date, Shareholders shall pay to Parent at least two
days prior to the due date therefor, the portion of the Tax due with respect to
such Tax Return that constitutes a Parent Indemnified Tax.

 

(iv)                              From
and after the date hereof, the Shareholders shall not, and shall not permit any
of their respective affiliates to, amend any Tax Return previously filed which
includes information relating to the Company, unless prior written notice
thereof has been delivered to Parent and such amended Tax Return will not
result in any tax liability to the Company.

 

(g)                                 Tax Treatment.  The parties agree that any amounts paid or payable pursuant to Section 6.09(f)
shall be treated by the parties on their Tax Returns as an adjustment to the
Merger Consideration.

 

6.10                        Employment
Agreements.  On the
Closing Date, each of the Founder Shareholders and Parent shall enter into an
Employment Agreement in substantially the form attached as Exhibit D hereto, with such changes as may be
agreed to by Parent and such Founder Shareholder.

 

6.11                        Committees
of the Parent.  Immediately upon the Closing, and at all
times from and after the Closing, the Surviving Corporation shall be entitled
to appoint two persons who are employees of the Surviving Corporation, to the
Technology Leadership Council of Parent and such persons shall be chosen by
Jeffrey A. Martini so long as Mr. Martini remains an employee of the Surviving
Corporation.  In addition, immediately
upon the Closing, Jeffrey A. Martini shall be appointed to Parent’s Executive
Committee.

 

6.12                        Noncompetition.

 

(a)                                  Each
Founder Shareholder agrees not to, directly or indirectly:

 

(i)                                     for
the sixty (60) month period immediately following the Closing Date, perform
Competitive Duties (as an employee, consultant, or otherwise) within the
Restricted Area for any Competing Business, provided that each Founder Shareholder
may own up to 5% of any class of securities of any company that is traded on a
national securities exchange or through Nasdaq;

 

(ii)                                  for
the sixty (60) month period immediately following the Closing Date:  (A) solicit (or assist another in soliciting)
any Covered Client or Prospective Client for Competitive Services; or (B)
provide (or assist another in providing) Competitive Services to any Covered
Client or Prospective Client; or

 

36

 

(iii)                               for
the sixty (60) month period immediately following the Closing Date:  (A) encourage (or assist another in
encouraging) any employee, contractor, consultant, supplier, or vendor of the
Parent, Sub or Company to terminate his or her relationship with the Parent,
Sub or Company, as applicable; or (B) solicit (or assist another in soliciting)
for employment or other personal service engagement any employee, contractor,
or consultant of the Parent, Sub or Company.

 

(b)                                 Each
Founder Shareholder promises to disclose to the Parent any employment,
consulting, or other service relationship such Founder Shareholder enters into
during the sixty (60) month period immediately following the Closing Date.  Such disclosure shall be made within seven
(7) days of entering into such employment, consulting, or other service
relationship.  Each Founder Shareholder
expressly consents to and authorizes the Parent and Sub to disclose both the
existence and terms of this Section 6.12 to
any future employer or user of such Founder Shareholder’s services and to take
any steps the Parent or Sub deems necessary to enforce this Agreement.

 

(c)                                  For
purposes of this Section 6.12, the
following terms have the following definitions:

 

(i)                                     “Competing Business” means any person, entity, or other
business concern that offers or is planning to offer Competitive Services.  A person, entity, or other business concern
that offers or plans to offer Competitive Services and also offers or plans to
offer other services is considered a Competing Business.

 

(ii)                                  “Competitive Duties” means duties that relate to
Competitive Products or Services in any way and:  (A) are substantially similar to the duties such Founder
Shareholder performed for the Parent, Sub or Company; (B) involve the management,
operation, or control of a person, entity, or business concern; or (C) are
performed in the capacity of a director, officer, partner, or executive.

 

(iii)                               “Competitive Services” means:  (A) providing, as a primary business, technology consulting
services, technology design services, systems integration services, technology
outsourcing services, hosting services or technology staffing services; and (B)
products and services that are otherwise competitive with any of the products
and services being offered, marketed, or actively developed by the Parent or
Sub during the period beginning twelve (12) months prior to the Closing Date
and continuing until the last day of the sixtieth (60th) month after the
Closing Date.

 

(iv)                              “Covered Client” means: 
(A) any of the Parent’s, Sub’s or Company’s clients or Prospective
Clients with whom the Founder Shareholder had contact as an employee of the
Parent, Sub or Company, as applicable, during the period beginning twelve (12)
months prior to the Closing Date and continuing until the last day of the
sixtieth (60th) month after the Closing Date; (B) any of the Parent’s, Sub’s or
Company’s clients or Prospective Clients who otherwise associate the Founder
Shareholder with the goodwill of the Parent, Sub or Company; and (C) any of the
Parent’s, Sub’s or Company’s clients or prospective clients about whom Founder
Shareholder had any Proprietary Information during the period beginning twelve

 

37

 

(12) months
prior to the Closing Date and continuing until the last day of the sixtieth
(60th) month after the Closing Date.

 

(v)                                 “Prospective Client” means any person, entity, or
business concern that, as of the date of the termination of the Founder
Shareholder’s employment for any reason: 
(i) the Company has spent time and resources courting or developing as a
potential user of the Company’s services or products as evidenced by internal
company documents and records (including e-mail); (ii) has entered into
specific discussions with the Company regarding the Company potentially
providing its services or products to the person, entity, or business concern;
or (iii) is otherwise considered to be in the Company’s “pipeline” as a
potential client or customer.

 

(vi)                              “Restricted Area” means any geographic market:  (i) in which the Company conducts any
material portion of the Company’s business; and/or (ii) in which the Parent or
Sub is actively pursuing a material amount of business during the sixty
(60)-month period following the Closing Date as evidenced by definite and
demonstrable actions by the Parent or Sub with respect to the area (e.g.,
contacting clients or prospective clients to solicit material selling business
opportunities, contacting suppliers or vendors regarding material business
opportunities, actively conducting feasibility research of the area,
etc.).  Each Founder Shareholder
acknowledges and agrees that, as of the date of executing this Agreement, the
Parent, Sub and Company conducts a material amount of business in each of the
geographic markets listed on Exhibit H.

 

(d)                                 Each
Founder Shareholder acknowledges that the Company has invested and will
continue to invest significant time, cost, and effort in developing and
maintaining its customer base and in developing and maintaining its prospective
customer base.  Employee further
acknowledges that the Company’s relationships with its customers and
prospective customers is intended to be continuous and long-term.

 

6.13                        Shareholder Representation Letters.  On or before the Closing Date, each Shareholder
shall execute and deliver to Parent a Shareholder Representation Letter in the
form attached hereto as Exhibit E (the
“Representation Letters”)
pursuant to which each such Shareholder shall (a) represent that he has
voted all of his shares of Company Common Stock in favor of the approval of
this Agreement, the Merger and all aspects of the transactions contemplated
hereby, (b) acknowledge the existence of dissenters’, appraisal or similar
rights under the IBCA by virtue of the Merger and represent that he has waived
his rights to exercise all such rights, (c) acknowledge his obligations
and liabilities under Sections 2.03(b)
and 6.09, and (d) represent to
certain other matters with respect to the issuance of Parent Common Stock
pursuant to the Merger.

 

6.14                        Benefit
Plans and Employee Matters. 
From and after the Effective Time, Parent shall provide employee
benefits and programs to the Company’s employees who continue employment with
the Surviving Corporation or Parent as of and following the Closing (the “Continuing Employees”)
that, in the aggregate, are substantially comparable or more favorable than the
Parent’s current employee benefits and programs, all of which are set forth on Schedule 6.14 hereto; provided, however,
that except as otherwise provided in this Agreement or in the Employment
Agreements with the Founder Shareholders, nothing in this Section 6.14 shall

 

38

 

confer upon
Parent any obligation to continue the employment of any of the Company’s
employees.  After the Effective Time,
Parent shall reserve an aggregate of 200,000 shares of Parent Common Stock
under Parent’s Stock Option Plan (the “Genisys
Option Pool”) for the grant to Continuing Employees and to
future employees of the Surviving Corporation. 
No later than the day before the Closing, the Founder Shareholders shall
provide Parent with a list of each Continuing Employee, excluding the Founder
Shareholders, and the number of shares from the Genisys Option Pool that the
Founder Shareholders recommend that such Continuing Employee be permitted to
purchase pursuant to an option granted under Parent’s Stock Option Plan.  Parent will then prepare a
schedule containing information with respect to each stock option grant to
be made at the first meeting of the Parent’s Board of Directors following the
Closing with respect to each such Continuing Employee including the name of the
Continuing Employee who will be granted such option, the total number of shares
subject to such option and the vesting schedule and vesting commencement
date for such option (the “Closing Stock Option Grant Schedule”).  After the Effective Time, Parent shall take
all necessary corporate action to grant options of Parent Common Stock to the
Continuing Employees, consistent with the information set forth on the Closing
Stock Option Grant Schedule at the first meeting of Parent’s Board of
Directors following the Closing under the terms and conditions of Parent’s
Stock Option Plan and the form stock option agreement (the “Parent Stock Option Agreement”)
set forth in Exhibit F hereto. 
Thereafter, and for a period of five years, the Founder Shareholders, to
the extent they remain employees of the Surviving Corporation, may recommend
grants of options from the Genisys Option Pool to employees of the Surviving
Corporation and Parent shall take all reasonable corporate action to recommend
such grants to Parent’s Board of Directors for approval under the terms and
conditions of Parent’s Stock Option Plan, which grant shall be at the
discretion of the Board of Directors. 
Any shares of Parent Common Stock subject to options granted from the
Genisys Option Pool that are forfeited as a result of termination of such
options shall be returned to the Genisys Option Pool and available for grant to
Continuing Employees and to future employees of the Surviving Corporation.  Any shares of Parent Common Stock reserved
for the Genisys Option Pool remaining in the Genisys Option Pool after five
years shall be returned to availability for all eligible participants under
Parent’s Stock Option Plan.  The
exercise price per share of Parent Common Stock purchasable under each option
granted from the Genisys Option Pool shall be equal to the fair market value
per share of Parent Common Stock on the option grant date.

 

6.15                        Publicity.  The parties acknowledge that Parent, as a
publicly held company, is subject to certain disclosure requirements under
federal securities laws.  Accordingly,
the Company and the Founder Shareholders agree that, except as otherwise
required by law, they (a) will make no public comment concerning or
announcement regarding the Merger and (b) institute procedures to restrict
knowledge of the proposed transaction to those who need to know.  Notwithstanding the foregoing, Parent
reserves the right to disclose the Merger, including financial information
regarding the Company and the status of negotiations, at any time it decides
that such disclosure is appropriate under the securities laws or the rules of
any stock exchange, provided, however, that Parent shall provide the Company
and its counsel a reasonable time to review and comment upon such disclosure.

 

Except as
otherwise required by law or the rules of the Nasdaq or the Boston Stock
Exchange and notwithstanding anything in this Agreement to the contrary, so
long as this Agreement is in effect, none of Parent, Sub, the Founder
Shareholders or the Company shall, or

 

39

 

shall permit any of their Subsidiaries, if applicable, to issue or
cause the publication of any press release or other public announcement with
respect to, or otherwise make any public statement concerning, the transactions
contemplated by this Agreement without the consent of the other party.

 

6.16                        Completion
of Audit.  The Founder
Shareholders shall use reasonable efforts to assist Parent’s independent
auditors to complete their audit of the business, financial condition and
results of operations of the Company for the fiscal years ending
December 31, 2002 and 2003, and for the period beginning on
January 1, 2004 and ending on the Closing Date, as soon as possible, but
in no event later than sixty (60) days after the Closing.

 

6.17                        Indemnification.  Parent agrees that it will, after the
Effective Time, provide to those individuals who have served as directors or
officers of the Company indemnification equivalent to that provided by the
Articles of Incorporation and Bylaws of the Company with respect to matters
occurring prior to the Effective Time, including without limitation the
authorization of this Agreement and the transactions contemplated hereby, for a
period of six (6) years from the Effective Time (or, in the case of mattes
occurring prior to the Effective Time which, have not been resolved prior to
the sixth (6th) anniversary, until such matters are finally resolved), To the
extent permitted by law, Parent will advance expenses in connection with the
foregoing indemnification.  In the event
the Surviving Corporation or any of its successors or assigns (a) consolidates
with or merges into any other person and the Surviving Corporation shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (b) transfers all or substantially all of its properties and assets
or any person, then and in each such case, proper provision shall be made so
that the successors and assigns of the Surviving Corporation shall assume the
obligations set forth in this Section 6.17.

 

ARTICLE VII

 

CONDITIONS
PRECEDENT

 

7.01                        Conditions
to Each Party’s Obligation to Effect the Merger.  The respective obligation of each party to
effect the Merger shall be subject to the satisfaction at or prior to the
Closing of the following conditions:

 

(a)                                  Regulatory Approvals.  All necessary approvals, authorizations and
consents of all Governmental Entities required to consummate the transactions
contemplated hereby shall have been obtained and shall remain in full force and
effect and all statutory waiting periods in respect thereof shall have expired
or been terminated (all such approvals and the expiration of all such waiting
periods being referred to herein as the “Requisite
Regulatory Approvals”).

 

(b)                                 No Injunctions or Restraints; Illegality.  No order, injunction or decree issued by any
court or agency of competent jurisdiction or other legal restraint or
prohibition (an “Injunction”) preventing the
consummation of the Merger or any of the other transactions contemplated by
this Agreement shall be in effect and no proceeding initiated by any
Governmental Entity seeking an injunction shall be pending.  No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated or enforced
by any

 

40

 

Governmental
Entity which prohibits, restricts or makes illegal consummation of the Merger,
or any of the other transactions contemplated by this Agreement.

 

7.02                        Conditions to Obligations of Parent and Sub.  The obligation of Parent and Sub to effect
the Merger is also subject to the satisfaction or waiver by Parent or Sub, at
or prior to the Effective Time, of the following conditions:

 

(a)                                  Representations and Warranties.  The representations and warranties of the
Company and the Founder Shareholders set forth in this Agreement shall be true
and correct as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date.  Parent shall receive at Closing a certificate signed on behalf of
the Company by an authorized officer, and a certificate signed on behalf of the
Founder Shareholders by the Shareholders’ Representative, to the foregoing
effect.

 

(b)                                 Performance of Obligations of the Company and the
Shareholders.  The Company
and the Shareholders shall have performed all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
Parent shall receive at Closing a certificate signed on behalf of the Company
by an authorized officer, and a certificate signed on behalf of the Founder
Shareholders by the Shareholders’ Representative, to such effect.

 

(c)                                  Consents Under Agreements.  The consent, approval, waiver or amendment
of each person (other than the Governmental Entities referred to in Section 7.01(a)) set forth on Schedule 3.03 hereto shall have been
obtained and shall be reasonably satisfactory to Parent.

 

(d)                                 List of Employees.  The Company shall have delivered to Parent a list of employees
who will become employees of Parent or the Surviving Corporation immediately
following the Closing.

 

(e)                                  Excluded Liabilities.  The Company shall have paid all amounts
owing with respect to the Excluded Liabilities prior to the Closing or
otherwise any such Excluded Liabilities shall have been assigned to and assumed
by the Founder Shareholders prior to Closing.

 

(f)                                    Equity Incentive Plan.  The Company shall have terminated the
Genisys Consulting, Inc. Equity Incentive Plan and all indebtedness payable to
the Company from any Shareholders pursuant to such plan shall have been
transferred to the Founder Shareholders.

 

(g)                                 Stock
Restriction Agreements.  Each of the
Shareholders, except for Todd Okamoto, shall have executed Stock Restriction
Agreements with Parent.

 

(h)                                 Employment Agreements.  Each of the Founder Shareholders shall have
executed Employment Agreements and Proprietary Information and Inventions
Assignment Agreements with Parent.

 

(i)                                     Shareholder Representation Letter.  Each of the Shareholders of the Company
shall have executed and delivered to Parent a Shareholder Representation
Letter.

 

41

 

(j)                                     Letter of Transmittal.  Each of the Shareholders of the Company
shall have executed and delivered to Parent a Letter of Transmittal in the form
attached hereto as Exhibit G.

 

(k)                                  Opinion of Counsel for Company and the Founder
Shareholders.  The Parent and
Sub shall have received an Opinion of Counsel of the Company and the Founder
Shareholders in form and substance reasonably acceptable to the parties.

 

(l)                                     Authorization to Conduct Business.  The Company shall have been licensed,
qualified or authorized to conduct business in all jurisdictions in which the
nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary and shall have satisfied and paid all expenses, taxes,
assessments, fines, penalties and other payments to such jurisdictions in
connection therewith.

 

(m)                               Escrow Agreement.  The Parent, Sub, Shareholders’ Representative and the Escrow
Agent shall each have executed and delivered the Escrow Agreement.

 

(n)                                 No Material Adverse Changes.  During the period between the execution of
this Agreement and the Closing Date, there shall not have been any Company
Material Adverse Effect and no fact or condition specific to the Company may
exist which would have or would reasonably likely cause such a Company Material
Adverse Effect after the Closing.

 

7.03                        Conditions to Obligations of the
Company.  The obligations
of the Company to effect the Merger is also subject to the satisfaction, or
waiver by the Company, at or prior to the Closing of the following conditions:

 

(a)                                  Representations and Warranties.  The representations and warranties of Parent
and Sub set forth in this Agreement shall be true and correct as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date.  The Company shall receive
at Closing a certificate signed on behalf of Parent and Sub by an authorized
officer of each company to the foregoing effect.

 

(b)                                 Performance of Obligations of Parent and Sub.  Parent and Sub shall have each performed all
obligations required to be performed by them under this Agreement at or prior
to the Closing Date, and the Company shall receive at Closing a certificate
signed on behalf of Parent and Sub by an authorized officer of each company to
such effect.

 

(c)                                  Opinion of Counsel for the Parent and Sub.  The Company shall have received an opinion
of counsel of Parent and Sub in form and substance reasonably acceptable to the
parties.

 

(d)                                 Payment of Merger Consideration.  Parent shall have paid each Shareholder such
Shareholder’s pro rata portion of the Merger Consideration, less the Cash
Holdback Amount and the Escrow Shares.

 

(e)                                  Shareholder Approval.  This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the requisite vote
of the Shareholders.

 

42

 

(f)                                    Employment Agreements.  Parent shall have executed Employment
Agreements with each of the Founder Shareholders.

 

(g)                                 Escrow Agreement.  The Company, Parent, Sub, Shareholders’ Representative and the
Escrow Agent shall each have executed and delivered the Escrow Agreement.

 

(h)                                 No Material Adverse Changes.  During the period between the execution of
this Agreement and the Closing Date, there shall not have been any material
adverse effect on the Parent or Sub, or their business or financial condition,
taken as a whole, and no fact or condition specific to the Parent or Sub may
exist which is reasonably likely to cause such a material adverse effect on the
Parent or Sub after the Closing.

 

ARTICLE VIII

 

TERMINATION
AND AMENDMENT

 

8.01                        Termination.  This Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time:

 

(a)                                  by
mutual consent of Parent and the Company in a written instrument, if the Board
of Directors of each so determines by a vote of a majority of the members of
its entire Board;

 

(b)                                 by
either Parent or the Company (provided, however, that the right to terminate
this Agreement under this clause shall not be available to any party who’s
breach or failure to fulfill any of its obligations under this Agreement has
been the cause of or resulted in the failure of the Closing to occur) if there
shall have been a breach of any of the representations, warranties, covenants
or agreements set forth in this Agreement on the part of the other party such
that the provisions of Sections 7.02(a)
and 7.02(b) or Sections 7.03(a) and 7.03(b), as the case may be, would not be
satisfied and such breach has not been cured within ten (10) days after notice
thereof to the breaching party; provided, however, that no cure period shall be
required for a breach which by its nature cannot be cured; or

 

(c)                                  by
either Parent or the Company if the Closing shall not have occurred by
June 30, 2004; provided, however, such date may be increased by an
additional thirty (30) days at the request of the Parent if the Closing is
delayed solely because any Requisite Regulatory Approval has not been obtained
and Parent is diligently undertaking such efforts required to obtain the same;
provided, further, that the right to terminate this Agreement under this Section 8.01(c) shall not be available
to any party whose actions or failure to act has been a primary cause of, or
resulted in, the failure of the Merger to occur on or before such date and such
action or failure to act constitutes a breach of this Agreement.

 

8.02                        Effect
of Termination.  In the
event of termination of this Agreement by either Parent or the Company as
provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, except Section 5.02(b) shall survive any
termination of this Agreement for a period of two (2) years following such
termination, and there shall be no further obligation on the part of Parent,
Sub, the Company, or their respective officers or directors or the Shareholders

 

43

 

except for the
obligations under such provisions. 
Notwithstanding anything to the contrary contained in this Agreement, no
party shall be relieved or released from any liabilities or damages arising out
of its intentional breach of any provision of this Agreement.

 

8.03                        Expenses.  Regardless of whether the transactions
contemplated by this Agreement close, each party shall bear its own costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.  In the event of a
Closing of the transactions contemplated by this Agreement, the Shareholders
shall bear all costs and expenses incurred by the Company in connection with
this Agreement and the transactions contemplated hereby.

 

8.04                        Amendment.  Subject to compliance with applicable law,
this Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors.  Notwithstanding the foregoing, non-material amendments to this
Agreement may be made without the authorization of the respective Boards of
Directors of the parties hereto.  This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.

 

8.05                        Extension;
Waiver.  At any time
prior to the Effective Time, the parties hereto, by action taken or authorized
by their respective Board of Directors, may, to the extent legally allowed, (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions contained
herein.  Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party, but such extension or
waiver shall nor operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.

 

ARTICLE IX

 

INDEMNIFICATION

 

9.01                        Agreement
to Indemnify.  Following
the Closing and subject to the limitations set forth herein,

 

(a)                                  the
Company and each Founder Shareholder, jointly and severally, shall indemnify
and agree to defend and hold harmless Parent and the Surviving Corporation (and
their respective affiliates, officers, directors, employees, representatives
and agents) (“Purchaser Indemnities” and,
singularly, a “Purchaser Indemnitee”)
against and in respect of any and all Damages, by reason of or otherwise
arising out of (i) Parent Indemnified Taxes, and (ii) a breach by the Company
or the Founder Shareholders of a representation, warranty or covenant contained
in this Agreement or in the event of a Third Party Claim (as hereinafter
defined) relating to any event occurring prior to the Effective Time.  “Damages”
shall include, reasonable attorneys’ fees and disbursements, reasonable
accountants’ fees and disbursements, costs of litigation and other expenses
incurred by them (or their respective affiliates, officers, directors or
employees) in the defense of any claim asserted against them (or their
respective affiliates, officers, directors or employees) and any amounts paid
in settlement or compromise of any claim

 

44

 

asserted
against them to the extent that the claim asserted is or would have been
subject to the indemnification provisions hereof, subject to the limitations on
indemnification set forth in Sections 9.02
and 9.03.  “Damages” shall not include
any amount for which reimbursement is received by Parent, the Surviving
Corporation or the Company, as the case may be, pursuant to insurance policies
or third-party payments by virtue of indemnification or subrogation received by
such party which the Parent, the Company and the Surviving Corporation shall
use their best efforts to pursue, and shall be determined net of any tax
benefit actually realized by the Indemnified Party as a result of the
claim.  “Parent Indemnified Taxes” means any and
all Taxes together with any costs, expenses, losses or damages (including court
and administrative costs and reasonable legal fees and expenses incurred in
investigating and preparing for any audit, litigation or other proceeding)
arising out of or incident to the determination, assessment or collection of
such Taxes (i) imposed on the Company or any of its subsidiaries for which it
may otherwise be liable for any taxable period or portion thereof ending on or
prior to the Effective Time, including as a result of the transactions
contemplated by the Agreement, (ii) imposed on or with respect to the
Shareholders, (iii) resulting from the breach of the representations and
warranties set forth in Section 3.08 (determined without regard to
the assumption set forth in the second sentence of Section 3.08(b)
or any scheduled items that may be contained therein) or covenants of the
Company or the Shareholders set forth in Section 6.09, (iv) of any
member of an affiliated, consolidated, combined or unitary group of which the
Company (or any predecessor) is or was a member on or prior to the Effective
Time by reason of the liability of the Company pursuant to Treasury Regulation
§1.1502-6 or any analogous or similar state, local or foreign law, (v) imposed
on Parent or the Company under Code Section 1374, or (vi) imposed on
Parent or the Company as result the Company’s use of the cash method of
accounting for federal income Tax purposes or the cessation thereof; but only
to the extent such Taxes were not included as a liability or Closing Date
Company Tax Liability in the Final Closing Date Balance Sheet

 

(b)                                 Parent
shall indemnify and agrees to defend and hold harmless the Shareholders (and
their respective affiliates, representatives and agents) against and in respect
of any and all Damages by reason of or otherwise arising out of a breach by
Parent or Sub of a representation, warranty or covenant contained in this
Agreement.

 

9.02                        Survival
of Indemnity.  The
representations and warranties and indemnification obligations of each
Indemnifying Party pursuant to Section 9.01
shall survive the Closing for a period of twelve (12) months, except for
Damages arising out of a breach of any of the representations or warranties in
either Section 3.08 or Section 3.13 and Parent Indemnified Taxes,
which shall survive for a period equal to the applicable statute of limitations
on any claim relating thereto, and any claims for indemnification in accordance
with this ARTICLE IX with respect
to any representation or warranty must be made (and will be null and void
unless made) prior to the end of the applicable survival period.  Upon expiration of such periods, no
Indemnifying Party shall have any liability for Damages under such
indemnification obligations unless it has received written notice from an
Indemnified Party claiming indemnification prior to the expiration of the
applicable period as required.

 

45

 

9.03                        Additional
Provisions.

 

(a)                                  Limitations on Indemnified Amounts of the Company and
the Shareholders.  Except
with respect to Excluded Liabilities and Parent Indemnified Taxes or as
otherwise provided herein, the Company and the Founder Shareholders shall not
have any obligation to indemnify any parties under this ARTICLE IX until the Company’s and the
Founder Shareholders’ aggregate indemnity obligations shall exceed $50,000.00,
whereupon such parties shall be entitled to receive Damages from the first
dollar; provided, however, that in no event shall the Company’s and the Founder
Shareholders’ aggregate indemnity obligations exceed an amount equal to the
aggregate Merger Consideration received by the Founder Shareholders.  The liability of the Company and the Founder
Shareholders collectively for indemnification under this ARTICLE IX by reason of or arising out
of any breach by the Company or any Founder Shareholder of any covenant or of
any representation or warranty shall not be modified, waived or diminished by
any examination or investigation conducted by Parent of the books, records or
operations of the Company.

 

(b)                                 Limitations on Indemnified Amounts of Parent.  Parent shall have no obligation to indemnify
the Company under this ARTICLE IX
until the Indemnified Parties’ aggregate indemnity obligations hereunder shall
exceed $50,000.00, whereupon such parties shall be entitled to receive Damages
from the first dollar, provided however, that in no event shall the Parent’s
and Sub’s aggregate indemnity obligations exceed an amount equal to the maximum
potential indemnification obligation of the Company and the Shareholders as provided
in Section 9.03(a).  The liability of Parent for indemnification
under this ARTICLE IX by reason of
or arising out of any breach by Parent or Sub of any covenant or of any
representation or warranty shall not be modified, waived or diminished by any examination
or investigation conducted by the Company of the books, records or operations
of Parent and Sub.

 

(c)                                  Satisfaction of
Indemnification Obligations.  Parent and Sub agree that all Damages shall first be satisfied
with the Escrowed Shares until such time as the aggregate amount of unresolved
indemnification claims made for the benefit of the Purchaser Indemnities
exceeds the value of the Escrowed Shares, after which time the Parent
Indemnified Parties shall be free to pursue Damages directly against the
Founder Shareholders (provided that the Shareholder Representative has been
notified of any such indemnification claim prior to the twelve-month
anniversary of the Closing Date). 
Notwithstanding the preceding sentence, the Shareholders
may at their option through a notice by the Shareholders’ Representative to
Parent within ten (10) days of the final determination of any Damages, satisfy
the payment of any Damages through the payment of cash in lieu of the Escrowed
Shares.  Any Escrowed
Shares used to satisfy such Damages shall be valued at the average closing
price for the Parent’s outstanding common stock on the Nasdaq for the twenty
(20) consecutive trading days ending on the trading day immediately before the
date such shares are withdrawn from the escrow.

 

(d)                                 No Limitation in Event of Fraud.  Notwithstanding any other provision hereof,
nothing in this ARTICLE IX
(including the provisions of paragraphs (a) and (b) of this Section 9.03) or otherwise shall limit,
in any manner, any remedy at law or equity, to which any party may be entitled
as a result of fraud by any Indemnifying Party or its employees, officers or
directors or a violation of the federal securities laws.

 

46

 

(e)                                  Exclusivity of Remedy; Survival of Covenants.  Following the Closing, except in respect of
claims based upon fraud or violation of the federal securities laws, the
indemnification accorded by this Section shall be the sole and exclusive
remedy of the parties indemnified under this ARTICLE IX
in respect of any misrepresentation or inaccuracy in, or breach of, any
representation or warranty or any breach or failure in performance of any
covenant or agreement made in this Agreement or in any document or certificate
delivered pursuant hereto other than the Employment Agreements.  Notwithstanding the foregoing, in the event
of any breach or failure in performance after the Closing of any covenant or
agreement, a non-breaching party shall also be entitled to seek specific
performance, injunctive or other equitable relief.  The covenants of any party shall terminate according to the terms
of such covenant and the expiration of the applicable statutes of limitations.

 

(f)                                    Subrogation. 
Upon making any payment to an Indemnified Party for any indemnification
claim pursuant to this ARTICLE IX,
an Indemnifying Party shall be subrogated, to the extent of such payment, to
any rights that the Indemnified Party may have against any other persons with
respect to the subject matter underlying such indemnification claim and the
Indemnified Party shall take such actions as the Indemnifying Party may
reasonably require to perfect such subrogation or to pursue such rights against
such other persons as the Indemnified Party may have.

 

9.04                        Claim
Notice; Definitions; Third Party Claim Procedures.

 

(a)                                  Claim Notice.  An Indemnified Party shall give each Indemnifying Party from whom
indemnification is sought prompt written notice (a “Claim
Notice”) of any claim, demand, action, suit, proceeding or
discovery of fact upon which the Indemnified Party intends to base the claim
for indemnification under this ARTICLE IX,
which shall contain (i) a description and the amount of any Damages incurred or
reasonably expected to be incurred by the Indemnified Party, (ii) a statement
that the Indemnified Party is entitled to indemnification under this ARTICLE IX for such Damages, and (iii) a
demand for payment, provided, however, that no failure to give such Claim
Notice shall excuse any Indemnifying Party from any obligation hereunder except
to the extent the Indemnifying Party is materially and actually prejudiced by
such failure.

 

(b)                                 Definitions. 
The term “Indemnified Party” shall mean
a party (or its successor) who is entitled to indemnification from a party
hereto pursuant to this ARTICLE IX;
the term “Indemnifying Party” shall
mean a party (or its successor) hereto who is required to provide
indemnification under this ARTICLE IX
to another party; and the term “Third Party Claim”
shall mean any claim, action, suit, proceeding, investigation or like matter
which is asserted or threatened by a party other than the parties hereto, their
successors and permitted assigns, against any Indemnified Party or to which any
Indemnified Party is subject.

 

(c)                                  Procedure. 
The Indemnified Party may, upon reasonable notice, tender the exclusive
defense of a Third Party Claim (subject to the provisions of this Section 9.04(c)) to the Indemnifying
Party.  If (i) the defense of a Third
Party Claim is so tendered and within thirty (30) days thereafter such tender
is accepted without qualification (or reservation of rights) by the
Indemnifying Party; or (ii) within thirty (30) days after the date on which
written notice of a Third Party Claim has been given pursuant to this Section 9.04(c), the Indemnifying Party
shall

 

47

 

acknowledge in
writing to the Indemnified Party and without qualification (or reservation of
rights) its indemnification obligations as provided in this ARTICLE IX; then, except as hereinafter
provided, the Indemnified Party shall not, and the Indemnifying Party shall,
have the right to contest, defend, litigate or settle such Third Party
Claim.  The Indemnified Party shall have
the right to be represented by counsel at its own expense in any such contest,
defense, litigation or settlement conducted by the Indemnifying Party provided
that the Indemnified Party shall be entitled to reimbursement therefor if the
Indemnifying Party shall lose its right to contest, defend, litigate and settle
the Third Party Claim as herein provided. 
The Indemnifying Party shall lose its right to defend and settle the
Third Party Claim if it shall fail to diligently contest, defend, litigate and
settle the Third Party Claim as provided herein.  So long as the Indemnifying Party has not lost its right, defend,
litigate and settle and/or obligation to contest, defend, litigate and settle
as herein provided, the Indemnifying Party shall have the exclusive right to
contest, defend and litigate the Third Party Claim and shall have the right,
upon receiving the prior written approval of the Indemnified Party (which shall
not be unreasonably withheld unless such settlement does not fulfill the
conditions set forth in the following sentence and which shall be deemed
automatically given if a response has not been received within the ten (10) day
period following a request for such consent), to settle any such matter, either
before or after the initiation of litigation, at such time and upon such terms
as it deems fair and reasonable. 
Notwithstanding anything to the contrary herein contained, in connection
with any settlement negotiated by an Indemnifying Party, no Indemnified Party
or Indemnifying Party (as the case may be) that is not controlling the defense and
or settlement of the Third Party Claim (the “Non-Control
Party”) shall be required by an Indemnifying Party or
Indemnified Party controlling the litigation to (and no such party shall) (x)
enter into any settlement that does not include as an unconditional term
thereof the delivery by the claimant or plaintiff to the Non-Control Party of a
release from all liability in respect of such claim or litigation, (y) enter
into any settlement that attributes by its terms liability to the Non-Control
Party or which may otherwise have an adverse effect on the Indemnified Party’s
business, or (z) consent to the entry of any judgment that does not include as
a term thereof a full dismissal of the litigation or proceeding with prejudice.
All expenses (including attorneys’ fees) incurred by the Indemnifying Party in
connection with the foregoing shall be paid by the Indemnifying Party.  No failure by an Indemnifying Party to
acknowledge in writing its indemnification obligations under this ARTICLE IX shall relieve it of such
obligations to the extent they exist. 
If an Indemnified Party is entitled to indemnification against a Third
Party Claim, and the Indemnifying Party fails to accept a tender of, or assume,
the defense of a Third Party Claim pursuant to this ARTICLE IX,
or if, in accordance with the foregoing, the Indemnifying Party does not have
the right or shall lose its right to contest, defend, litigate and settle such
a Third Party Claim, the Indemnified Party shall have the right, without
prejudice to its right of indemnification hereunder, in its discretion
exercised in good faith and upon the advice of counsel, to contest, defend and
litigate such Third Party Claim, and may settle such Third Party Claim, either
before or after the initiation of litigation, at such time and upon such terms
as the Indemnified Party deems fair and reasonable, provided that at least ten
(10) days prior to any such settlement, written notice of its intention to
settle is given to the Indemnifying Party. 
If, pursuant to this Section 9.04(c),
the Indemnified Party so contests, defends, litigates or settles a Third Party
Claim, for which it is entitled to indemnification hereunder as provided
herein, the Indemnified Party shall be reimbursed by the Indemnifying Party for
the reasonable attorneys’ fees and other expenses of defending, contesting,
litigating and/or settling the Third Party Claim which are incurred from time
to time, forthwith following

 

48

 

the
presentation to the Indemnifying Party of itemized bills for said attorneys’
fees and other expenses.  The
Indemnified Party or the Indemnifying Party, as the case may be, shall furnish
such information in reasonable detail as it may have with respect to a Third
Party Claim (including copies of any summons, complaint or other pleading which
may have been served on such party and any written claim, demand, invoice,
billing or other document evidencing or asserting the same) to the other party
if such other party is assuming defense of such claim, and make available all
records and other similar materials which are reasonably required in the
defense of such Third Party Claim and shall otherwise cooperate with and assist
the defending party in the defense of such Third Party Claim.

 

ARTICLE X

 

SHAREHOLDERS’
REPRESENTATIVE

 

10.01                 Appointment
of Shareholders’ Representative.  The initial Shareholders’ Representative shall be Jeffrey A.
Martini (the “Shareholders’ Representative”).  The Shareholders’ Representative shall be
the attorney-in-fact and agent of Shareholders with respect to the matters set
forth in this Agreement. 
Notwithstanding anything to the contrary set forth in this Agreement,
the Shareholders’ Representative shall have no duties or responsibilities
except those expressly set forth herein, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities on behalf of any
Shareholder shall otherwise exist against the Shareholders’
Representative.  The foregoing power is
irrevocable and coupled with an interest, and shall not be affected by the
death, incapacity, illness, dissolution or other inability to act of any of the
Shareholders.

 

10.02                 Authority.  Each Shareholder, pursuant to the
Shareholder Representation Letter, shall grant the Shareholders’ Representative
full power and authority:

 

(a)                                  to
execute and deliver, on behalf of such Shareholder, and to accept delivery of,
on behalf of such Shareholder, such documents as may be deemed by the
Shareholders’ Representative, in his sole discretion, to be appropriate to
consummate this Agreement; provided, however, that the Shareholders’
Representative will have no authority to amend the terms and conditions of this
Agreement, which amendment shall be subject to Section 11.09
hereof.

 

(b)                                 to
certify, on behalf of such Shareholder, as to the accuracy of the
representations and warranties of such Shareholder under, or pursuant to the
terms of, this Agreement;

 

(c)                                  to
(i) dispute or refrain from disputing, on behalf of such Shareholder, any claim
made by Parent or the Surviving Corporation under this Agreement; (ii)
negotiate and compromise, on behalf of such Shareholder, any dispute that may
arise under, and to exercise or refrain from exercising any remedies available
under this Agreement, and (iii) execute, on behalf of such Shareholder, any
settlement agreement, release or other document with respect to such dispute or
remedy;

 

49

 

(d)                                 to
give or agree to, on behalf of such Shareholder, any and all consents, waivers,
amendments or modifications, deemed by the Shareholders’ Representative, in his
sole discretion, to be necessary or appropriate, under this Agreement, and, in
each case, to execute and deliver any documents that may be necessary or
appropriate in connection therewith;

 

(e)                                  to
enforce, on behalf of such Shareholder, any claim against Parent, Sub or the
Surviving Corporation arising under this Agreement; and

 

(f)                                    to
give such instructions and to take such action or refrain from taking such
action, on behalf of such Shareholders, as the Shareholders’ Representative
deems, in their sole discretion, necessary or appropriate to carry out the
provisions of this Agreement.

 

10.03                 Reliance.  Each Shareholder agrees that:  (a) in all matters in which action by the
Shareholders’ Representative is required or permitted, the Shareholders’
Representative is authorized to act on behalf of such Shareholder,
notwithstanding any dispute or disagreement among Shareholders or between any
Shareholder and the Shareholders’ Representative, and Parent, Sub and the
Surviving Corporation shall be entitled to rely on any and all action taken by
the Shareholders’ Representative, under this Agreement without any liability
to, or obligation to inquire of, any of the Shareholders notwithstanding any
knowledge on the part of the Parent of any such dispute or disagreement; (b)
the power and authority of the Shareholders’ Representative, as described in
this Agreement, shall be effective until all rights and obligations of
Shareholders under this Agreement have terminated, expired or been fully
performed; and (c) if the Shareholders’ Representative resigns or
otherwise ceases to function in his or her capacity as such for any reason
whatsoever, a majority of the Shareholders shall have the right, exercisable
upon written notice delivered to Purchaser to appoint another individual to
serve as a new Shareholders’ Representative to fill the vacancy caused by the
circumstance described above.

 

10.04                 Indemnification
of Parent, Sub and Their Affiliates.  Shareholders, pursuant to the Shareholder Representation Letter,
shall jointly and severally indemnify the Purchaser Indemnities against, and
agree to hold the Purchaser Indemnities harmless from, any and all Damages
incurred or suffered by any Purchaser Indemnitee arising out of, with respect
to or incident to the operation of, or any breach of any covenant or agreement
pursuant to, this ARTICLE X by a
Shareholder or a Shareholders’ Representative, or the designation, appointment
and actions of the Shareholders’ Representative pursuant to the provisions
hereof, including with respect to (a) actions taken by the Shareholders’
Representative, and (b) reliance in good faith by any Purchaser Indemnitee on,
and actions in good faith taken by any Purchaser Indemnitee in response to or
in reliance on, the instructions of, notice given by or any other action taken
by the Shareholders’ Representative.

 

10.05                 Indemnification of Shareholders’
Representative.  Each
Shareholder, pursuant to the Shareholder Representation Letter, shall severally
indemnify and hold any Person serving as the Shareholders’ Representative
harmless from and against any Damages (except as result from such Person’s bad
faith, gross negligence or willful misconduct) that such Person may suffer or
incur in connection with any action taken by such Person as the Shareholders’
Representative.  Each Shareholder shall
bear its pro-rata portion of such Damages. 
No Person serving as Shareholders’ Representative shall be liable to any
Shareholder with respect to any

 

50

 

action or
omission taken or omitted to be taken by the Shareholders’ Representative
pursuant to this ARTICLE X, except
for such Person’s gross negligence or willful misconduct.  No Shareholders’ Representative shall be
responsible in any manner whatsoever for any failure or inability of Parent or
Sub, or of anyone else, to honor any of the provisions of this Agreement.  The Shareholders’ Representative shall be
fully protected by Shareholders in acting on and relying upon any written
notice, direction, request, waiver, notice, consent, receipt or other paper or
document which they in good faith believe to be genuine and to have been signed
or presented by the proper party or parties.  The Shareholders’ Representative shall not be liable to the
Shareholders for any error of judgment, or any act done or step taken or
omitted by any of them in good faith or for any mistake in fact or law, or for
anything which any of them may do or refrain from doing in connection herewith,
except for their own bad faith, willful misconduct or gross negligence.  The Shareholders’ Representative may seek
the advice of legal counsel, engage experts or otherwise incur reasonable
expenses in the event of any dispute or question as to the construction of any
of the provisions of this Agreement or their duties hereunder, and they shall
incur no liability to Shareholders with respect to any action taken, omitted or
suffered by them in good faith in accordance with the opinion of such counsel
or experts.  The Shareholders shall
severally hold the Shareholders’ Representative harmless from and against any
and all such expenses, and, in addition to any and all other remedies available,
the Shareholders’ Representative shall have the right to set-off against any
amounts due to the Shareholders.

 

ARTICLE XI

 

GENERAL
PROVISIONS

 

11.01                 Notices.  All notices and other communications
hereunder shall be in writing and shall be deemed given when delivered
personally or telecopied (with confirmation from recipient) provided that a
copy of all telecopies is sent by one of the other delivery methods set forth
in this Section 11.01 within one
(1) day of being telecopied, three (3) days after mailed by registered or
certified mail (return receipt requested) or on the day delivered by an express
courier (with confirmation from recipient) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):

 

(a)                                  if
to Parent or Sub, to:

 

Perficient, Inc.

1120 South Capital of Texas
Highway

Building 3, Suite 220

Austin, Texas 78746

Attn:  John T. McDonald, Chief Executive Officer

Phone:                 (512)
531-6000

Facsimile:          (512) 531-6011

 

51

 

with a copy to:

 

Vinson & Elkins L.L.P.

The Terrace 7

2801 Via Fortuna, Suite 100

Austin, Texas  78746

Attn:  J. Nixon Fox III, Esq.

Phone:               (512) 542-8427

Facsimile:          (512) 236-3216

 

(b)                                 if
to the Company, to:

 

Genisys Consulting, Inc.

25 Northwest Point

Suite 600

Elk Grove Village,
Illinois  60007

Attn: Jeffrey A. Martini

Phone:               (847) 806-0088

Facsimile:          (847) 806-0388

 

with a copy to:

 

Clingen, Callow & Mc Lean
LLC

2100 Manchester Road

Suite 1750

Wheaton, Illinois  60187-4574

Attn:  Kenneth Clingen, Esq.

Phone:               (630)  871-2608

Facsimile:          (630) 871-9869

 

(c)                                  if
the Shareholders’ Representative, to:

 

Genisys Consulting, Inc.

25 Northwest Point

Suite 600

Elk Grove Village,
Illinois  60007

Attn: Jeffrey A. Martini

Phone:               (847) 806-0088

Facsimile:          (847) 806-0388

 

52

 

with a copy to:

 

Clingen, Callow & Mc Lean
LLC

2100 Manchester Road

Suite 1750

Wheaton, Illinois  60187-4574

Attn:  Kenneth Clingen, Esq.

Phone:               (630)  871-2608

Facsimile:          (630) 871-9869

 

11.02                 Interpretation.  When a reference is made in this Agreement
to Sections, Exhibits or Schedules, such reference shall be to a
Section of or Exhibit or Schedule to this Agreement unless otherwise
indicated.  The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.  Whenever the words “include,” “includes”
or “including” are used in this
Agreement, they shall be deemed to be followed by the words “without limitation.”

 

11.03                 Counterparts.  This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each of the
parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.

 

11.04                 Entire
Agreement.  This
Agreement (including the documents and the instruments referred to herein)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.

 

11.05                 Governing Law.  This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without regard
to any applicable conflicts of law principles thereof.

 

11.06                 Enforcement of
Agreement.  The parties
hereto agree that irreparable damage would occur in the event that the
provisions contained in Sections 5.02
or 6.15 of this Agreement were not
performed in accordance with its specific terms or were otherwise
breached.  It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of Sections 5.02 or 6.15 of this Agreement and to enforce
specifically the terms and provisions thereof in any court of the United States
or any court located in the city of Chicago in the State of Illinois, this
being in addition to any other remedy to which they are entitled at law or in
equity.

 

11.07                 Severability.  Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other
jurisdiction.  If any provision of this
Agreement is deemed to be so broad as to be unenforceable, the provision shall
be interpreted to be only so broad as is enforceable.

 

53

 

11.08                 Assignment.  Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. 
Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.  Except as
otherwise expressly provided herein, this Agreement (including the documents
and instruments referred to herein) is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.

 

11.09                 Amendment.  This Agreement may be amended with respect
to any of the terms contained herein only by written agreement, signed by each
of the parties hereto.

 

[Signature Page Follows]

 

54

 

IN WITNESS
WHEREOF, Parent, Sub and the Company have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
above written.

 

	
   

  	
  PERFICIENT, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John T. McDonald

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PERFICIENT GENISYS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John T. McDonald

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GENISYS SOLUTIONS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Jeffrey A. Martini

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FOUNDER SHAREHOLDERS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Jeffrey A. Martini

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Michael P. Reiss

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  David W. Stewart

  
											

 

SIGNATURE PAGE TO AGREEMENT AND PLAN OF
MERGERThroughout this agreement, where information has been replaced by an asterisk
(*), that information has been omitted pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission pursuant to Rule
24b-2 promulgated under the Securities Exchange Act of 1934, as amended. The
omitted information has been filed separately with the Securities and Exchange
Commission.

                                                                   Exhibit 10.66
                                                                   -------------

                                TRADEMARK LICENSE

                                    AGREEMENT

                                      AMONG

                                  GUESS?, INC.,

                              GUESS? IP HOLDER L.P.

                                       AND

                             PARLUX FRAGRANCES, INC.

                                      -1-
<PAGE>

                                TABLE OF CONTENTS

1.    CERTAIN DEFINITIONS.....................................................7

2.    TERM OF AGREEMENT.......................................................9

   2.1     INITIAL TERM.......................................................9
   2.2     RENEWAL TERM.......................................................9

3.    GRANT OF LICENSE RIGHTS.................................................9

   3.1     RIGHTS GRANTED....................................................10
   3.2     RIGHTS NOT GRANTED................................................10
   3.3     RIGHT OF FIRST REFUSAL............................................10

4.    DESIGN STANDARDS.......................................................11

   4.1     SAMPLES/PRIOR APPROVAL............................................11

5.    QUALITY CONTROL AND APPROVALS..........................................11

   5.1     QUALITY CONTROL...................................................11
   5.2     SKU NUMBER/AFFIXATION OF TRADEMARKS/THIRD
            PARTY MATERIALS BEARING THE TRADEMARKS...........................11
   5.3     FINISHED PRODUCTS/PRIOR APPROVAL..................................12
   5.4     RIGHT TO INSPECT FACILITIES.......................................12
   5.5     CONSULTATION......................................................12
   5.6     TRAVEL BY LICENSEE................................................12
   5.7     TRAVEL BY GUESS...................................................12

6.    DISTRIBUTION...........................................................13

   6.1     MANNER AND SCOPE..................................................13
   6.2     CUSTOMER APPROVAL.................................................13
   6.3     TRADE DISCOUNT TO GUESS...........................................13
   6.4     TRADE DISCOUNT TO PERFUMANIA......................................13
   6.5     LICENSEE'S DUTIES.................................................14

7.    ADVERTISING............................................................16

   7.1     PRIOR APPROVAL....................................................16
   7.2     MINIMUM ADVERTISING EXPENDITURE/BUDGET............................16
   7.3     UNAUTHORIZED ADVERTISING..........................................8

8.    SHOWROOMS..............................................................16

   8.1     OPENING OF SHOWROOM...............................................18

9.       INSURANCE...........................................................19

   9.1     PROCUREMENT OF INSURANCE..........................................19
   9.2     EVIDENCE OF INSURANCE.............................................19

10.      OWNERSHIP AND PROTECTION OF TRADEMARKS AND IP RIGHTS................19

   10.1    OWNERSHIP.........................................................19
   10.2    REGISTRATION......................................................19

                                      -2-
<PAGE>

   10.3    ASSIGNMENT OF RIGHTS..............................................20
   10.4    PROHIBITED ACTS...................................................20
   10.5    MISUSE............................................................21
   10.6    REPORT TO GUESS...................................................22
   10.7    COMPLIANCE WITH RULES OF GUESS....................................22

11.      TRADE SECRETS AND CONFIDENTIALITY...................................22

12.      PAYMENTS AND REPORTS................................................23

   12.1    ADVANCE...........................................................23
   12.2    LETTER OF CREDIT..................................................23
   12.3    ROYALTY BASIS.....................................................23
   12.4    DEDUCTIONS/RETURNS/CLOSEOUTS......................................23
   12.5    TRADEMARK ROYALTY AND ROYALTY MINIMUM PAYMENTS....................25
   12.6    REMITTANCE OF PAYMENT/WITHHOLDING.................................25
   12.7    QUARTERLY REPORT..................................................25
   12.8    MONTHLY SALES REPORT..............................................26
   12.9    INVOICES..........................................................26
   12.10   RIGHT TO REVIEW; AFFILIATE TRANSACTIONS...........................26
   12.11   LATE PAYMENT......................................................26
   12.12   FOREIGN CURRENCY CONVERSION.......................................27
   12.13   PAYMENTS BY GUESS.................................................27

13.      ACCOUNTING AND SYSTEMS..............................................27

   13.1    DUTY TO KEEP ACCOUNTS.............................................27
   13.2    FINANCIAL STATEMENTS, INVENTORY RECONCILIATION AND
            BUSINESS PLAN....................................................27
   13.3    RIGHT OF INSPECTION BY GUESS......................................28
   13.4    FAILURE TO MAINTAIN RECORDS.......................................28
   13.5    SYSTEMS...........................................................29

14.      FORCE MAJEURE.......................................................29

15.      BREACH AND TERMINATION..............................................29

   15.1    OTHER RIGHTS UNAFFECTED BY TERMINATION............................29
   15.2    TERMINATION OPTION FOR BREACH/CURE POSSIBLE.......................29
   15.3    TERMINATION OPTION/NO CURE POSSIBLE/CHANGE OF OWNERSHIP...........30
   15.4    TERMINATION OPTION/NO CURE POSSIBLE/ADDITIONAL CAUSES.............30
   15.5    NO ASSIGNEE.......................................................33

16.      OBLIGATIONS AT TERMINATION OR EXPIRATION............................33

   16.1    SIGNS AND PROMOTIONAL MATERIALS...................................33
   16.2    DIRECTORIES AND LISTINGS..........................................34
   16.3    SUBCONTRACTORS....................................................34
   16.4    INVENTORY; RIGHT TO PURCHASE......................................34
   16.5    REMAINING PRODUCTS................................................34
   16.6    LICENSEE'S OBLIGATION REGARDING SALE OF PRODUCTS..................35

17.      EFFECT OF TERMINATION OR EXPIRATION.................................35

                                      -3-
<PAGE>

   17.1    TERMINATION OF RIGHTS.............................................35
   17.2    NO USE OF TRADEMARKS AND IP RIGHTS................................36
   17.3    NO LIABILITY......................................................36

18.      INDEMNIFICATION, REPRESENTATIONS AND WARRANTIES.....................37

   18.1    INDEMNIFICATION...................................................37
   18.2    DEFENSE COUNSEL...................................................37
   18.3    AUTHORITY.........................................................37
   18.4    COMPLIANCE WITH LAWS..............................................37
   18.5    LICENSEE REPRESENTATIONS AND WARRANTIES...........................38
   18.6    GUESS REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.............38
   18.7    NO WARRANTY OR REPRESENTATION BY GUESS............................39

19.      APPROVAL PROCEDURES.................................................39

20.      ARBITRATION.........................................................40

   20.1    PARTIES' CONSENT TO ARBITRATION...................................40
   20.2    POWERS............................................................40
   20.3    PROVISIONAL REMEDIES..............................................40
   20.4    ENTITLEMENT TO COSTS..............................................41

21.      GOVERNING LAW.......................................................41

22.      RELATIONSHIP OF PARTIES.............................................41

23.      ASSIGNABILITY.......................................................41

24.      INTERPRETATION......................................................42

25.      WAIVER AND INTEGRATION..............................................42

26.      NOTICES AND COMMUNICATIONS..........................................42

27.      SEVERABILITY........................................................43

28.      SURVIVAL............................................................43

29.      EXHIBITS............................................................44

30.      ENTIRE AGREEMENT; LANGUAGE; COUNTERPARTS............................44

                                      -4-
<PAGE>

                                LIST OF EXHIBITS

Exhibit  Title
-------  -----

A        Trademarks

B        Licensed Product Approval Form

C        Licensed Property Use Approval Form

D-1      Customers

D-2      Customer Profile Form

E-1      Distributors

E-2      Distribution Approval Form

F        Advertising Approval Form

G        Advertising Budget Form

H        Royalty Minimum

I        Statement of Royalties

J        Minimum Net Sales

K        Monthly Sales Report

L        Systems Requirements List

                                      -5-
<PAGE>

                                TRADEMARK LICENSE
                                 AGREEMENT AMONG
                       GUESS?, INC., GUESS? IP HOLDER L.P.
                           AND PARLUX FRAGRANCES, INC.

        THIS TRADEMARK LICENSE AGREEMENT ("Agreement") is made and entered into
as of November 1, 2003 by and among GUESS?, INC., a corporation and GUESS? IP
Holder L.P., a partnership, each organized and existing under the laws of the
State of Delaware, and each with its principal place of business at 1444 South
Alameda Street, Los Angeles, California 90021 (collectively "GUESS") and PARLUX
FRAGRANCES, INC., a corporation organized and existing under the laws of the
State of Delaware, with its principal place of business at 3725 South West 30th
Avenue, Fort Lauderdale, Florida 33312 ("LICENSEE").

                              AGREEMENT BACKGROUND

        A. GUESS?, Inc. is an internationally famous designer and manufacturer
of high quality fashionable clothing and fashion accessories and other products.

        B. GUESS?, Inc. and GUESS? IP Holder L.P. hold all right, title and
interest in and to certain trademarks, service marks, designs, patents and
copyrights used in connection with the manufacture and sale of such products.

        C. GUESS?, Inc. and GUESS? Licensing, Inc., a wholly-owned subsidiary of
GUESS?, Inc., contributed certain GUESS trademarks to GUESS? IP Holder L.P.,
also a wholly-owned subsidiary of GUESS?, Inc. pursuant to two (2) Contribution
Agreements dated April 28, 2003 between (i) GUESS?, Inc. and GUESS? IP Holder
L.P. and (ii) GUESS? Licensing, Inc. and GUESS? IP Holder L.P. GUESS?, Inc. then
licensed back the contributed trademarks from GUESS? IP Holder L.P. pursuant to
the GUESS? License Agreement dated April 28, 2003 between GUESS?, Inc. and
GUESS? IP Holder L.P.

        D. The GUESS trademarks and service marks represent the substantial
goodwill created by GUESS through its use and sale of high quality products and
by GUESS's policy of distributing its products only through retail outlets that
conform to GUESS's strict standards for appearance, image, clientele, customer
service and overall high quality.

        E. LICENSEE has represented to GUESS that it is experienced in the
manufacture and distribution of certain high quality fragrances and related
products.

        F. LICENSEE desires to obtain the right to use certain of such
trademarks, service marks, and designs solely in connection with the manufacture
and distribution of some of such products, and GUESS is willing to grant to
LICENSEE a license for this purpose under the terms and conditions set forth in
this Agreement.

                                      -6-
<PAGE>

        In consideration of the covenants and agreements contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are acknowledged by the execution hereof, the parties agree as follows.

        1.   CERTAIN DEFINITIONS

             1.1 "Advertising" means any communication of LICENSEE in any medium
(including without limitation electronic and computer-based systems) directed to
the trade or the public, including trade and public directory listings, store
window displays, posters, point of sale materials and billboards.

             1.2 "Allowances" means any written credits actually given after
sale by LICENSEE to its customers for any purpose, other than Returns, Payment
Terms Discounts and Closeout Discounts, and other than credits or reimbursements
for advertising, any other type of promotions and freight expenses.

             1.3 "Closeouts" means discontinued and end of season Products sold
(i) at a reduction of more than ten percent (10%) from the respective Listed
Wholesale Price, and/or (ii) to a GUESS-approved closeout retailer.

             1.4 "Closeout Discounts" means all discounts of more than ten
percent (10%) from the Listed Wholesale Prices of Products that are discontinued
and end of season and that are actually given by LICENSEE to its customers.

             1.5 "Contract Year" means each year of the Initial Term and Renewal
Term, if any, as those terms are defined in Section 2, provided that the First
Contract Year shall commence on the date of this Agreement and end December 31,
2005.

             1.6 "IP Rights" means all intellectual and industrial property
interests now or hereafter owned by GUESS, other than the Trademarks, whether or
not copyrightable or patentable, including, without limitation, manufacturing
formulas, concepts, designs, trade dress and similar materials in and to any
Products or components thereof and to any prints, package designs, containers,
bottles, tubes or other packaging and form thereof (including the shape and
graphic design), tooling, molds, sketches, artwork, labels, Advertising and any
promotional materials using or used in conjunction with any of the Trademarks or
the Products or components thereof, whether created by or on behalf of GUESS or
LICENSEE and embodied in any form whatsoever (including without limitation,
electronic media, computer discs and hard drives). Notwithstanding the
foregoing, IP Rights shall also include the exclusive rights to use the scent.

             1.7 "Gross Sales" means LICENSEE's sales of Product units invoiced,
shipped or paid for, whichever occurs first, multiplied by the respective Listed
Wholesale Price.

             1.8 "Listed Wholesale Price" means the price of a Product as
calculated using the MSRP (defined below) minus the discount granted to
customers or distributors as specifically provided on Exhibits D-1 or D-2
relating to CUSTOMERS or Exhibits E-1 or E-2 relating to DISTRIBUTORS.

                                      -7-
<PAGE>

             1.9 "Manufactured Suggested Retail Price" ("MSRP") means the price
of a Product stated on the applicable LICENSED PRODUCT APPROVAL FORMS submitted
to GUESS pursuant to Section 4.1.

             1.10 "Minimum Net Sales" means the minimum amount of Net Sales of
Products that LICENSEE is required to achieve, and as set forth in Exhibit J
attached hereto.

             1.11 "Net Sales" means the Gross Sales of Products less only
credits to customers for Returns, Payment Terms Discounts, Closeout Discounts
and Allowances, as specifically permitted by this Agreement.

             1.12 "Payment Terms Discounts" means all discounts from the Listed
Wholesale Price actually given by LICENSEE to its customers for timely payment,
that are customary in the trade and the terms of which are specified on the face
of such customer's invoice.

             1.13 "Products" mean men's and women's fragrances and related
personal beauty care products such as body lotion, body creme, body mist, hand
creme, bath and shower gel, massage oil, dusting powder, after shave, after
shave balm or gel, deodorant stick and bath soap. LICENSEE shall have the right
of first refusal for cosmetics products pursuant to Section 3.3 hereof.

             1.14 "Quarter" means calendar quarters, i.e., each of the
three-month periods during each Contract Year from (i) January through March,
(ii) April through June, (iii) July through September and (iv) October through
December.

             1.15 "Returns" means Products actually returned to LICENSEE by its
customers multiplied by the unit price actually credited to the customer.

             1.16 "Royalty Minimum" means the minimum amount of Trademark
Royalty payable by LICENSEE to GUESS hereunder for each Contract Year, as set
forth in Exhibit H attached hereto.

             1.17 "Territory" means worldwide, including duty-free shops, ships,
airplanes, military bases and diplomatic missions.

             1.18 "Trademarks" means only those trademarks as specified in
Exhibit A attached hereto. Other GUESS trademarks may be added to Exhibit A upon
mutual written agreement of the parties. This Agreement does not grant to
LICENSEE any right to any variation of the Trademarks.

             1.19 "Trademark Royalty" means * of the Net Sales of Products by
LICENSEE, which represents the amount payable by LICENSEE to GUESS hereunder as
the consideration for the grant by GUESS to LICENSEE of the right to use the
Trademarks and IP Rights hereunder.

             1.20 "Trade Secrets" means information, including a formula,
pattern, compilation, customer list, program, device, method, technique or
process that derives independent economic value, actual or potential, from not
being generally known to the public or to other persons

                                      -8-
<PAGE>

who can obtain economic value from its disclosure or use and is the subject of
efforts that are reasonable, under the circumstances, to maintain its secrecy.
Without limitation to the foregoing, Trade Secrets shall be deemed to include
GUESS's IP Rights.

        2.   TERM OF AGREEMENT

             2.1 Initial Term. This Agreement shall commence as of the date
specified on page 1 and shall end on December 31, 2009 ("Initial Term"), unless
terminated earlier or renewed.

             2.2 Renewal Term. This Agreement may be renewed for a five (5) year
term through December 31, 2014 ("Renewal Term"), if LICENSEE:

                 (a) requests renewal in writing at least ninety (90) days but
                     no more than one hundred twenty (120) days before the
                     expiration of the Initial Term;

                 (b) at the time it requests renewal and as of the end of the
                     Initial Term, is in compliance with all the terms of any
                     and all agreements between LICENSEE and GUESS;

                 (c) up to the time it requests renewal (on a pro-rata basis)
                     and as of the end of the Initial Term, has met the Minimum
                     Net Sales for each Contract Year during the Initial Term;
                     and

                 (d) agrees to meet the Minimum Net Sales set forth on Exhibit J
                     for the Renewal Term.

        3.   GRANT OF LICENSE RIGHTS

             3.1 Rights Granted. Subject to the terms and conditions contained
herein, GUESS hereby grants to LICENSEE, and LICENSEE hereby accepts, the
following:

                 (a) a non-assignable, non-transferable exclusive right to use
                     the Trademarks and the IP Rights in connection with the
                     manufacture of Products; and

                 (b) a non-assignable, non-transferable exclusive right to use
                     the Trademarks and IP Rights solely in connection with the
                     distribution at wholesale and Advertising of the Products
                     in the Territory (provided, however, that GUESS and its
                     affiliates may also advertise the Products).

                                      -9-
<PAGE>

             3.2 Rights Not Granted. All rights other than those expressly
granted to LICENSEE are reserved to GUESS, including but not limited to, the
right to sell the Products or variations thereof at retail anywhere in the
world. This Agreement is not an assignment or grant to LICENSEE of any right,
title or interest in or to the Trademarks or IP Rights, or any of GUESS's other
trademarks, other than the grant of rights to use the Trademarks and IP Rights
subject to the terms and conditions of this Agreement. GUESS expressly does not
grant to LICENSEE the right to use any variation of the Trademarks that now
exist or hereafter are developed by GUESS, LICENSEE or any other person.

             3.3 Right of First Refusal. LICENSEE shall have a right of first
refusal, subject to the terms set forth below, to manufacture and distribute
cosmetic products within the Territory bearing the Trademarks (the "Additional
Products"). In order to exercise its right of first refusal, LICENSEE shall
present GUESS with a comprehensive proposal for distribution of Additional
Products in the Territory. Such right of first refusal is subject to the
parties' mutual agreement on Minimum Net Sales, the Royalty Minimum and Minimum
Advertising Expenditures applicable to Additional Products, to LICENSEE then
being in full compliance with this Agreement, and to the execution of an
amendment to this Agreement addressing all such matters. If GUESS desires to
appoint a third party as the manufacturing licensee of the Additional Products
in all or part of the Territory, GUESS shall first present LICENSEE with the
third party's proposed terms. LICENSEE shall, within thirty (30) days following
receipt of such terms, elect whether to become the licensee for such Additional
Products in the Territory, upon the same terms and conditions contained in the
third party's proposal, or to decline such opportunity, whereupon the right of
first refusal described herein shall terminate.

        4.   DESIGN STANDARDS

             4.1 Samples/Prior Approval. LICENSEE shall submit, at its sole
expense (including without limitation, all expenses relating to freight,
applicable duties and similar costs), to GUESS for its prior written approval,
all designs, concepts and samples of Products, including without limitation,
scents and fragrances related thereto (and any proposed changes), and all
bottles, containers, tubes and packaging related thereto, and proposed Product
name, proposed to be manufactured by LICENSEE. All such items shall be submitted
on such forms and at such intervals as GUESS may require. The samples shall be
submitted with a completed LICENSED PRODUCT APPROVAL FORM (Exhibit B). If
LICENSEE wishes to submit separately any item containing any Trademark, it shall
be submitted on the LICENSED PROPERTY USE APPROVAL FORM (Exhibit C).

        5.   QUALITY CONTROL AND APPROVALS

             5.1 Quality Control. LICENSEE acknowledges that the Trademarks and
IP Rights represent the prestige and goodwill that GUESS has earned for itself
and are well recognized in the minds of the public, and that it is of great
importance to each party that, in the manufacture and sale of Products, the high
standards, reputation and image established by GUESS be maintained at all times.
Accordingly, Products manufactured or caused to be manufactured by LICENSEE
shall be of high quality workmanship and materials with strict adherence to all
details and characteristics embodied in the IP Rights approved by GUESS or
embodied in items furnished by GUESS. Without

                                      -10-
<PAGE>

limitation to the foregoing, Products manufactured by and for LICENSEE and sold
by LICENSEE shall strictly adhere to the materials, formulas, scents,
ingredients, color, workmanship, designs, dimensions, styling, detail, packaging
and quality previously approved by GUESS. If GUESS determines that Products
(including any components or packaging) found in the marketplace are
inconsistent with approved quality standards and/or contain characteristics that
were not previously approved, GUESS may require that LICENSEE recall such
Products at LICENSEE's sole expense. If LICENSEE fails to promptly recall such
Products, GUESS may purchase such Products at LICENSEE's expense, and LICENSEE
will be deemed to have breached this Agreement, and LICENSEE's failure to recall
such Products will be deemed to be a separate breach of this Agreement. LICENSEE
will immediately pay GUESS all costs incurred in connection with GUESS's
purchase of such Products.

             5.2 SKU Number/Affixation of Trademarks/Third Party Materials
Bearing the Trademarks. LICENSEE shall affix permanently to each Product a
unique SKU number which shall be identical to the SKU number used to identify
the respective Product in all of LICENSEE's books and records. Each Product
shall bear the Trademarks in the form required by GUESS, with all required
legends, markings and notices. If LICENSEE purchases labels, stickers or other
materials bearing the Trademarks from third parties, or produces any such
materials itself or through an affiliate, upon the request of GUESS, LICENSEE
shall provide to GUESS, together with the quarterly Statement of Royalties,
copies of invoices for all such materials purchased and/or equivalent detailed
information if any such materials are produced by LICENSEE or an affiliate.
LICENSEE shall obligate all providers of such materials to comply with all
applicable provisions of this Agreement relating to the use and misuse of the
Trademarks.

             5.3 Finished Products/Prior Approval. Within seven (7) business
days after each item is first manufactured as a finished Product, LICENSEE shall
deliver to GUESS (at LICENSEE's sole expense) by overnight courier at least
three (3) representative finished Products of each item for approval by GUESS.
At any time following any such approval, if such Product is, in the sole and
subjective judgment of GUESS, not manufactured in strict compliance with the
materials, formulas, scents, ingredients, color, workmanship, designs,
dimensions, detail, packaging and quality previously approved in writing, GUESS
shall give LICENSEE written notice of any such non-compliance, which notice
shall specify the details thereof. Within twenty (20) days after its receipt of
such notice, LICENSEE shall promptly correct any problem specified by GUESS
therein. If such Product, as corrected by LICENSEE, is still not approved by
GUESS, or if LICENSEE fails to correct any such problem, the Trademarks shall be
promptly removed from such Products, at the option of and at no cost to GUESS,
in which event such Products may be sold by LICENSEE provided they are in no way
identified as a product originating from or authorized by GUESS, or otherwise
identified with GUESS or any of the Trademarks or IP Rights. As many as six (6)
times per year, upon request, LICENSEE shall provide GUESS (at LICENSEE's sole
expense) with a reasonable number of samples of Products, including packaging,
containers, cases and the like.

             5.4 Right to Inspect Facilities. In order to protect the Trademarks
and ensure quality of the Products, if GUESS has reason to believe that any
manufacturer or supplier is not acting in the best interest of GUESS, LICENSEE
shall ensure that GUESS shall have the right, with or without advance notice, to
inspect all facilities utilized by LICENSEE and its subcontractors,
sub-subcontractors and suppliers in connection with the manufacture, storage or
distribution of Products, and to examine Products in the process of manufacture
and all documents and records related thereto.

                                      -11-
<PAGE>

LICENSEE, at its option, may be present for any such inspections. In addition,
LICENSEE consents to GUESS's examination of Products held by its customers for
resale, upon reasonable notice during normal business hours, provided LICENSEE
has such right of examination.

             5.5 Consultation. Upon request by GUESS, LICENSEE shall make its
personnel available by appointment during normal business hours for consultation
with GUESS and its agents or representatives, to ensure quality control of the
Products and protection of the Trademarks.

             5.6 Travel by LICENSEE. Upon two (2) weeks' prior written notice to
LICENSEE, but not more frequently than twice in a calendar year, GUESS may
require LICENSEE to meet with GUESS in the Los Angeles offices of GUESS
concerning any matter which is a subject of this Agreement. LICENSEE shall pay
all of its own costs and expenses relating to its attendance at such meetings.

             5.7 Travel by GUESS. Twice a year, LICENSEE shall pay all costs for
business class round trip travel, accommodations and incidental expenses for
five (5) days and five (5) nights for two (2) representatives of GUESS to travel
to any place of business of LICENSEE for any purpose related to this Agreement.

        6.   DISTRIBUTION. The manner and scope of the distribution of Products,
their availability, variety, and appearance are critical to the promotion of the
Products and to the protection of the Trademarks, the IP Rights and their
associated goodwill. LICENSEE therefore agrees as follows:

             6.1 Manner and Scope. LICENSEE shall use its best efforts to
exploit the rights granted hereunder throughout the Territory, including,
without limitation, selling commercial quantities of the Products on a timely
basis and maintaining a sales force sufficient to provide effective distribution
of the Products throughout the Territory, and shall cooperate with GUESS's
anti-diversion and anti-counterfeiting programs. LICENSEE shall establish and
maintain throughout the Initial and any Renewal Term a dedicated, exclusive
brand manager and a dedicated non-exclusive sales staff for the Products in
sufficient number to ensure effective sales of the Products throughout the
Territory. All of LICENSEE's activities in connection with the design,
merchandising, packaging, promotion, sales and display of any products other
than the Products shall be separate and distinct from LICENSEE's activities
relating to the Products.

             6.2 Customer Approval. Prior to execution of this Agreement,
LICENSEE has submitted to GUESS for approval, and GUESS has approved the names
of all its intended customers for the Products on EXHIBIT D-1 (CUSTOMERS).
Subsequently, LICENSEE shall submit to GUESS for approval any new intended
customers, prior to making sales to any such intended customers using EXHIBIT
D-2 (CUSTOMER PROFILE FORM). On each anniversary of the date of this Agreement,
and at such other times as GUESS may request, LICENSEE shall send to GUESS a
list of all current customers for all Products.

             6.3 Discount to GUESS; Fixtures. LICENSEE shall grant to GUESS
and/or any GUESS affiliate, a * discount from the MSRP on purchases of Products
by GUESS and/or such affiliate from LICENSEE for sale in GUESS's and its
affiliate's retail and/or factory stores and/or on

                                      -12-
<PAGE>

the GUESS online store on the Internet (for Internet purchases, the MSRP will be
the lower of that effective in (i) the United States, or (ii) the country to
which the particular Product will be shipped) (collectively, "GUESS Sales"). The
MSRP for each Product will be provided to GUESS by LICENSEE upon request (along
with any additional information and documents GUESS may request relating
thereto), and LICENSEE will immediately provide notice to GUESS of any changes
thereto.

                 LICENSEE shall also pay and/or reimburse (at GUESS's
discretion) GUESS and/or its affiliate within ten (10) days of request therefor,
* of the total cost of any fixtures and point of purchase materials, and
periodic updates thereof, for the sale of the Products which GUESS and/or its
affiliate decide to install at any of their retail and/or factory stores.
LICENSEE shall provide, at its expense, counter displays for the Guess retail
and/or factory stores. LICENSEE will also install and periodically update, at
its expense and as GUESS may request, such point of purchase materials within
LICENSEE's major specialty store accounts (such as Sephora and DFS, if
approved). LICENSEE will, within twenty (20) days of GUESS's request, provide
(i) for GUESS's approval a complete fixture plan during specific time periods
for contemplated fixturing, installation and periodic updating within such major
specialty store accounts, and (ii) GUESS with documentation evidencing
LICENSEE's fixture expenditures for such accounts.

             6.4 Discount to Perfumania. LICENSEE shall grant to Perfumania,
Inc., a Florida corporation and an affiliate of LICENSEE, a * discount from the
MSRP on purchases of Products by Perfumania for sale only in Perfumania's retail
stores or on Perfumania's wholly-owned Internet retail store site. Perfumania
shall not distribute the Products for wholesale, to any other affiliates,
distributors or via any other channels. The MSRP for each Product sold to
Perfumania will be provided to GUESS by LICENSEE on each LICENSED PRODUCT
APPROVAL FORM (EXHIBIT B) (along with any additional information and documents
GUESS may request relating thereto), and LICENSEE will immediately provide
notice to GUESS of any changes thereto. There shall be no additional discounts,
including Allowances, Payment Terms Discounts or Closeout Discounts granted to
Perfumania.

             6.5 LICENSEE's Duties.

                 (a) Except as otherwise provided herein, the distribution of
Products in the Territory shall be performed only by LICENSEE. LICENSEE wishes
to distribute Products through independent distributors and prior to execution
of this Agreement LICENSEE has submitted to GUESS for approval, and GUESS has
approved the names and addresses of its proposed distributors on EXHIBIT E-1
(DISTRIBUTORS). Subsequently, for all new distributors (not previously submitted
and approved), LICENSEE shall submit to GUESS for prior written approval any new
intended distributors on EXHIBIT E-2 (DISTRIBUTOR APPROVAL FORM), along with a
copy of any written agreement, or the terms and conditions of any oral
agreement, proposed to be entered into between LICENSEE and any proposed
distributor and such other background information of the proposed distributors
that GUESS may request. On each anniversary of the date of this Agreement, and
at such other times as GUESS may request, LICENSEE shall send to GUESS a list of
all current distributors for all Products. GUESS may withdraw approval vis-a-vis
the Products of any distributor upon prior written notice of such distributor's
failure to meet GUESS's standards for quality, service and appearance. Such
distributor shall have thirty (30) days to cure any failure

                                      -13-
<PAGE>

which shall be specified in the notice. Each such distribution agreement shall
include provisions to the effect that:

                     (i)   such agreement will terminate vis-a-vis the Products
                           when this Agreement terminates or when GUESS
                           withdraws LICENSEE's permission to sell to such
                           distributor, and that the distributor will have no
                           claims against either GUESS or LICENSEE for the
                           termination of the agreement; and

                     (ii)  the distributor may not appoint subdistributors or
                           agents for the sale of Products, or assign any rights
                           under its agreement with LICENSEE vis-a-vis the
                           Products without GUESS's prior written permission.

                 (b) LICENSEE shall exercise its best efforts to safeguard the
prestige and goodwill represented by the Trademarks, the IP Rights and the image
associated therewith at the same level as heretofore maintained by GUESS.
LICENSEE will sell the Products only to quality retail stores (which have been
previously approved by GUESS in writing) offering services and promotions
commensurate with the quality of the Products and the image and reputation of
the Trademarks. LICENSEE shall use its best efforts that the same safeguards
apply to its distributors and that its distributors and retail operators agree
not to ship any Products outside the applicable country.

                 (c) LICENSEE shall not use or permit any customer to use any
Products as giveaways, prizes or premiums except in promotions that have
received the prior written approval of GUESS.

                 (d) If LICENSEE sells Products through an authorized
distributor, LICENSEE shall ensure that the distributor will comply with all
obligations necessary for protecting the Trademarks, the IP Rights and the image
associated therewith at the same level as heretofore maintained by GUESS.
LICENSEE will maintain such reports on file, such that GUESS may, from time to
time, request that it be provided with CUSTOMER PROFILE FORMS, photographs of
store premises, etc., for retail store customers of the distributors, in order
for GUESS to ensure that the quality and image associated with the Trademarks
and the IP Rights are being upheld by the distributors. LICENSEE will only sell
Products to distributors who have previously been approved by GUESS, and neither
LICENSEE nor its distributors will sell or distribute Products to other
distributors, wholesalers, independent contractors, jobbers, diverters, or any
other entity which does not sell to retail stores exclusively, without the prior
written consent of GUESS.

                 (e) LICENSEE shall not permit its distributors or customers to,
advertise, promote or sell any Products through the Internet or any other
electronic or computer-based system, without GUESS's prior written consent.

                 (f) Other than the approved list of trade shows (Cannes,
Singapore, Italy and Orlando) LICENSEE shall obtain GUESS's consent prior to
participating in any tradeshow where the Products or any item bearing the
Trademarks will be displayed, including GUESS's

                                      -14-
<PAGE>

consent to any form of presentation to be used by LICENSEE. LICENSEE shall
provide GUESS with all information requested concerning all tradeshows.

                 (g) Prior to LICENSEE's sale of any Closeouts, LICENSEE shall
furnish to GUESS a Product description of such Closeouts and the proposed
selling price. GUESS shall have the option (but not the obligation) to purchase
all or any part of such Closeouts from LICENSEE prior to sale to any third
party, upon the following terms:

                     (i)   GUESS shall notify LICENSEE of its intention, if any,
                           to exercise this option and which of the Closeouts
                           are to be purchased, within ten (10) business days
                           after GUESS's receipt of the Product description of
                           the Closeouts;

                     (ii)  the purchase price and terms relating to the Products
                           for Closeouts shall be the same price and terms
                           relating to the Products LICENSEE plans to offer a
                           third party; and

                     (iii) LICENSEE shall deliver Closeouts purchased by GUESS
                           within fifteen (15) business days after receipt of
                           the notice of GUESS's intention to purchase.

        7.   ADVERTISING.

             In order to protect the Trademarks and the quality and reputation
of the Products, LICENSEE shall at all times maintain the high standards and
consistency of the Trademarks, Products and image associated therewith in all
Advertising, packaging and promotion of Products. LICENSEE therefore agrees as
follows:

             7.1 Prior Approval. LICENSEE shall not use any Advertising or
packaging or other business materials relating to any Products or bearing the
Trademarks, including, without limitation, any business documents, invoices,
stationery, Advertising, promotions, labels and packaging that has not been
previously approved in writing by GUESS. Before the use of Advertising items
such as posters, packaging and point of sales materials, LICENSEE shall submit
such items to GUESS for approval using the LICENSED PROPERTY USE APPROVAL FORM
referenced in Section 4. Before the use or the publication of any media
Advertising, public relations or promotion of any kind (which shall include,
without limitation, press releases, editorials, photograph submissions and
similar items) to the public or trade, LICENSEE shall submit such Advertising
and promotions to GUESS for approval using the ADVERTISING APPROVAL FORM
(EXHIBIT F). The right of approval shall also encompass media placement and
creative execution. No Advertising or promotional material shall refer to
LICENSEE's name except as required by law, however, at the option of GUESS,
LICENSEE shall include on its Advertising, packaging or other business materials
an indication of the relationship of the parties in a form approved in writing
by GUESS.

             7.2 Minimum Advertising Expenditure/Budget. Each Contract Year
during the term of this Agreement, LICENSEE shall expend for GUESS-approved and
permitted Advertising * of

                                      -15-
<PAGE>

the Net Sales for such Contract Year (the "Net Sales Advertising Expenditure").

             In addition, each Contract Year during the term of this Agreement,
LICENSEE shall pay directly to GUESS for Advertising * of the amount that is the
greater of (a) Net Sales and (b) Minimum Net Sales for such Contract Year (the
"Minimum Advertising Expenditure"). For the First Contract Year only, the
Minimum Advertising Expenditure shall be paid to GUESS as follows: (i) beginning
with the Quarter which begins January 1, 2005, and on the first business day of
each of the remaining Quarters in 2005, LICENSEE shall pay GUESS twenty-five
percent (25%) of the * of the Minimum Net Sales for such Contract Year; and (ii)
within thirty (30) days after the end of the First Contract Year, LICENSEE shall
pay GUESS the amount, if any, by which the * of actual Net Sales for such
Contract Year exceeds the * of Minimum Net Sales already required to be paid for
such Contract Year. For the Second and subsequent Contract Years, the Minimum
Advertising Expenditure shall be paid to GUESS as follows: (i) on the first
business day of each Quarter, LICENSEE shall pay GUESS twenty-five percent (25%)
of the * of the Minimum Net Sales for such Contract Year; and (ii) within thirty
(30) days after the end of each Contract Year, LICENSEE shall pay GUESS the
amount, if any, by which the * of actual Net Sales for such Contract Year
exceeds the * of Minimum Net Sales already required to be paid for such Contract
Year. GUESS may expend all Advertising payments made by LICENSEE hereunder in
GUESS's sole discretion.

             Nine months from the execution of this Agreement and sixty (60)
days before the start of each subsequent Contract Year, LICENSEE shall submit to
GUESS for approval an Advertising budget for the applicable Contract Year, using
the ADVERTISING BUDGET FORM (EXHIBIT G) broken down by each country in the
Territory (or otherwise as GUESS may agree), and specifying the media, the date
and the time of publication of each Advertisement or occurrence of each
promotional event. If the Advertising expenditures actually made by LICENSEE
during such Contract Year are lower than required and/or if any of LICENSEE's
Advertising was not approved by GUESS in advance in writing, LICENSEE shall, at
GUESS's option, either pay the difference to GUESS within thirty (30) days after
the end of the applicable Contract Year, or expend the difference during such
timeframe and in such manner as directed by GUESS. FOR PURPOSES OF ESTABLISHING
THE ADVERTISING BUDGET AND PERMITTED EXPENDITURES APPLICABLE TO ALL REQUIRED
ADVERTISING, THE EXPENDITURE IS AT ALL TIMES SUBJECT TO GUESS'S PRIOR WRITTEN
APPROVAL AS TO ALL ELEMENTS OF THE ADVERTISING (INCLUDING WITHOUT LIMITATION THE
MEDIA, THE POSITIONING OF THE ADVERTISEMENT WITHIN THE MEDIA AND ALL OTHER
ELEMENTS). ITEMS SUCH AS NEWSPAPERS, MAGAZINES, TELEVISION, RADIO, BILLBOARDS
(INCLUDING RELATED ARTWORK AND PRODUCTION CHARGES FOR THESE FIVE (5)
CATEGORIES), COOPERATIVE ADVERTISING, RETAILER DEMONSTRATION CHARGES, RETAILERS'
CATALOGUES, GIFTS-WITH-PURCHASE, DIRECT MAIL, REMITTANCE ENVELOPES, BLOW-INS,
BILLING INSERTS (BOTH SCENTED AND UNSCENTED), PRODUCT SAMPLES, PAMPHLETS, FREE
PRODUCTS (INCLUDING THOSE TO GUESS FOR EVENTS AND OTHER PUBLIC RELATIONS
ACTIVITIES) COUNTER DISPLAYS (INCLUDING TESTERS, DUMMIES, COUNTER CARDS AND
OTHER VISUAL AIDS) TEMPORARY IN-STORE DEMONSTRATOR AND MODEL FEES, SPECIAL
EVENTS, CONTESTS, AND PUBLICITY ARE CONSIDERED TO BE ADVERTISING FOR PURPOSES OF
THE PERMITTED EXPENDITURES. ANY EXPENDITURES NOT MADE IN COMPLIANCE WITH THIS
SECTION 7, AND NOT PRE-APPROVED IN WRITING BY GUESS, WILL BE DISALLOWED AND WILL
NOT BE COUNTED TOWARD THE REQUIRED MINIMUM ADVERTISING EXPENDITURE. IN

                                      -16-
<PAGE>

ADDITION, ITEMS SUCH AS FREIGHT, SHOWROOM AND DEPARTMENT STORE FIXTURES,
FURNISHINGS, STORE WINDOW DISPLAYS, STATIONERY AND SIMILAR ITEMS USED IN THE
ORDINARY COURSE OF BUSINESS, PROMOTIONAL FEES AND COSTS IMPOSED BY MALLS AND
ASSOCIATIONS, AND PACKAGING FOR THE PRODUCTS, AND THE COSTS AND EXPENSES
ASSOCIATED WITH ADVERTISING AND PROMOTION OF THE PRODUCTS TO THE TRADE (OTHER
THAN WWD, DNR, COSMETIC WORLD AND BEAUTY FASHION PUBLICATIONS), INCLUDING,
WITHOUT LIMITATION, TRADE SHOWS, PRESS RELEASES AND CATALOGUES TO THE TRADE, ARE
NOT CONSIDERED TO BE ADVERTISING FOR PURPOSES OF THE PERMITTED EXPENDITURES.

             All Advertising expenditures, if promoted in conjunction with other
products, shall be proportioned according to the amounts expended for the
Products.

             Any amount which LICENSEE may spend on Advertising (as previously
approved by GUESS) in excess of the amount required herein shall not be used to
offset the required Advertising Expenditures for the subsequent Contract Year.
The obligations of LICENSEE to make the Net Sales Advertising Expenditure and
Minimum Advertising Expenditure are absolute, notwithstanding any claim that
LICENSEE may assert against GUESS. LICENSEE shall not have the right to set-off,
compensate or make any deduction from the Net Sales Advertising Expenditure or
Minimum Advertising Expenditures for any reason whatsoever.

             7.3 Unauthorized Advertising. In the event any unapproved or
disapproved Advertising or promotions occur (including without limitation, point
of sale/point of purchase materials), GUESS may (in addition to all other
rights), at its sole election, collect from LICENSEE up to * for each such
unapproved or disapproved Advertisement and/or promotion. In the event GUESS, at
its sole election, determines to collect up to the * for each such unapproved or
disapproved Advertisement or promotion, such payment will be due within five (5)
days of GUESS giving notice, and will be considered to be an amount owed under
this Agreement. LICENSEE acknowledges that calculation of damages to GUESS
resulting from any unapproved or disapproved Advertisement or promotion is
difficult to ascertain and that, if in GUESS's sole discretion, GUESS elects to
collect up to * for each such Advertisement and/or promotion, such sum will
constitute a reasonable amount in relation to such breach of this Agreement.

        8.   SHOWROOMS

             8.1 Opening of Showroom. In order to protect the Trademarks and
ensure the GUESS reputation for high quality products is maintained, prior to
the commencement of the sale of any Products hereunder and during the term of
this Agreement, LICENSEE shall open and keep open at least one (1) showroom in
the Territory for the presentation and sale of the Products. This showroom may
be part of LICENSEE's existing showroom. Upon request, LICENSEE shall submit to
GUESS by facsimile a list of all of its showrooms in the Territory. All expenses
incurred with respect to the design, construction, operation and maintenance of
any showroom shall be borne by LICENSEE.

                                      -17-
<PAGE>

        9.   INSURANCE

             9.1 Procurement of Insurance. Without limiting LICENSEE's liability
under the indemnity provisions hereof, during the term of this Agreement, and
for three (3) years following the date of expiration or termination hereof,
LICENSEE shall maintain with reputable insurance companies reasonably
satisfactory to GUESS comprehensive general liability insurance in the amount of
at least US$5,000,000.00 (US$3,000,000.00 single limit per occurrence) plus
defense costs. This insurance shall include broad form blanket contractual
liability; contractor's protective; workers' compensation; products liability
and completed operations liability; advertising injury, cross liability; special
form "all risk" blanket property coverage (including earthquake and flood
protection) at replacement cost; selling price or evidence of business
interruption coverage of gross revenues for six (6) months; brands and labels
clause (with no salvage); an endorsement stating that GUESS shall receive at
least thirty (30) days written notice prior to modification, cancellation or
non-renewal of coverage; an endorsement naming GUESS?, Inc., and all
subsidiaries and affiliates as additional insureds; an endorsement stating that
the insurance shall be primary and not contributory as to GUESS; and a waiver of
subrogation in favor of GUESS. During the term of this Agreement, LICENSEE may
not engage in the manufacture, sale or promotion of any Product unless the
required insurance coverage is in full force and effect.

             9.2 Evidence of Insurance. No later than thirty (30) days before
the first shipment of Products, and thereafter on each anniversary date of this
Agreement, LICENSEE shall furnish to GUESS certificates of insurance evidencing
the required insurance policies. Upon request, LICENSEE shall provide GUESS with
copies of insurance policies and related endorsements evidencing the insurance
coverage required hereunder. The insurance set forth in this Section 9 must
cover the entire Territory.

        10.  OWNERSHIP AND PROTECTION OF TRADEMARKS AND IP RIGHTS

             10.1 Ownership. LICENSEE acknowledges that GUESS is the exclusive
owner of the Trademarks and of the IP Rights and that all of LICENSEE's uses of
the Trademarks and the IP Rights shall inure to the exclusive benefit of GUESS.
LICENSEE shall place appropriate notices, including notice of copyright,
reflecting ownership of IP Rights by GUESS, on all plans, packaging, tags,
containers, bottles, images, graphic designs, labels and Advertising and
promotional materials.

             10.2 Registration. LICENSEE shall cooperate fully and in good faith
with GUESS for the purpose of securing and preserving GUESS's rights in and to
the Trademarks and IP Rights, including, without limitation, in the execution,
submission and prosecution of any trademark, service mark, copyright or patent
applications and similar applications for registration, and registered user
agreements, which GUESS may desire to submit at any time and from time to time.
LICENSEE shall not directly or indirectly submit any application to register the
Trademarks for the Products or any other products or services, or for any other
trademark or service mark, copyright, design right or invention of GUESS,
without the prior written approval of GUESS.

                                      -18-
<PAGE>

             10.3 Assignment of Rights. LICENSEE shall disclose and freely make
available to GUESS any and all developments or improvements it makes or has made
to the Products, the Trademarks, or the IP Rights (including without limitation,
the manufacturing formula for the scent of all fragrance Products, the
ingredients for same and all other Products (including the name and address of
the creator), and all instructions relating thereto, and all bottles,
containers, tubes and packaging relating to same). This Agreement shall
constitute an unconditional assignment of all such developments and improvements
to GUESS together with all goodwill associated therewith, and upon expiration or
termination of this Agreement, GUESS may itself use, or may license the right to
use, the same all in its sole discretion. If any application must be made by
LICENSEE or any third party which may have created designs of Products
hereunder, LICENSEE agrees to, and does hereby, assign, and agrees to cause such
third party to assign to GUESS, any and all right, title and interest in all
such applications and the resulting registrations or patents, as the case may
be. If requested by GUESS, LICENSEE shall make, procure and execute, and cause
to be made, procured and executed, all assignments and/or all other agreements,
documents or instruments determined by GUESS to be necessary or advisable to
vest ownership of the Trademarks and IP Rights (including any developments and
improvements made by or on behalf of LICENSEE to the Products, Trademarks and IP
Rights) in GUESS. Additionally, LICENSEE hereby grants, and agrees to cause the
appropriate third party to grant to GUESS an irrevocable power of attorney, on
behalf of LICENSEE or such third party, as the case may be, to execute any and
all Trademarks and/or IP Rights applications, and other related documentation
that GUESS determines are necessary or advisable in connection with the
Products, Trademarks and IP Rights (including any developments and improvements
made by or on behalf of LICENSEE to the Products, Trademarks and IP Rights).

             10.4 Prohibited Acts.

                  LICENSEE shall not, directly or indirectly:

                  (a)  claim ownership of the Trademarks or the IP Rights;

                  (b)  permit the use of the Trademarks or the IP Rights in such
                       a way as to give the impression that they are the
                       property of LICENSEE;

                  (c)  use or allow any affiliate or related party to use, the
                       Trademarks or the IP Rights or any confusingly similar
                       trademark or confusingly similar intellectual or
                       industrial property (including without limitation,
                       similar fragrance or scent) in any manner not expressly
                       authorized by GUESS;

                  (d)  engage in any activity that may contest, dispute, dilute
                       or otherwise impair the right, title, interest or
                       goodwill of GUESS in the Trademarks or the IP Rights,
                       including, without limitation, any action to prevent or
                       cancel any registration of the Trademarks;

                  (e)  use any trademarks other than the Trademarks in
                       connection with the manufacture, promotion and
                       distribution of the Products or associate the Trademarks
                       or the IP Rights with any other name, trademark, service
                       mark, character or personality;

                                      -19-
<PAGE>

                  (f)  produce or sell, or allow any affiliate, distributor or
                       agent to produce or sell, directly or indirectly, a GUESS
                       "smell-a-like" or GUESS "knock-off" fragrance of any
                       fragrance sold as a Product; nor shall LICENSEE or any
                       affiliate thereof make any statements, in any oral or
                       written format, comparing any fragrance to any fragrance
                       used in the Products;

                  (g)  use the Trademarks as part of LICENSEE's corporate or
                       commercial name unless expressly permitted by GUESS in
                       writing; or

                  (h)  contest the fact that LICENSEE's rights under this
                       Agreement are solely those of a licensee and, subject to
                       the provisions of Section 16, cease upon termination or
                       expiration of this Agreement.

             10.5 Misuse. LICENSEE shall cooperate fully and promptly with GUESS
in the protection of GUESS's rights to the Trademarks and the IP Rights, as
GUESS may request from time to time. Without limitation to the foregoing,
LICENSEE shall be responsible for monitoring the Territory for any infringement,
counterfeiting or other misuse of the Trademarks and the IP Rights. LICENSEE, at
its own expense, shall take action immediately to stop (a) any minor (from * to
* total MSRP) infringement, counterfeiting or other misuse of the Trademarks or
the IP Rights in connection with any products or services, not just the
Products, and (b) any minor (from * to * total MSRP) diversion of, or grey
market activities concerning, the Products. In such actions, LICENSEE shall use
attorneys and investigators approved by GUESS. GUESS or LICENSEE may take action
for any infringement or diversion under the * (minor) threshold amount. LICENSEE
shall indemnify GUESS against all losses, damages, attorneys' fees, judgments or
other costs or expenses incurred or suffered by GUESS as a result of such
actions taken by LICENSEE. LICENSEE shall notify GUESS immediately by telephone
and facsimile of any and all substantial (over * total MSRP) cases of
infringement, counterfeiting or misuse of the Trademarks or IP Rights and
substantial (over * total MSRP) cases of diversion of the Products. In all
cases, GUESS shall have the right, but not the obligation, to participate with
LICENSEE in any action to stop such activities, or to take complete control over
such action. In any case where GUESS takes action to stop such activities, GUESS
may charge LICENSEE up to * of all costs incurred relating to such actions. Any
monetary recovery obtained in actions taken at LICENSEE's sole expense shall be
for the account of LICENSEE. Any monetary recovery obtained in actions taken at
the sole expense of GUESS shall be for the account of GUESS. Any monetary
recovery obtained in actions where expenses have been shared by both parties
shall be shared pro rata in accordance with each party's expenses. GUESS may
also require that LICENSEE take all steps necessary and permissible under
applicable laws, at LICENSEE's sole expense, to prevent any diversion or grey
market activities involving the Products. LICENSEE will promptly reimburse GUESS
and other GUESS licensees and distributors, for any fees or expenses incurred in
connection with such diverted Products, including but not limited to, attorneys'
and investigators' fees and disbursements and costs to purchase samples of such
Products, to pursue court actions against the sellers of such Products, and all
related actions. All such costs and expenses owed by LICENSEE in connection with
the diverted and/or grey market Products shall be deemed to be amounts owed
under this Agreement, and LICENSEE's failure to pay such amounts will be deemed
a breach of this Agreement under Section 15.4 (b) hereof. LICENSEE shall

                                      -20-
<PAGE>

implement and maintain comprehensive anti-counterfeiting and anti-diversion
practices and procedures throughout the Territory.

             10.6 Report to GUESS. Within fifteen (15) days after the end of
each Quarter during the term of this Agreement, LICENSEE shall submit a report
to GUESS summarizing all discovered cases of substantial misuse or diversion
with respect to the Trademarks, the IP Rights and the Products or indicating
that no such misuses have been discovered, and summarizing the activities
undertaken by LICENSEE to discover misuses of the Trademarks or IP Rights, and
diversion of Products. The report shall also summarize the steps taken by
LICENSEE, if any, to stop any such misuse or diversion.

             10.7 Compliance with Rules of GUESS. GUESS may promulgate, from
time to time, rules and amendments thereto, relating to protection and use of
the Trademarks and the IP Rights, and LICENSEE shall comply with all such rules
and amendments. Such rules and amendments shall be reasonable and shall become
effective upon receipt thereof by LICENSEE.

        11. TRADE SECRETS AND CONFIDENTIALITY

             A confidential relationship is created by this Agreement. Except in
connection with their respective rights and obligations under this Agreement,
GUESS, LICENSEE and their respective affiliates, employees, attorneys and
accountants shall keep confidential and not take or use for its or their own
purposes, or the purposes of third parties, Trade Secrets of the other or the
terms of this Agreement, unless with the prior written consent of the other
party hereto, or as may be required by law, or in connection with regulatory or
administrative proceedings and only then with reasonable advance notice of such
disclosure to the other party hereto. GUESS acknowledges that LICENSEE may be
required to file a redacted copy of this Agreement with the Securities and
Exchange Commission. LICENSEE agrees to obtain the prior written consent of
GUESS regarding the redacted version. In the course of arbitration or
litigation, LICENSEE shall not have any right of access to GUESS's Trade Secrets
and LICENSEE waives any right to see such Trade Secrets.

        12. PAYMENTS AND REPORTS

             12.1 Advance. In consideration for the rights granted hereunder,
LICENSEE shall pay to GUESS upon execution of this Agreement the non-refundable
amount of *, which shall be applied as a credit against the Royalty Minimum for
the First Contract Year.

             12.2 Letter of Credit. If any payment hereunder is not received by
GUESS when due on any occasion, LICENSEE must ensure the payment of the Royalty
Minimum for the applicable Contract Year with an irrevocable standby letter of
credit naming GUESS as the sole beneficiary and containing such terms and
conditions approved by GUESS. In such event, an irrevocable standby letter of
credit shall secure the Royalty Minimum for each subsequent Contract Year. If
thirty (30) days prior to the expiration of each Contract Year, a letter of
credit is not provided to GUESS to secure the Royalty Minimum for the next
Contract Year, GUESS may cause

                                      -21-
<PAGE>

the existing letter of credit to be paid to it in full, without waiving its
right to terminate this Agreement. All letters of credit shall be issued and
confirmed by banks in the United States suitable to GUESS. LICENSEE shall pay
all fees related to the establishment of all letters of credit. GUESS may draw
down on any letter of credit if GUESS does not receive any sum or portion
thereof due from LICENSEE within thirty (30) days of when it is due, and in such
case LICENSEE shall restore the full amount of the credit obligation within ten
(10) days after the draw down.

             12.3 Royalty Basis. The Trademark Royalty shall be calculated on
the basis of the respective MSRP for the Products, regardless of whether
LICENSEE sells Products to independent retailers in arms' length transactions or
LICENSEE sells Products to any of its affiliates or to itself, or sells Products
to employees, conducts parking lot or similar sales (which must be approved by
GUESS in advance), or any other unusual sales transactions whatsoever, it being
the intent of this Section that all sales of whatever kind and nature are
subject to the payment of Trademark Royalties thereon at the full Listed
Wholesale Price, as calculated herein. All related party sales, employee sales,
parking lot or similar sales, and any other unusual sales transactions shall be
stated separately for the relevant period on the STATEMENT OF ROYALTIES FORM
(EXHIBIT I). A Product shall be considered "sold" upon the date when such
Product is invoiced, shipped or paid for, whichever event occurs first. Sales of
all Products and components thereof are subject to payment of the Trademark
Royalty. Sales of products embodying an IP Right, whether bearing the Trademarks
or not, are also subject to payments at the same royalty rate. All sales of
Products by LICENSEE shall be documented by numbered invoices from the first
sale under this Agreement to the last.

             12.4 Deductions/Returns/Closeouts. Only the following deductions
from Gross Sales will be permitted for each Contract Year for the purpose of
calculating Net Sales:

                  (a)  The combined total of Allowances, Payment Terms Discounts
                       and Closeout Discounts shall not exceed * of the Gross
                       Sales of the Products sold; and

                  (b)  Returned units of Products shall not exceed * of total
                       Product units sold.

Closeout units shall not exceed * of total Product units sold.

Notwithstanding the foregoing, discounts to Guess or Perfumania (for sales to
its own stores only) pursuant to Sections 6.3 and 6.4 hereof, shall not be
counted toward the Allowances, Payment Term Discounts and Closeout Discounts
limitations described in Section 12.4(a).

Without limitation to any other rights that GUESS may have under this Agreement,
if (i) Allowances, Payment Terms Discounts, and Closeout Discounts exceed the
permitted percentage described in subsection (a) above for a Contract Year;
GUESS shall have the right in each case to adjust LICENSEE's Net Sales
requirement upward by the amount of the overage, and LICENSEE shall promptly pay
the increased Trademark Royalties and Advertising expenditures owed as a result
thereof.

Without limitation to any other rights that GUESS may have under this Agreement,
if returned units of Products exceed the permitted percentage for a Contract
Year, GUESS shall have the right to adjust LICENSEE's Net Sales requirement
upward by the amount that is the product of (i) the average price of the
returned Products during the Contract Year, multiplied by (ii) the number of
units in excess of the maximum percentage of returned Products permitted, and
LICENSEE shall promptly pay the increased Trademark Royalties and Advertising
expenditures owed as a result thereof.

Without limitation to any other rights that GUESS may have under this Agreement,
if Closeout units exceed the permitted percentage for a Contract Year, GUESS
shall have the right to

                                      -22-
<PAGE>

adjust LICENSEE's Net Sales requirement upward by the amount that is the product
of (i) the average discount given on Closeouts during the Contract Year,
multiplied by (ii) the number of units in excess of the maximum percentage of
Closeouts permitted, and LICENSEE shall promptly pay the increased Trademark
Royalties and Advertising expenditures owed as a result thereof.

Notwithstanding anything contained herein, no deductions whatsoever will be
permitted for reserves of any kind, including reserves for bad debts, nor for
any actual write-offs of bad debts.

Notwithstanding anything contained herein, LICENSEE may not manufacture Products
specifically for closeout, off-price and/or discount accounts of any kind, nor
may it sell first-quality Products to such accounts. Any closeout, off-price,
discount or similar account which may be approved by GUESS (for the limited
purpose of LICENSEE's sales of Closeouts) may only be sold Products which are
actually Closeouts, namely, discontinued merchandise.

In addition, each Closeout Product must retain the original, separate and
individual SKU, and the original, separate and individual MSRP (with the
applicable discount shown separately in LICENSEE's records and reports) as each
were submitted to GUESS on the LICENSED PRODUCT APPROVAL FORM. LICENSEE's
records and reports must be maintained so as to permit identification of
specific, individual Closeouts, as set forth above.

             12.5 Trademark Royalty and Royalty Minimum Payments. Other than the
First Contract Year, LICENSEE shall pay to GUESS in advance the Royalty Minimum
in two equal installments per Contract Year during the Initial Term and any
Renewal Term. The Minimum Trademark Royalty shall be paid as follows: the
payment for January through June for each Contract Year shall be due in advance
on the first day of business in January, and the payment for July through
December of each Contract Year shall be due in advance on July 1 of such year.
Minimum Trademark Royalty payments for the First Contract Year shall be due in
advance in two equal installments, one payable on the first day of business in
January, 2005 and the second payable on July 1, 2005. Within sixty (60) days of
the end of each Contract Year, LICENSEE shall pay to GUESS, the amount, if any,
by which the aggregate Trademark Royalty due for such Contract Year exceeds the
Royalty Minimum for such Contract Year. LICENSEE will not be relieved of paying
the Trademark Royalty by virtue of having met the Royalty Minimum, if LICENSEE's
Net Sales yield Trademark Royalty obligations in excess of the Royalty Minimum.
The obligation of LICENSEE to pay the Trademark Royalty and/or the Royalty
Minimum, as the case may be, is absolute, notwithstanding any claim that
LICENSEE may assert against GUESS. LICENSEE shall not have the right to set-off,
compensate or make any deduction from payments of the Trademark Royalty or the
Royalty Minimum for any reason whatsoever.

                                      -23-
<PAGE>

             12.6 Remittance of Payment/Withholding. Unless otherwise requested
by GUESS, all payments shall be made in U.S. dollars by check or wire transfer
to the account of GUESS, Account No. *, at * (ABA No. *), *, or to such other
account as GUESS may designate in writing to LICENSEE from time to time, net of
bank wire or other charges (which charges shall be paid by LICENSEE). If any
amount payable to GUESS is subject to any tax, charge or duty in the Territory
(excluding any income tax imposed by the State of California or the United
States and payable by GUESS), LICENSEE shall furnish to GUESS official proof of
such payment, including official proof of receipt of LICENSEE's payment from the
government entity imposing such tax, charge or duty. If GUESS does not receive
full and complete U.S. tax credit for any such tax, charge or duty, then the
amount payable by LICENSEE shall be increased to provide to GUESS such amount as
would be payable to GUESS in the absence of any such tax, charge, duty or
impost.

             12.7 Quarterly Report. Not later than thirty (30) days after the
end of each Quarter, LICENSEE shall send to GUESS by overnight courier service a
summary report that contains all of the information required by the STATEMENT OF
ROYALTIES FORM (EXHIBIT I) as modified by GUESS from time to time. LICENSEE
shall also submit:

                  (a)  a report showing the number of units and dollar amount of
                       Products sold to each customer, for each country within
                       the Territory, during the Quarter;

                  (b)  one or more detailed computer reports containing all
                       related information and back-up corresponding to sales of
                       Products and permitted deductions (as described in
                       Section 12.4) as reported in the STATEMENT OF ROYALTIES
                       FORM. The report shall include a listing of all Product
                       sold in the Quarter summarized by SKU, customer, and
                       Territory. MSRPs, Listed Wholesale Prices, units sold,
                       Gross Sales, deductions permitted by Section 12.4, and
                       Net Sales must be clearly indicated; and

                  (c)  any other information relating to the Products that may
                       be reasonably requested by GUESS.

             All information for the STATEMENT OF ROYALTIES FORM shall be
separately stated for each country in the Territory and for each distributor,
independent contractor and retail store located in the Territory to which
LICENSEE sells Products.

             12.8 Monthly Sales Report. Not later than thirty (30) days after
the end of each of the first two (2) months of each Quarter, LICENSEE shall send
to GUESS by facsimile a report that shall contain all of the information
required by the MONTHLY SALES REPORT FORM (EXHIBIT K) as modified by GUESS from
time to time.

             12.9 Invoices and Other Information. Upon the reasonable request of
GUESS, LICENSEE shall submit to GUESS, its agents and/or representatives, copies
of invoices, credit memoranda, price lists, line sheets and customer lists
related to the sale of Products. All Payment Terms Discounts, Allowances and
Closeout Discounts must be itemized as a percentage of sales.

                                      -24-
<PAGE>

             12.10 Right to Review; Affiliate Transactions and Restrictions.
Receipt or acceptance by GUESS of any statement furnished, or of any sums paid
by LICENSEE, shall not preclude GUESS from questioning the completeness or
accuracy of such statement or payment at any time. Other than pursuant to
Sections 6.3 and 6.4 (discounts to Perfumania for sales only to their retail
stores or on their Internet retail store site and to GUESS) hereof, any
transaction between LICENSEE and an affiliated or related company, person or
entity, which in any way affects amounts owed to GUESS hereunder, or affects
amounts which LICENSEE is required to expend hereunder, must be an arms' length
transaction and no more or less favorable to LICENSEE or to the affiliated or
related company, person or entity, than a similar transaction with an unrelated
third party. GUESS shall have the right to reject any such related party
transaction which LICENSEE cannot show to be equivalent to one conducted at
arms' length. GUESS may then reconstitute such transaction as though it was
conducted at arms' length, and LICENSEE shall pay and/or expend any additional
amounts which GUESS determines are due as a result thereof. In addition, if
LICENSEE sells or otherwise transfers Products to any affiliate or related
company (which sale or transfer must be approved in advance by GUESS, and which
must be conducted on an arms' length basis), all distribution obligations and
restrictions contained in Section 6 applicable to LICENSEE will be equally
applicable to such affiliate and/or related entity, and a breach thereof by such
affiliate or other entity will be deemed to be a breach by LICENSEE.

             12.11 Late Payments. If any payment of the Royalty Minimum, the
Trademark Royalty, the Net Sales Advertising Expenditure, the Minimum
Advertising Expenditure or any other amounts due from LICENSEE to GUESS
hereunder (or any payment for the Product from GUESS to LICENSEE) are delayed
for any reason, interest shall accrue on the unpaid principal amount ten (10)
days from and after the date on which the same became due at the highest rate
permitted by law in the State of California.

             12.12 Foreign Currency Conversion. Net Sales made in a foreign
currency, if any, shall be listed showing the foreign currency and the
conversion to U.S. Dollars using the exchange rate for the last day of the
relevant Quarter (or the next business day if such day falls on a weekend or a
holiday) as set forth in the U.S. edition of The Wall Street Journal.

             12.13 Payments by GUESS. Notwithstanding anything contained herein,
in the event GUESS or any subsidiary or affiliate owes any amounts to LICENSEE,
whether as a result of the purchase of Products, Closeouts, inventory or other
reason, in each case GUESS may deduct from such amounts any amounts owed it by
LICENSEE.

        13. ACCOUNTING AND SYSTEMS

             13.1 Duty to Keep Accounts. LICENSEE shall at all times keep and
maintain an accurate account of all operations within the scope of this
Agreement for a period of at least four (4) years after the expiration or
termination of this Agreement, including, without limitation, separate and
appropriate books of account and records sufficient to reconcile the number of
Product units manufactured with the number of Product units sold. LICENSEE shall
establish a separate income statement and separate books of account to track the
sales of the Products.

                                      -25-
<PAGE>

             13.2 Financial Statements, Inventory Reconciliation and Business
Plan.

                  (a)  LICENSEE shall provide GUESS with annual audited
                       financial statements of LICENSEE (audited by a prominent,
                       internationally-recognized accounting firm satisfactory
                       to GUESS), within ninety (90) days after the end of each
                       of its fiscal years, and unaudited quarterly interim
                       statements, within thirty (30) days after the end of each
                       Quarter. Within thirty (30) days after the end of each
                       Contract Year LICENSEE shall also provide to GUESS a
                       composite royalty statement showing the aggregate Gross
                       Sales, Returns, Allowances, Payment Terms Discounts and
                       Closeout Discounts and any other deduction taken pursuant
                       to Section 12.4 above to arrive at the Net Sales price of
                       all Products sold by LICENSEE. The composite annual
                       statement shall be certified by the chief financial
                       officer of LICENSEE. LICENSEE's fiscal year end is
                       December 31.

                  (b)  LICENSEE shall provide GUESS with an annual inventory
                       reconciliation, within ninety (90) days after the end of
                       each of its fiscal years. Such reconciliation shall (i)
                       be certified by the chief financial officer, (ii) confirm
                       actual reconciliation of the inventory to LICENSEE's
                       general ledger and (iii) include computer reports
                       summarizing inventory by item or SKU.

                  (c)  LICENSEE shall provide GUESS with an annual detailed
                       business plan relating to the manufacture and sale of the
                       Products (and including without limitation monthly Net
                       Sales projections for the Products for the subsequent
                       Contract Year), in a form acceptable to GUESS, at least
                       ninety (90) days prior to each Contract Year end.

             13.3 Right of Inspection and Audit by GUESS. At all times during
the term of this Agreement and any time following its termination or expiration,
the internal control report and all other reports and the books of account of
LICENSEE with respect to the manufacture and sales of Products shall be
available for inspection, copying and audit by GUESS, its agents and
representatives, during normal business hours, upon not less than seventy-two
(72) hours advance notice, and shall be made by GUESS at its own expense, except
as provided below. All such examinations and audits shall be at LICENSEE's
principal place of business. LICENSEE shall maintain its books and records only
at the principal office premises set forth in Section 26 and shall not remove
this information unless it has given GUESS thirty (30) days prior written notice
of the new location (which must be in the Territory). If the audit reveals that
LICENSEE's reporting and/or record keeping are not in accordance with GUESS's
requirements, or that there is an error in favor of LICENSEE in excess of the
lesser of * or * of royalties with respect to any Quarter or Contract Year in
computing such royalties, or that LICENSEE has understated Net Sales in excess
of * for any reporting period, then without prejudice to any other amounts due
to GUESS or to any of its rights hereunder, all costs and expenses incurred by
GUESS in connection with such inspection and audit

                                      -26-
<PAGE>

shall be borne by LICENSEE. LICENSEE shall pay any amounts revealed by the audit
as due, and the cost of such audit (if applicable), within ten (10) days of
GUESS's demand therefore. The internal control report means the report prepared
by LICENSEE's auditors upon their completion of an audit, addressing the
auditors' findings and recommendations. Upon GUESS's request, LICENSEE shall
supply all sales, inventory and other information required to be supplied and/or
maintained hereunder via magnetic media.

             13.4 Failure to Maintain Records. LICENSEE acknowledges that its
failure to maintain the appropriate and accurate books of accounts and records
required hereunder will constitute a material breach of its obligations and will
cause substantial damage to GUESS. GUESS may, therefore, in addition to
exercising any other rights hereunder, charge LICENSEE a fee of the greater of
(a) *, or (b) * of the Trademark Royalty for the applicable Contract Year; upon
LICENSEE's breach of its obligations under this Section 13. LICENSEE shall pay
such fee within five (5) days of demand by GUESS. GUESS may also charge such fee
against the letter of credit described in Section 13.2.

             13.5 Systems. LICENSEE will obtain and maintain such accounting,
information, communication and operating systems and capabilities as GUESS may
require from time to time. GUESS's current requirements are described on the
SYSTEMS REQUIREMENTS LIST (EXHIBIT L), which is subject to change in GUESS's
sole discretion upon notice to LICENSEE.

        14. FORCE MAJEURE

             Neither GUESS nor LICENSEE shall be held responsible for any loss,
damage or delay suffered by the other party owing to any cause that is beyond
the reasonable control of the defaulting party and cannot be attributed to
negligence or willful nonperformance of its obligation. Such causes include, but
are not limited to, wars, embargoes, riots, civil disturbances, fires, storms,
floods, typhoons, hurricanes, earthquakes and other natural calamities, strikes
and labor disputes, government acts and restrictions, and other causes that
cannot be overcome or prevented by due diligence. Either party wishing to invoke
this Section shall give notice to the other party stating the relevant cause.
The defaulting party shall promptly resume performance of its obligations the
moment such cause or causes cease to operate; provided, however, that if the
condition continues with respect to LICENSEE for a period of more than sixty
(60) days, GUESS shall have the right to terminate this Agreement.

        15. BREACH AND TERMINATION

             15.1 Other Rights Unaffected by Termination; No Waiver. It is
understood and agreed that termination of this Agreement by GUESS on any ground
shall be without prejudice to any other rights or remedies that GUESS may have.
Any election by GUESS to not strictly enforce termination (which election shall
be at GUESS's sole discretion), is not a waiver of or bar to GUESS's right to
strictly enforce termination in the future.

             15.2 Termination Option for Breach/Cure Possible.

                                      -27-
<PAGE>

                  (a)  Except as otherwise provided in this Section 15, if
                       LICENSEE breaches any of its obligations under this
                       Agreement, GUESS may terminate this Agreement by giving a
                       notice of breach to LICENSEE. Termination will become
                       effective automatically unless LICENSEE completely cures
                       the breach within thirty (30) days after the giving of
                       such notice. Pending cure, LICENSEE shall ship no
                       Products for sale; if LICENSEE does ship any Products, it
                       shall forfeit its right to cure and its rights under this
                       Agreement shall be terminated automatically.

                  (b)  Upon the giving of a notice of breach for the third or
                       more times during the Term of the Agreement, for any
                       reason, LICENSEE shall no longer have the right to cure
                       any violation, and at GUESS's election (which shall be in
                       its sole discretion) termination shall be effective upon
                       the giving of said third or subsequent notice. GUESS's
                       election to terminate pursuant to the foregoing sentence
                       shall not impact its ability to terminate for any other
                       reason provided in this Agreement.

             15.3 Termination Option/No Cure Possible/Change of Ownership. The
parties mutually acknowledge that this Agreement is being entered into based
upon GUESS's evaluation of and reliance upon the current ownership, management
and control of LICENSEE. On the basis of the information provided by LICENSEE to
GUESS, GUESS has determined that current management of LICENSEE has the
technical, marketing and sales expertise, business reputation and sensitivity to
GUESS's unique image and to the goodwill represented by the Trademarks, all of
which are necessary to carry out the purposes of this Agreement. Therefore, if
more than fifty percent (50%) of the ownership interest in LICENSEE or the
voting power of LICENSEE in effect as of the date of this Agreement is
transferred, assigned or otherwise disposed of without GUESS's prior written
consent GUESS shall have the right upon written notice to terminate this
Agreement immediately without any right to cure ("Change In Control
Termination").

             Notwithstanding the foregoing, if GUESS does not consent to the
transfer of a greater than fifty percent (50%) ownership interest in LICENSEE
and GUESS elects a Change In Control Termination, LICENSEE shall:

             a) be granted a six-month sell-off period from the date of Change
        In Control Termination as to any Products on hand (which shall include,
        without limitation, all previously manufactured components and packaging
        for the Products) not purchased by GUESS pursuant to Section 16.4.
        LICENSEE may sell such Products on a non-exclusive basis in accordance
        with this Agreement and only to customers approved or previously
        approved and at the time of Change In Control Termination are in good
        standing with GUESS; provided, however, LICENSEE shall have only six (6)
        months after the date of Change In Control Termination to sell and ship
        such Products; and

             b) be obligated, in addition to paying all Royalties, Advertising
        and any other sums due under this Agreement during the six-month
        sell-off period for all Products sold during this period, to pay two (2)
        payments, each in the amount of * as a termination fee. The first
        payment shall be due and payable upon the date of Change in Control
        Termination and the second * payment shall be due and payable no later
        than twelve (12) months after the Change In Control Termination date.
        LICENSEE shall have no right of set-off or offset regarding the *
        termination fee.

                                      -28-
<PAGE>

             Upon payment of all of the above amounts, there shall be no
additional monetary obligations due under the Agreement.

             15.4 Termination Option/No Cure Possible/Additional Causes. GUESS
may terminate this Agreement immediately upon written notice without any right
to cure if any of the following events occur:

                  (a)  LICENSEE fails to establish, renew and/or replenish the
                       letter of credit, if such letter of credit is required to
                       be provided in accordance with Section 12.2;

                  (b)  GUESS does not receive any payment owed by LICENSEE
                       within thirty (30) days of when payment is due;

                  (c)  payment is not received within thirty (30) days of when
                       payment is due, for LICENSEE's purchase of any materials,
                       Advertising items, packaging or services relating to
                       Products (including technical assistance rendered and
                       shipping costs related thereto) from GUESS or any agent
                       or licensee of GUESS or any other supplier of such items;

                  (d)  LICENSEE merges or consolidates with or into any other
                       corporation or other entity, or directly or indirectly
                       sells or otherwise transfers, sells or disposes of all or
                       a substantial portion of its business or assets;

                  (e)  the Net Sales for any Contract Year do not meet or exceed
                       the Minimum Net Sales required for each of two
                       consecutive Contract Years as stated in EXHIBIT J;

                  (f)  returned Products exceed * of total Product units sold in
                       each of two consecutive Contract Years;

                  (g)  the combined total of Allowances, Payment Terms Discounts
                       and Closeout Discounts exceed * of Gross Sales of
                       Products for any Contract Year (sales to Guess and
                       Perfumania for their own retail store sales and Internet
                       retail store site do not apply to this limitation);

                  (h)  Closeouts exceed * of total Product units sold for each
                       of two consecutive Contract Years;

                  (i)  LICENSEE understates royalties and/or payments due for
                       any report or statement by more than *, makes any
                       unreported sales or cash sales, or intentionally reports
                       incorrect or false manufacturing, sales or financial
                       information;

                                      -29-
<PAGE>

                  (j)  LICENSEE is declared bankrupt or is dissolved either
                       compulsorily or voluntarily, or a petition is presented
                       or an order is made or an effective resolution is passed
                       or analogous proceedings are taken for bankruptcy,
                       dissolution, composition, concordance, reorganization or
                       winding-up of LICENSEE, or if LICENSEE convenes a meeting
                       for the purpose of making, or proposes or enters into,
                       any arrangement or composition for the benefit of its
                       creditors, or if an encumbrancer takes possession of, or
                       a receiver or other similar officer is appointed for, the
                       whole or any part of the assets or undertakings of
                       LICENSEE, or if LICENSEE stops payment to its creditors
                       generally, or ceases or threatens to cease to carry on
                       its business or any substantial part thereof, or becomes
                       insolvent or unable to pay or discharge its liabilities
                       in the ordinary course of business, or if LICENSEE
                       assigns the whole or any substantial part of its assets
                       or undertakings for the benefit of creditors;

                  (k)  either LICENSEE itself, or any of its suppliers or
                       distributors, manufactures or sells Products without the
                       express authorization of GUESS and LICENSEE permitted, or
                       knew about such manufacture or sale;

                  (l)  LICENSEE fails to timely present for sale to the trade a
                       representative collection of the Products or LICENSEE
                       fails to use its best efforts to actively promote and
                       sell the Products or to timely ship to its customers a
                       material portion of the orders of the Products it has
                       accepted;

                  (m)  LICENSEE sells or ships the Products to unapproved or
                       disapproved customers or distributors, or to customers or
                       distributors whom LICENSEE knows or should know will
                       resell or ship the Products outside their respective
                       countries;

                  (n)  Upon the second occurrence where LICENSEE uses or
                       authorizes the use of Advertising or packaging materials
                       that are not approved by GUESS in advance in writing or
                       that GUESS has disapproved;

                  (o)  LICENSEE violates any of the distribution obligations set
                       forth in Sections 6.2 and/or 6.5;

                  (p)  LICENSEE manufactures and/or sells any disapproved
                       Products or Products not previously submitted for
                       approval;

                  (q)  the quality of the Products is materially lower (as
                       determined by GUESS in its sole and subjective
                       discretion) than those submitted for approval;

                                      -30-
<PAGE>

                  (r)  LICENSEE fails to commence shipping to GUESS-approved
                       accounts in the United States substantial quantities of
                       LICENSEE-produced GUESS men's and women's fragrance
                       Products by November 1, 2005; or

                  (s)  any other material agreement between GUESS and LICENSEE
                       is terminated or expires.

                  Notwithstanding anything contained herein, if GUESS elects to
provide LICENSEE with notice and an opportunity to cure any breach described in
Sections 15.3 or 15.4 (which election is at GUESS's sole discretion), such
action will not constitute a waiver of or bar to GUESS's right to strictly
enforce immediate termination in the future, without any right to cure, in the
event of the same or any other breach.

             15.5 No Assignee. No assignee for the benefit of creditors,
receiver, liquidator, sequestrator, trustee in bankruptcy, sheriff or any other
officer of the court or official charged with taking over custody of LICENSEE's
assets or business shall have any right to continue the performance or rights of
LICENSEE under this Agreement.

        16. OBLIGATIONS AT TERMINATION OR EXPIRATION

             16.1 Delivery of IP Rights, Trade Secrets, Signs and Promotional
Materials. Within thirty (30) days after the expiration or termination of this
Agreement for any reason, LICENSEE shall deliver to GUESS, at no cost to GUESS,
all IP Rights and Trade Secrets of GUESS, whether contained in hard copy, in
electronic media (including without limitation, on computer hard drive, disk or
other medium) or in any other form whatsoever. Without limitation to the
foregoing, LICENSEE shall specifically deliver to GUESS all designs, patterns,
concepts, unused components (including labels, tags, plaques and similar items),
molds, tooling, artwork, sketches, plates, engravings, unused Product packaging
which contains any IP Right or Trademark (including bottles, containers, tubes
and the like), Product samples, and instructions, ingredient lists and spec
sheets developed and/or used, or proposed to be used, in connection with the
Products and/or the IP Rights, and whether developed by or on behalf of
LICENSEE, GUESS, or any third party. LICENSEE will also retrieve and deliver to
GUESS all such materials which may be in the possession or control of its
subcontractors, manufacturers or any other third party. LICENSEE shall not
retain, and will ensure no such third parties retain, copies of any such
materials required to be delivered to GUESS. LICENSEE shall further within such
thirty (30) day period, remove and deliver to GUESS all exterior and interior
signs and displays bearing the Trademarks or the IP Rights as well as all other
promotional materials, including brochures, business cards and letterhead,
bearing the Trademarks or the IP Rights. For purposes of this Section, Section
17, and any other provision of this Agreement relating to its termination,
"termination" shall be deemed to mean the earlier of (i) GUESS providing notice
of termination in accordance with this Agreement, or (ii) an event of
termination by operation of this Agreement.

             16.2 Directories and Listings. If applicable, within three (3) days
after the expiration or termination of this Agreement for any reason, LICENSEE
shall notify in writing all telephone companies, business directories, chambers
of commerce and appropriate governmental

                                      -31-
<PAGE>

agencies of the expiration or termination of this Agreement to terminate their
listings under any of the Trademarks and shall provide GUESS with copies of such
notices.

             16.3 Subcontractors. If LICENSEE has retained manufacturing
subcontractors hereunder, LICENSEE shall be responsible for their compliance of
any and all obligations under this Agreement that are applicable to such
subcontractors.

             16.4 Inventory; Right to Purchase. Not later than forty-five (45)
days prior to the expiration of this Agreement or within ten (10) days after the
termination of LICENSEE's rights under this Agreement, LICENSEE shall furnish to
GUESS a certificate listing its inventory of Products on hand (which shall
include, without limitation, all used components and packaging) and work in
progress (including without limitation, raw materials and ingredients) together
with the location thereof. At GUESS's expense, GUESS shall have the right to
conduct a physical inventory of such Products and work in progress. GUESS or its
designee shall have the option (but not the obligation) to purchase from
LICENSEE all or any part of its respective inventory of Products on hand (which
shall include without limitation, all used components and packaging, and raw
materials and ingredients) upon the following terms:

                  (a)  GUESS shall notify LICENSEE of its or its designee's
                       intention, if any, to exercise this option within thirty
                       (30) days after GUESS's receipt of such certificate and
                       shall specify which of the Products are to be purchased;

                  (b)  the price for components, raw material and the Product
                       shall be at LICENSEE's actual cost;

                  (c)  LICENSEE shall deliver Products purchased by GUESS or its
                       designee within thirty (30) days or as specified by GUESS
                       after receipt of the notice of GUESS's or its designee's
                       intention to purchase the inventory; and

                  (d)  payment shall be due upon delivery; provided, however,
                       that GUESS may deduct from the purchase price for such
                       Products any amounts owed it by LICENSEE.

             16.5 Remaining Products. Products not sold by LICENSEE in
accordance with Section 16.4 or this Section 16.5 shall be destroyed, unless the
parties agree otherwise in writing.

                  (a) If Agreement Expired. In the event this Agreement has
expired in accordance with its terms, as to any Products on hand (which shall
include, without limitation, all previously manufactured components and
packaging for the Products) not purchased by GUESS, LICENSEE may sell such
Products on a non-exclusive basis in accordance with this Agreement and only to
customers approved or previously approved and at the time of expiration is in
good-standing with GUESS; provided, however, LICENSEE shall have only ninety
(90) days after the date of expiration to sell and ship such Products.

                                      -32-
<PAGE>

                  (b) If Agreement Terminated. Other than pursuant to the Change
In Control Termination in Section 15.3, if the rights granted to LICENSEE under
this Agreement have been terminated, LICENSEE may not sell any Products bearing
the Trademarks.

             16.6 Licensee's Obligation Regarding Sale of Products.

                  In the event that LICENSEE sells any Products in accordance
with this Section, LICENSEE shall:

                  (a)  send to GUESS by facsimile the information required on
                       the MONTHLY SALES REPORT attached hereto as EXHIBIT K and
                       the inventory report described in Section 16.4, each
                       within thirty (30) days after the end of each month
                       during the selling period permitted under Section 16.5;

                  (b)  send by overnight air courier service the information
                       required on the STATEMENT OF ROYALTIES attached hereto as
                       EXHIBIT I, within thirty (30) days after the end of such
                       permitted selling period, with respect to all sales of
                       Products by LICENSEE during the relevant periods; and

                  (c)  pay to GUESS, within thirty (30) days after the
                       expiration of such permitted selling period, the
                       appropriate amount of Trademark Royalty due with respect
                       to sales of Products by LICENSEE during such period. In
                       computing such Trademark Royalties, any permitted
                       deductions from Gross Sales may not be taken after the
                       end of the permitted selling period, and any such
                       deductions which are allowed must be included (if
                       granted) on the final STATEMENT OF ROYALTIES form
                       required under Section 16.6 (b).

        17. EFFECT OF TERMINATION OR EXPIRATION

             17.1 Termination of Rights. Except as specifically provided in
Section 16 above, upon the termination of the rights granted hereunder to
LICENSEE under this Agreement or upon the expiration of this Agreement, all
rights of LICENSEE to use the Trademarks and the IP Rights, including, without
limitation, rights to manufacture, distribute, offer to sell, sell and advertise
Products, shall automatically terminate or, as appropriate, be assigned to
GUESS. LICENSEE shall execute any instruments requested by GUESS which are
necessary or desirable to accomplish or confirm the foregoing. Any such
assignment, transfer or conveyance shall be without consideration other than the
mutual covenants contained in this Agreement. Additionally, LICENSEE hereby
grants, and agrees to cause the appropriate third party to grant to GUESS an
irrevocable power of attorney, on behalf of LICENSEE or such third party, as the
case may be, to execute any registered user termination documents or agreements
in any jurisdiction, and other related or similar documentation, that GUESS
determines are necessary or advisable in connection with the termination of
LICENSEE's rights hereunder. Following such termination or expiration, GUESS may
thereafter license the right to use the Trademarks and/or the IP Rights in
connection with the

                                      -33-
<PAGE>

manufacture, wholesale, offer for sale at wholesale, distribution and
advertising of the Products in the Territory without any restriction or
obligation to LICENSEE.

             17.2 No Use of Trademarks and IP Rights. Except as permitted by
GUESS, after the termination of the rights granted to LICENSEE or upon the
expiration of this Agreement, LICENSEE shall refrain from further use of the
Trademarks and the IP Rights or any other trademark, trade name or other
industrial or intellectual property that is:

                  (a)  confusingly similar to the Trademarks or to the IP
                       Rights; or

                  (b)  associated with, or suggests an association with, the
                       Trademarks and the IP Rights in any way.

             17.3 No Liability. Under no circumstances shall LICENSEE be
entitled, directly or indirectly, to any form of compensation or indemnity from
GUESS, or its affiliates, licensees or distributors, as a consequence of the
expiration or termination of this Agreement, whether as a result of the passage
of time, or as the result of any other cause of termination referenced in this
Agreement. LICENSEE waives any claim that it has or that it may have in the
future against GUESS or its affiliates, licensees or distributors arising from
any alleged goodwill created by LICENSEE with respect to the Products or from
its alleged creation or the increase of a market for the Products in the
Territory. In particular, nothing herein shall be interpreted as making LICENSEE
the commercial agent of GUESS; it being understood and agreed by the parties
that:

                  (a)  all promotional efforts by LICENSEE are under the strict
                       direction and control of GUESS; and

                  (b)  LICENSEE's rights under this Agreement may be terminated
                       at any time it breaches the terms hereof or upon
                       expiration of the Initial Term or any Renewal Term
                       hereof, and that in such event LICENSEE is not entitled
                       to compensation, indemnification, or other form of
                       payment from GUESS.

             17.4 Right to Publicize and Offer for Sale. At any time during the
two (2) months preceding expiration of this Agreement, GUESS or any new licensee
shall have the right to show, publicize, advertise and take orders for the
Products and any similar products.

        18. INDEMNIFICATION, REPRESENTATION AND WARRANTIES

             18.1 Indemnification. LICENSEE shall indemnify, protect, hold
harmless and defend GUESS, its officers, directors, affiliates, agents and
employees from and against any and all claims, suits, losses, liabilities,
expenses and damages, including costs of suit and attorneys' fees, arising out
of or in any way connected with: the design, creation, manufacture, sale,
distribution, labeling or Advertisement of any Product by or on behalf of
LICENSEE; any alleged defect in a Product or related to a Product; any claim of
harm or injury resulting from use of a Product; the claim of any broker, finder
or agent in connection with the making of this Agreement or any transactions
contemplated by this Agreement, or the claim of any entity that actions taken or
omitted

                                      -34-
<PAGE>

to be taken by LICENSEE bind or otherwise obligate GUESS in any way (except as
specifically provided herein); the claim of any landlord, distributor, retailer,
agent or other person or entity that termination or expiration of this Agreement
caused it damage; the breach of this Agreement; or the inaccuracy of any
representation or warranty made by LICENSEE herein. Compliance by LICENSEE with
the insurance provisions of this Agreement shall not relieve LICENSEE of its
duty to indemnify and defend GUESS under this Section. The duty to indemnify and
defend survives the termination or expiration of this Agreement.

             18.2 Defense Counsel. LICENSEE shall defend GUESS, with counsel
acceptable to LICENSEE and GUESS, with respect to each and every claim for which
GUESS is indemnified by LICENSEE under this Agreement. LICENSEE shall pay for
the services of such counsel upon counsel's presentation of legal bills or
requests for retainer.

             18.3 Authority. Each of the parties represents and warrants that it
has the full right, power and authority to enter into this Agreement and to
perform all of its respective obligations, that it is under no legal impediment
which would prevent its entering into and performing fully its obligations under
this Agreement, and that it is financially capable of performing such
obligations.

             18.4 Compliance With Laws. LICENSEE shall perform or cause to be
performed, prior to the offer of any Products in the marketplace, all necessary
tests required by applicable law throughout the Territory, if any, to confirm
the safety and effectiveness of the Products. The results of such tests shall be
promptly provided to GUESS. Such tests shall continue to be performed on a
random sample of Products during the Term of this Agreement. LICENSEE shall also
keep itself informed of safety and medical requirements concerning products
similar to the Products, and will promptly comply with all relevant laws
applicable thereto throughout the Territory. LICENSEE shall further take all
actions required by any local, provincial, national, state or regional agency,
government or commission in connection with the Products (including without
limitation remedial actions such as Product recalls), and also in order to carry
out the purposes of the rights licensed hereunder, all in compliance with
applicable law. LICENSEE shall immediately provide GUESS with copies of any
communication to or from any such agency, government or commission that relates
to or affects this Agreement, the Trademarks or the IP Rights, or the Products.
Without limitation to the foregoing, LICENSEE shall not engage in any unfair or
illegal trade practices or commit any acts or engage in any transactions that
would reflect adversely upon the goodwill associated with GUESS, the Trademarks,
the IP Rights, or the Products.

             18.5 LICENSEE Representations and Warranties. LICENSEE represents
and warrants to GUESS that:

                  (a)  LICENSEE is a corporation duly incorporated, validly
                       existing and in good standing under the laws of Delaware;

                  (b)  the audited financial statements previously furnished to
                       GUESS by LICENSEE are complete and correct in all
                       material respects and

                                      -35-
<PAGE>

                       represent accurately the financial position of LICENSEE
                       at the time this Agreement is executed;

                  (c)  no event has occurred that would have a material impact
                       on the business, operations or condition (financial or
                       otherwise) of LICENSEE;

                  (d)  LICENSEE has the ability and capacity to perform its
                       obligations hereunder or to cause such obligations to be
                       performed; and

                  (e)  any intellectual or industrial property materials
                       (including without limitation, concepts, molds, designs,
                       patterns, labels, bottles, packaging, containers, logos
                       and promotional items) to be submitted by LICENSEE to
                       GUESS for approval are original and do not infringe the
                       rights of any other person, and are not confusingly
                       similar to any other intellectual or industrial property.

Upon request, LICENSEE shall provide GUESS with a written certification that all
such representations and warranties remain true and accurate as of the date of
such certification.

             18.6 GUESS Representations and Warranties; Indemnification. GUESS
represents and warrants to LICENSEE that:

                  (a)  GUESS is a corporation duly incorporated, validly
                       existing and in good standing under the laws of Delaware;
                       and

                  (b)  GUESS has the ability and capacity to perform its
                       obligations hereunder or to cause such obligations to be
                       performed.

             GUESS agrees to indemnify, protect, hold harmless and defend
LICENSEE, its officers, directors, employees, and affiliates, from and against
any and all claims, suits, losses, liabilities, expenses and damages (including
costs of suit and reasonable attorneys' fees) reasonably incurred by LICENSEE
and arising out of any claim ("Claim") that LICENSEE's use of the Trademarks
infringe the trademark rights of a third party in the Territory, provided that
(i) LICENSEE's use of the Trademarks is made in strict accordance with this
Agreement, (ii) LICENSEE notifies GUESS of such Claim immediately after LICENSEE
learns of such Claim, (iii) GUESS has exclusive control over the defense or
settlement of any proceedings related to such Claim, (iv) LICENSEE provides
GUESS such assistance in relation to such proceedings as GUESS may reasonably
request, and (v) LICENSEE complies with any settlement or court order arising
from such proceedings, including any settlement or order that requires a change
to LICENSEE's use of the Trademarks or the Products. GUESS shall have the right
to terminate LICENSEE's right to use the Trademarks in a particular country or
countries, without further liability to LICENSEE, if GUESS determines, in its
sole discretion, that it cannot prevail over any Claim in such country(ies).
Notwithstanding the foregoing, in no event will the indemnification provided by
GUESS exceed the amount of the Trademark Royalties received by GUESS under this
Agreement at the time of such Claim.

                                      -36-
<PAGE>

             18.7 No Warranty or Representation by GUESS. Except as specifically
provided in this Agreement, GUESS makes no representation or warranty, either
express or implied, as to any matter whatsoever, including, without limitation,
the design, merchantability, durability, suitability of any product or other
item or the fitness of any product or other item for a particular purpose.

        19. APPROVAL PROCEDURES

             The approval of GUESS or the exercise of its discretion as to any
request or proposal made by LICENSEE under any section of this Agreement shall
be at the absolute and sole subjective discretion of GUESS. All packaging,
designs and artwork, advertising image and artwork, collateral materials design
and artwork, gift-with-purchase designs and artwork and press releases related
to the Product and/or the GUESS brand must be submitted to GUESS for written
approval prior to manufacture, distribution or sale. Such submittals must be
accompanied by a LICENSED PRODUCT APPROVAL FORM. Upon receipt of these
submittals, GUESS shall have ten (10) business days to review and provide
written approval or disapproval (with direction for correcting any element(s)
disapproved). If LICENSEE does not receive either a written approval or
disapproval with direction for correction from GUESS within ten (10) business
days from receipt, the item(s) shall be deemed APPROVED by GUESS. In each such
instance where GUESS fails to respond to LICENSEE, LICENSEE shall send a notice
to GUESS of the approval after the ten (10) business day period. LICENSEE shall
submit to GUESS the fragrance scent for review, panel testing and
recommendations and GUESS and LICENSEE shall mutually agree on a final scent
selection. GUESS has no obligation to approve, review or consider any item that
does not strictly comply with the required submission procedures, however, GUESS
shall inform LICENSEE of any procedural non-compliance. Approval by GUESS shall
not be construed as a determination that the approved matter complies with all
applicable regulations and laws.

             LICENSEE acknowledges and agrees that GUESS's approval or
disapproval of any matter under this Agreement is solely for the purpose of
protecting and maintaining GUESS's rights and interests in, and the quality,
reputation, image and prestige of, the Products, the Trademarks and the IP
Rights, and related goodwill, and that nothing in any action taken or omission
made by GUESS with respect to the approval or disapproval of any matter shall be
deemed to be business advice to or participation in the business activities of
LICENSEE. LICENSEE acknowledges and agrees that any approval or disapproval of
any matter under this Agreement is reasonable and necessary to protect and
maintain the Trademarks, GUESS's rights and interest in, and the quality,
reputation, image and prestige of, the Products, the Trademarks and the IP
Rights, and related goodwill and to prevent consumer confusion in connection
therewith. LICENSEE further acknowledges and agrees that GUESS is not offering,
requiring or imposing any specific marketing advice or sales plan or marketing
guidelines with respect to LICENSEE's operations.

        20. ARBITRATION

             20.1 Parties' Consent to Arbitration. Except as otherwise provided
in this Agreement, GUESS and LICENSEE consent and submit to the exclusive
jurisdiction and venue of the State of California, County of Los Angeles, for
the adjudication of any dispute between GUESS

                                      -37-
<PAGE>

and LICENSEE that arises out of or relates to this Agreement. Except as provided
in this Agreement, any dispute, controversy or claim arising out of or relating
to this Agreement shall be settled by binding arbitration heard by one (1)
arbitrator (who shall be an attorney with experience in trademark matters), in
accordance with the Commercial Arbitration Rules ("Rules") of the American
Arbitration Association. The arbitrator shall be appointed in accordance with
the Rules. The parties hereto agree that the venue of such arbitration shall be
the County of Los Angeles, California.

             20.2 Powers. The arbitrator shall be bound by the terms and
conditions of this Agreement and shall have no power, in rendering the award, to
alter or depart from any express provision of this Agreement, and the failure to
observe this limitation shall constitute grounds for vacating the award. Except
as otherwise provided in this Agreement, the arbitrator shall apply the law
specified in Section 21 below. Any award of the arbitrator shall be final and
binding upon the parties and judgment may be entered in any court of competent
jurisdiction, including, without limitation, the courts of the State of
California or any federal court in California, or any court of competent
jurisdiction within the Territory. The award and judgment thereon shall include
interest at the legal rate from the date that the sum awarded to the prevailing
party was originally due and payable, and attorneys' fees and other arbitration
costs, including, without limitation, costs associated with expert witnesses.

             20.3 Provisional Remedies. All provisional remedies shall be within
the exclusive jurisdiction of the courts. The parties may seek and obtain
provisional remedies prior to or contemporaneously with arbitration. LICENSEE
acknowledges and admits that the Trademarks and the IP Rights possess a special,
unique and extraordinary character, which makes difficult the assessment of
monetary damages that GUESS might sustain by any use which is inconsistent with
this Agreement, and that irreparable injury would be caused to GUESS by any use
of the Trademarks and/or IP Rights that is inconsistent with this Agreement,
such that injunctive and similar relief would be appropriate. Accordingly,
without prejudice to any other right and/or remedy GUESS may have under this
Agreement or the law, if, after notice by GUESS, LICENSEE fails to take any
action that LICENSEE is obligated to take under this Agreement, pertaining to
the Products, the Trademarks and/or the IP Rights, then GUESS shall be entitled
to an award of injunctive relief, specific performance to compel such action,
and/or other provisional relief.

             20.4 Entitlement to Costs. If any legal action or dispute arises
under this Agreement, arises by reason of any asserted breach of it, or arises
between the parties and is related in any way to the subject matter of the
Agreement, the prevailing party shall be entitled to recover all costs and
expenses, including reasonable attorneys' fees, investigative costs, reasonable
accounting fees and charges for experts. The "prevailing party" shall be the
party who obtains a provisional remedy such as a preliminary injunction or who
is entitled to recover its reasonable costs of suit, whether or not the suit
proceeds to final judgment; if there is no court action, the prevailing party
shall be the party who wins any dispute. A party need not be awarded money
damages or all relief sought in order to be considered the "prevailing party" by
the arbitrator(s) or a court.

        21. GOVERNING LAW

             All questions concerning this Agreement, the rights and obligations
of the parties, enforcement and validity, effect, interpretation and
construction which are governed by state law

                                      -38-
<PAGE>

shall be determined under the laws of the State of California. United States
federal law shall apply to all other issues; however, if a provisional remedy is
sought, the law of the place where such remedy is sought shall apply.

        22. RELATIONSHIP OF PARTIES

             This Agreement shall not be construed to place the parties in the
relationship of legal representatives, partners, joint venturers or agents of or
with each other. Under this Agreement, LICENSEE is an independent contractor and
shall be solely responsible for the payment of all income tax withholding,
payroll taxes, contributions and other obligations relating to LICENSEE's
employment and compensation of its employees and consultants. No party shall
have any power to obligate or bind any other party in any manner whatsoever,
except as specifically provided herein.

        23. ASSIGNABILITY

             This Agreement shall be binding upon and inure to the benefit of
the successors and permitted assigns of the parties. GUESS may freely assign all
of its rights, duties and obligations, in whole or in part. The rights granted
to LICENSEE hereunder are unique and personal in nature, and neither this
Agreement nor the rights granted to LICENSEE hereunder (including without
limitation, rights in and to the Products) may be assigned, transferred,
pledged, encumbered or hypothecated by LICENSEE without GUESS's prior written
approval. Any attempt by LICENSEE to transfer any of its rights or obligations
under this Agreement, whether by assignment, sublicense or otherwise, without
having received the prior written approval of GUESS, shall constitute a default
hereunder, but shall otherwise be null and void.

        24. INTERPRETATION

             This Agreement shall be interpreted to give GUESS maximum control
of the Trademarks and IP Rights and their usage. Any uncertainty or ambiguity
with respect to any provision of this Agreement shall not be construed for or
against any party based on attribution of drafting to either party. The headings
contained herein are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.

        25. WAIVER AND INTEGRATION

             The failure of a party to insist upon strict adherence to any term
or provision of this Agreement, or to object to any failure to comply with any
term or provision of this Agreement, shall not be a waiver of that term or
provision, estop that party from enforcing that term or provision, or preclude
that party from enforcing that term or provision by estoppel or by laches. The
receipt by a party of any benefit from this Agreement (including without
limitation royalty or other payments, and including whether or not accepted
after the respective due date(s)) shall neither constitute such party's waiver
nor effect an estoppel on the right of that party to enforce any provision
hereof. None

                                      -39-
<PAGE>

of the terms of this Agreement shall be deemed to be waived or modified, except
by an express agreement in writing, signed by an authorized officer of the party
against whom enforcement of the waiver or modification is sought, supported by
new consideration.

        26. NOTICES AND COMMUNICATIONS

             Any notice, communication or legal service of process required or
permitted under this Agreement shall be effective when personally delivered in
writing; or on the date when the notice, service or communication is transmitted
by electronic facsimile (with a confirmation copy to be sent by mail); or the
day after the notice, service or communication is sent by overnight air courier
service; or five (5) days after the date of mailing. All notices shall be sent
to the parties at the notice addresses listed below or to such other persons and
notice addresses as may be designated in writing by the parties to each other.
The date a notice shall be deemed to be transmitted, sent via overnight air
courier or mailed shall be the date at the notifier's place of business at the
time of the transmission, sending or mailing.

TO GUESS:              GUESS?, INC.
                       1444 South Alameda Street
                       Los Angeles, California 90021, U.S.A.
                       Attention: Legal Department
                       Telephone: (213) 765-3100
                       Facsimile: (213) 744-7821

TO LICENSEE:           PARLUX FRAGRANCES, INC.
                       3725 S.W. 30th Avenue
                       Fort Lauderdale, Florida  33312, U.S.A.
                       Attention: Ilia Lekach
                       Telephone:  (954) 316-9008
                       Facsimile:  (954) 316-8155

WITH A COPY TO:        MITCHELL SCHRAGE & ASSOCIATES
                       126 East 56th Street
                       New York, New York 10022, U.S.A.
                       Attention: Mitchell R. Schrage, Esq.
                       Facsimile:  (212) 758-1616

                                      -40-
<PAGE>

        27. SEVERABILITY

             The provisions of this Agreement are severable, and if any
provision shall be held invalid or unenforceable, in whole or in part, in any
jurisdiction, then such invalidity or unenforceability shall affect only such
provision, and shall not affect such provision in any other jurisdiction. To the
extent legally permissible, a provision which reflects the original intent of
the parties shall be substituted for such invalid or unenforceable provision.

        28. SURVIVAL

             All obligations of the parties of a continuing nature, including
without limitation those concerning trademark rights, indemnities and trade
secrets, shall survive the termination or expiration of this Agreement.

        29. EXHIBITS

             The Exhibits attached hereto and as revised by agreement of the
parties from time to time are hereby incorporated by reference and form integral
parts hereof. The reporting, approval and other similar forms of GUESS attached
as Exhibits hereto may be revised by GUESS at any time and from time to time.

        30. ENTIRE AGREEMENT; LANGUAGE; COUNTERPARTS

             This Agreement, including all Exhibits, constitutes the entire
agreement between the parties with respect to, and supersedes all prior
negotiations, agreements and understandings between the parties concerning, the
subject matter hereof. This writing is intended as the final, complete and
exclusive statement of the terms of the agreement between the parties with
respect to the subject matter hereof and may only be amended in writing. All
communications relating to this Agreement shall be in English. If LICENSEE
transmits any information to GUESS in any other language, GUESS may have such
documents translated, and LICENSEE shall pay all costs of such translation. If
LICENSEE has this Agreement translated for the purpose of submitting it to any
local, provincial or national government or official body, GUESS shall have the
right to review and correct the translation prior to submission to any
government or official body. The English original shall control the relationship
between GUESS and LICENSEE. All hearings related to any dispute concerning this
Agreement shall be in English, unless otherwise requested by GUESS.

             This Agreement may be executed in counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same instrument.

                                      -41-
<PAGE>

        IN WITNESS WHEREOF, the parties hereto have caused their duly-authorized
representatives to execute this Agreement as of the date first-above written.

PARLUX FRAGRANCES, INC.                     GUESS?, INC.

By:  /s/ Ilia Lekach                        By:  /s/ Paul Marciano
     ---------------                             -----------------
     Ilia Lekach                                 Paul Marciano
     Chairman and                                Co-Chairman and
     Chief Executive Officer                     Co-Chief Executive Officer

                                            GUESS? IP HOLDER L.P.

                                            By:  /s/ Deborah S. Siegel
                                                 ---------------------
                                                 Deborah S. Siegel
                                                 Secretary

                                      -42-
<PAGE>

                                    EXHIBIT A
                                   TRADEMARKS

                                      GUESS

                                     GUESS?

                           GUESS? AND TRIANGLE DESIGN

                                   BABY GUESS?

                                      -43-
<PAGE>

                                    EXHIBIT B
                         LICENSED PRODUCT APPROVAL FORM

[LOGO]  GUESS?, INC.

                         LICENSED PRODUCT APPROVAL FORM

NAME OF LICENSEE:
                  ------------------------------------------------

LICENSED PRODUCT:
                  ------------------------------------------------

SEASON:
         --------------------------------------------

SKU#:
        ------------------------------------

COMMENTS:
<TABLE>

<S>                                                               <C>
----------------------------------------------                    ---------------------------------------------------------------

----------------------------------------------

----------------------------------------------                                          PLACE PHOTO HERE

----------------------------------------------

----------------------------------------------

                                                                  ---------------------------------------------------------------
</TABLE>

[ ] NEW SUBMISSION   [ ] CARRYOVER

     WHOLESALE $ _____________________________

     RETAIL $ __________________________________

     SIZES  _____________________________________

     START TAKING ORDERS  ___________________

     END TAKING ORDERS  _____________________

     START SHIP  _______________________________

     END SHIP  _________________________________

---------------------------------------               --------------------------
        SIGNATURE OF LICENSEE                             SIGNATURE OF LICENSOR

[ ] APPROVED              [ ] APPROVED WITH CHANGE           [ ] DISAPPROVED

                                      -44-
<PAGE>

                                    EXHIBIT C
                       LICENSED PROPERTY USE APPROVAL FORM

[LOGO] GUESS?, INC.

                       LICENSED PROPERTY USE APPROVAL FORM
             All uses of GUESS? Trademarks that are not advertising
                 (e.g.: stationery, packaging, displays, etc.)

                                                      --------------------------
                                                         GUESS? USE ONLY

Name of Licensee _________________________________    Date use submitted________

Submitted Product ________________________________    Date use returned_________
                                                      --------------------------

--------------------------------------------------------------------------------

Description of use:
                    ------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
<TABLE>

<S>                  <C>                     <C>                 <C>                    <C>
[ ] Concept Design   [ ] Color Indication    [ ]  Finished Art   [ ] Production Sample  [ ] Final Sample

[ ] Approved__________________________________________     [ ] Disapproved_______________________________

Comments/Suggestions:
                      ---------------------------------------------------------------------------------------------

                      ---------------------------------------------------------------------------------------------

                      ---------------------------------------------------------------------------------------------
</TABLE>

        ATTACH A SAMPLE OF USE IN THIS SPACE OR AFFIX TO A SEPARATE PAGE

----------------------------------              --------------------------------
Signature of Licensee                           Signature of GUESS? Coordinator

                                      -45-
<PAGE>

                                   EXHIBIT D-1
                                    CUSTOMERS

                LISTING OF UNITED STATES CHANNELS OF DISTRIBUTION

ALL CUSTOMERS HAVE AN LWP OF *

Federated Group
         Bloomingdale's
         Burdines
         Macy's East
         Macy's West
         Rich's / Lazarus / Goldsmith's
         The Bon Marche
May Corp.
         Famous Barr
         Filene's / Kaufman's
         Foley's
         Hecht's
         Lord & Taylor
         Robinson May / Meier & Frank
Saks, Inc. Group
         Carsons/Herbergers/Younkers
         Proffitt's / McRaes
         Parisian's
         Sak's
Belk's
Boscov's
Dillards
Elder Beerman
Gottschalks
Marshall Fields
Nieman Marcus
Nordstrom's
Peebles
The Bon Ton
Von Maur
Military bases, including AAFES and Navy
Spiegel

                                      -46-
<PAGE>

                                   EXHIBIT D-2
                              CUSTOMER PROFILE FORM

[LOGO] GUESS?, INC.

                              CUSTOMER PROFILE FORM
<TABLE>

----------------------------------------------------------------- ---------------------------------------------------------------
<S>                                                               <C>
CORPORATE NAME                                                    DBA NAME

----------------------------------------------------------------- ---------------------------------------------------------------
OWNERS NAME                                                       BUYERS NAME

----------------------------------------------------------------- ---------------------------------------------------------------
ADDRESS                                                           CITY

----------------------------------------------------------------- ---------------------------------------------------------------
STATE                                                             COUNTRY                                ZIP

----------------------------------------------------------------- -------------------------------------- ------------------------
PHONE(S) FAX DATE

----------------------------------------------------------------- -------------------------------------- ------------------------

1. Type of Account: [ ] Specialty            [ ] Department            [ ] Other

    Year Business Established                                          At present location since
                              --------------------------------                                   ------------------

2.  Are you currently doing business with GUESS?  [ ] No  [ ] Yes  Account #                   Division
                                                                             ----------------           -------

3. Check the type(s) of merchandise you currently carry in your store(s).

[ ] Perfume      [ ] Accessories       [ ] Other (Please list)
                                                                ----------------------------------------------------

      --------------------------------------------------------------------------------------------------------------

4. List the key manufacturers you currently carry in your store(s). (Include GUESS? Licensees, if applicable)

    a                                                         d
       -------------------------------------                     -----------------------------------------

    b                                                         e
       -------------------------------------                     -----------------------------------------

    c                                                         f
       -------------------------------------                     -----------------------------------------

5.  Number of stores that you currently operate               List your store locations.  (Attach additional sheets, if
    Check stores where Guess? will be carried: -------------   necessary)

    [ ]                                                        [ ]
        ----------------------------------------------------       -----------------------------------------------------

    [ ]                                                        [ ]
        ----------------------------------------------------       -----------------------------------------------------

    [ ]                                                        [ ]
        ----------------------------------------------------       -----------------------------------------------------

6. Comments
            ------------------------------------------------------------------------------------------------------------
</TABLE>

------------------------------------           ---------------------------------
GUESS? DECLINE                                 GUESS? APPROVAL

Please submit typed profile to:

                             PARLUX FRAGRANCES, INC.
                               3725 SW 30th Avenue
                            Ft. Lauderdale, FL 33312

*ALL APPLICATIONS MUST BE SUBMITTED WITH INTERIOR AND EXTERIOR PHOTOS.

           GUESS(R) Under Trademark License to Parlux Fragrances, Inc.

                                      -47-
<PAGE>

                                   EXHIBIT E-1
                                  DISTRIBUTORS

  * PAGES 55-99

                                      -48-
<PAGE>

                                   EXHIBIT E-2
                           DISTRIBUTION APPROVAL FORM

[LOGO] GUESS?, INC

                                                              Page _____ of ____
                                                      Date
                                                          ----------------------

FORM MUST BE SUBMITTED COMPLETE & SENT TO:         GUESS?, INC./LICENSING DEPT.
                                                   1444 SOUTH ALAMEDA STREET
                                                   LOS ANGELES, CA  90021
                                                   TEL: (213) 765-3100
                                                   FAX: (213) 765-3666

                           DISTRIBUTION APPROVAL FORM
                           --------------------------

Name of Licensee:
                  -------------------------------------------------------------

Licensed Product (s):
                      ---------------------------------------------------------

Country in the territory you are interested in distributing in / shipping to:
(Please use one form for each country)

                        --------------------------------

1. Please give us the name and address of the distributor, the various
products/labels they currently distribute as well as the volume they shipped the
last 3 years for each brand.

         Name:
                  --------------------------------------------
<TABLE>
<CAPTION>

<S>                                           <C>                          <C>                          <C>
   BRAND (S)                            YEAR 1                       YEAR 2                       YEAR 3
_____________                   U.S. $ ___________           U.S. $ ___________           U.S. $ ___________
_____________                   U.S. $ ___________           U.S. $ ___________           U.S. $ ___________
_____________                   U.S. $ ___________           U.S. $ ___________           U.S. $ ___________
</TABLE>

2. If your distributor is planning to distribute full-scale throughout the
country, please give the amount they are guaranteeing to purchase from you for
the next 3 years.

         Year 1               ____________units          U.S. $ ______________
         Year 2               ____________units          U.S. $ ______________
         Year 3               ____________units          U.S. $ ______________

                                      -49-
<PAGE>

3. Have you reviewed the proposed distributor's financial documents and find
them acceptable?

                [ ] Yes                     [ ] No

         Comments:
                   ----------------------------------------------------------

4. The following must accompany this form if you are seeking to assign a
distributor to sell throughout the territory:

    ____       Brochure of distributor (if available); including product photos.

    ____       Background information / history
               (i.e. how long they have been in business, levels of
               distribution, experience in the marketplace,
               references, etc.)

    ____       Pictures of the distributor's showroom (if applicable)

5. Please list the full address, fax number and a contact name of the proposed
distributor.

         Address:
                    ------------------------------------------------------------
         Fax Number:
                    ---------------------------------
         Contact Name:
                        --------------------------------------------------------

6.
         ----------------------------        ----------------------------------
         Signature of Licensee              Signature of Licensor - Guess?, Inc.

[ ] Approved                         [ ] Disapproved

Date:
         ---------------------------

                                      -50-
<PAGE>

                                    EXHIBIT F
                            ADVERTISING APPROVAL FORM

[LOGO] GUESS?, INC.
                                                   Date Returned:   ____________

                            ADVERTISING APPROVAL FORM
                            -------------------------
                 Submissions may be approved only in writing and
                         only if all changes are made.

Name of Licensee/Distributor:
                             ---------------------------------------------------

Licensed Product Specific to Submission:
                                       -----------------------------------------

--------------------------------------------------------------------------------
                               ARTWORK SUBMISSION
--------------------------------------------------------------------------------

PRINT             (Magazine, Newspaper)

         Name of publication:
                           -----------------------------------------------------

         Issue Date:
                           -----------------------------------------------------

         Image number(s):
                           -----------------------------------------------------

         Ad position (as detailed as possible):

         [ ] LEFT-HAND PAGE      [ ] RIGHT-HAND PAGE     [ ] DOUBLE-PAGE SPREAD

OUTDOOR  (Billboards, Bus Shelters, Lighted Boxes, Phone Kiosks)

         Posting dates (be specific):
                                    --------------------------------------------

         Posting area (include city & area):

         Dimensions:
                    ------------------------------------------------------------

         OTHER      Description:
                               -------------------------------------------------

--------------------------------------------------------------------------------
                             PUBLICATION SUBMISSION
--------------------------------------------------------------------------------

Name of publication:
                           -----------------------------------------------------
         (A copy of the magazine or newspaper must be included)

Frequency (check one):     [ ] Daily         [ ]  Weekly            [ ] Monthly

Comments/Suggestions:
                           -----------------------------------------------------

--------------------------------------------------------------------------------
                               FOR GUESS? USE ONLY
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
         Please follow the applicable instructions:
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

-----------       ---------------------------          -------------------------

Approved          Approved with above changes             Disapproved
--------------------------------------------------------------------------------

                                      -51-
<PAGE>

[LOGO] GUESS?, INC.
                                                   Date Returned:   ____________

                       SPECIAL EVENT CONCEPT APPROVAL FORM
                       -----------------------------------
                 Submissionsmay be approved only in writing and
                     only if all changes are made. This form
                      is only to approve the concept of the
                                     event.

       All event details must be submitted to your advertising contact at
                 least four (4) weeks prior to the event date.

Name of Licensee/Distributor:
                           -----------------------------------------------------

Country where this event will take place:
                                         ---------------------------------------
Event date(s) and time:

Type of Event:     [ ] Trade Show    [ ] Fashion Show     [ ] New Store Opening

                   [ ] Other
                           -----------------------------------------------------

Is this currently budgeted?                   [ ]   YES       [ ]  NO

Who will pay for this event?
                            ---------------------------------------------------

What is the estimated expenditure cost?
                                       -----------------------------------------

Will there be advertising to support this event?      [ ] YES       [ ] NO

    If yes, what?
                  --------------------------------------------------------------
                  * An ADVERTISING APPROVAL FORM MUST BE SUBMITTED FOR EACH
                    ADVERTISING MEDIUM.

Submitted by:                                           Date:
            -----------------------------------             --------------------

--------------------------------------------------------------------------------
                               FOR GUESS? USE ONLY
--------------------------------------------------------------------------------

         Please follow the applicable instructions:
--------------------------------------------------------------------------------

         This event is:       [ ]  APPROVED               [ ]  DISAPPROVED

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------       ----------------     --------------------------------

Licensee/Distributor       Regional Manager     Regional Advertising Coordinator
--------------------------------------------------------------------------------

* This form must contain three signatures, one from each of the individuals
listed above, to be considered APPROVED.
--------------------------------------------------------------------------------

                                      -52-
<PAGE>

                                    EXHIBIT G
                             ADVERTISING BUDGET FORM

[LOGO] GUESS?, INC.

--------------------------------------------------------------------------------
                         ANNUAL ADVERTISING BUDGET FORM
--------------------------------------------------------------------------------
                                Name of Licensee:
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                                Licensed Product:
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                               Territory/Country:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                      ------------------------------------
<S>                                                                     <C>
                                                   Projected Sales    US$
                                                                      ------------------------------------
                                                      Period from:
                                                                      ------------------------------------
                                                               to:
                                                                      ------------------------------------
                               Projected Advertising Expenditures:    US$
                                                                      ------------------------------------
                                                      Period from:
                                                                      ------------------------------------
                                                               to:
                                                                      ------------------------------------

------------------------------------------------------------------------ -----------------------------------
                                   TYPE OF ADVERTISING                                  US$
------------------------------------------------------------------------ -----------------------------------
Consumer Advertising (List)
------------------------------------------------------------------------ -----------------------------------
Trade Advertising (List)
------------------------------------------------------------------------ -----------------------------------
Co-Op Advertising (List Department Stores)
------------------------------------------------------------------------ -----------------------------------
Newspapers (List)
------------------------------------------------------------------------ -----------------------------------
Charities (List)
------------------------------------------------------------------------ -----------------------------------
Sponsorships (List)
------------------------------------------------------------------------ -----------------------------------
Special Events (List)
------------------------------------------------------------------------ -----------------------------------
Billboards (List Cities)
------------------------------------------------------------------------ -----------------------------------
Promotional Items (List)
------------------------------------------------------------------------ -----------------------------------
TV / Cinema (List)
------------------------------------------------------------------------ -----------------------------------
Radio (List)
------------------------------------------------------------------------ -----------------------------------
Bus Shelters (List Cities)
------------------------------------------------------------------------ -----------------------------------
Product Provided to Celebrities (List)
------------------------------------------------------------------------ -----------------------------------
POS Materials
------------------------------------------------------------------------ -----------------------------------
Production Fees & Shoot Fees
------------------------------------------------------------------------ -----------------------------------
Posters & Banners
------------------------------------------------------------------------ -----------------------------------
PR Consultant Fees (List Functions)
------------------------------------------------------------------------ -----------------------------------
Other (List)
------------------------------------------------------------------------ -----------------------------------
                                                                TOTALS:   US$
------------------------------------------------------------------------ -----------------------------------

------------------------------------------------------------------------------------------------------------
               PLEASE COMPLETE SEPARATE FORMS FOR EACH COUNTRY IN
                 YOUR LICENSED TERRITORY, AND ATTACH ADDITIONAL
                              SHEETS AS NECESSARY.
------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -53-
<PAGE>

                                    EXHIBIT H
                                 ROYALTY MINIMUM

Contract Year                                                    Royalty Minimum
-------------                                                    ---------------

                                            Initial Term
                                            ------------

First Contract Year
November 1, 2003 - December 31, 2005                                    *

Second Contract Year
January 1, 2006 - December 31, 2006                                     *

Third Contract Year
January 1, 2007 - December 31, 2007                                     *

Fourth Contract Year
January 1, 2008 - December 31, 2008                                     *

Fifth Contract Year
January 1, 2009 - December 31, 2009                                     *

                                            Renewal Term
                                            ------------

Sixth Contract Year
January 1, 2010 - December 31, 2010                                     *

Seventh Contract Year
January 1, 2011 - December 31, 2011                                     *

Eighth Contract Year
January 1, 2012 - December 31, 2012                                     *

Ninth Contract Year
January 1, 2013 - December 31, 2013                                     *

Tenth Contract Year
January 1, 2014 - December 31, 2014                                     *

                                      -54-
<PAGE>

                                    EXHIBIT I
                             STATEMENT OF ROYALTIES

GUESS [LOGO] GUESS? LICENSING, INC.

                                                          STATEMENT OF ROYALTIES
-----------------------------------------
LICENSEE NAME -  PARLUX FRAGRANCES, INC.
-----------------------------------------
LICENSEE ADDRESS
-----------------------------------------
<TABLE>
<S>                                                                        <C>
                                                                           FOR  ____________   TO  ___________
-----------------------------------------
                                                                                             (Month)
-----------------------------------------
LICENSEE PRODUCT LINE -
-----------------------------------------
</TABLE>

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------
                 SALES CLASSIFICATIONS                        NUMBER            NUMBER         NUMBER         MSRP          GROSS
      ALL COLUMNS MUST BE COMPLETED FOR ALL SALES             TOTAL            CLOSEOUT         UNITS                       SALES
                   CLASSIFICATIONS.                           UNITS             UNITS         RETURNED
               IF ZERO, PLEASE INDICATE.                     SHIPPED           SHIPPED
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>               <C>            <C>             <C>           <C>
DOMESTIC SALES
-----------------------------------------------------------------------------------------------------------------------------------
     Regular Accounts
-----------------------------------------------------------------------------------------------------------------------------------
     Samples
-----------------------------------------------------------------------------------------------------------------------------------
     Closeouts
-----------------------------------------------------------------------------------------------------------------------------------
     Licensee-Owned Retail Location
-----------------------------------------------------------------------------------------------------------------------------------
     Guess?, Inc. Retail Stores
-----------------------------------------------------------------------------------------------------------------------------------
     Guess?, Inc. Factory Stores
-----------------------------------------------------------------------------------------------------------------------------------
     Perfumania
-----------------------------------------------------------------------------------------------------------------------------------
     Miscellaneous
  SUB-TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
APPROVED INTERNATIONAL SALES
-----------------------------------------------------------------------------------------------------------------------------------
                                                 TOTALS
                                                        ---------------------------------------------------------------------------

[restubbed]
<CAPTION>
                                                                                                                  ROYALTY RATE    *
-----------------------------------------------------------------------------------------------------------------------------------
                 SALES CLASSIFICATIONS                    LESS:      LESS:           LESS:          LESS:    NET SALES    ROYALTY
      ALL COLUMNS MUST BE COMPLETED FOR ALL SALES      ALLOWANCES   PAYMENT         CLOSEOUT       RETURNS    DOLLARS      AMOUNT
                   CLASSIFICATIONS.                                   TERM         DISCOUNTS                               $U.S.
               IF ZERO, PLEASE INDICATE.                           DISCOUNTS
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>         <C>             <C>             <C>       <C>          <C>
DOMESTIC SALES
-----------------------------------------------------------------------------------------------------------------------------------
     Regular Accounts
-----------------------------------------------------------------------------------------------------------------------------------
     Samples
-----------------------------------------------------------------------------------------------------------------------------------
     Closeouts
-----------------------------------------------------------------------------------------------------------------------------------
     Licensee-Owned Retail Location
-----------------------------------------------------------------------------------------------------------------------------------
     Guess?, Inc. Retail Stores
-----------------------------------------------------------------------------------------------------------------------------------
     Guess?, Inc. Factory Stores
-----------------------------------------------------------------------------------------------------------------------------------
     Perfumania
-----------------------------------------------------------------------------------------------------------------------------------
     Miscellaneous
  SUB-TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
APPROVED INTERNATIONAL SALES
-----------------------------------------------------------------------------------------------------------------------------------
                                          TOTALS
                                                       ----------------------------------------------------------------------------
                                                                                    SIGNED BY :
                                                                                                -------------------------
</TABLE>

                                      -55-
<PAGE>

                                    EXHIBIT J
                                MINIMUM NET SALES

Contract Year                                                 Minimum Net Sales
-------------                                                 -----------------

                                            Initial Term
                                            ------------

First Contract Year
November 1, 2003 - December 31, 2005                           *

Second Contract Year
January 1, 2006 - December 31, 2006                            *

Third Contract Year
January 1, 2007 - December 31, 2007                            *

Fourth Contract Year
January 1, 2008 - December 31, 2008                            *

Fifth Contract Year
January 1, 2009 - December 31, 2009                            *

                                            Renewal Term
                                            ------------

Sixth Contract Year
January 1, 2010 - December 31, 2010                            *

Seventh Contract Year                                          *
January 1, 2011 - December 31, 2011

Eighth Contract Year
January 1, 2012 - December 31, 2012                            *

Ninth Contract Year
January 1, 2013 - December 31, 2013                            *

Tenth Contract Year
January 1, 2014 - December 31, 2014                            *

                                      -56-
<PAGE>

                                    EXHIBIT K
                              MONTHLY SALES REPORT

GUESS [LOGO] GUESS? INC.
                                                     SUBMIT TO THE ATTENTION OF:
                                                                    GUESS?, INC.
                                         TEL: (213) 765-3100 FAX: (213) 765-3666

--------------------------------------------------------------------------------
                              MONTHLY SALES REPORT
--------------------------------------------------------------------------------

LICENSEE:             __________________________________________________________

LICENSED PRODUCT(S):  __________________________________________________________

MONTH REPORTED:       __________________________________________________________

           GROSS SALES:  ____________________

           DEDUCTIONS:   ____________________

           NET SALES:

      PLEASE FAX THIS FORM TO GUESS?, INC. NO LATER THAN THIRTY (30) DAYS
         AFTER THE END OF EACH OF THE FIRST TWO MONTHS OF EACH QUARTER.

                                      -57-
<PAGE>

                                    EXHIBIT L
                            SYSTEMS REQUIREMENTS LIST

        In order to determine the necessary systems requirements, GUESS will
require a full disclosure and/or detailed diagram of the management information
system in place at LICENSEE's principal place of business as noted in Section 26
herein. This includes, but is not limited to, the following:

            o   business systems hardware model name;

            o   business application software names, functional description and
                version;

            o   electronic communications - EDI and e-mail - capabilities, name,
                version and any unique protocols;

            o   description of any and all warehouse management systems, name,
                version and hardware details; and

            o   if applicable, the name, version, hardware and software
                description of any systems to support a retail environment.

        GUESS may request additional details, at any time, to further understand
LICENSEE's business system environment.

        LICENSEE must have internet access and the ability to send and receive
data through commonly accepted internet mail formats such as: mime and
unencoded.

        Once such information is received, GUESS will consult with LICENSEE
regarding the acceptability of current systems and/or requirements for revisions
thereto.

        In addition, if LICENSEE will be selling Products to GUESS or any
affiliate, LICENSEE must meet the following additional requirements, all of
which are subject to change in GUESS's discretion:

1.  Communications
    1.1. Licensee must be able to send/receive documents via EDI in version
         4010VICS

         1.1.1. Licensee may contract with a third party provider to act as
                stand in for document transfers via EDI.

    1.2. Mandatory documents include:

         1.2.1. PO (850)

         1.2.2. Invoice (810)

                                      -58-
<PAGE>

                                EXHIBIT L (CON'T)
                            SYSTEMS REQUIREMENTS LIST

         1.2.3. ASN (856)
         1.2.4. FA (997)
    1.3. Must use a VAN (Value Added Network) - IBM preferred.
         1.3.1. VAN Trading Partnership is established as a 50/50 payment
                agreement.
    1.4. Must adhere to the GUESS Mapping Guidelines.

2.  UPC Numbers
    2.1. A Licensee with a Style/Color/Size count of one hundred (100) or
         greater must have UPC Numbers available to access on QRS Catalog.
    2.2. A Licensee with a Style/Color/Size count of ninety-nine (99) or less
         may request that GUESS or its affiliate create UPC Numbers for their
         merchandise.
         2.2.1. GUESS or its affiliate will charge a fee of five dollars ($5.00)
                per UPC created.

3.  Merchandise Packing & Labeling
    3.1. All shipments must be scan packed to verify the shipments against an
         existing GUESS PO.
    3.2. All cartons must have a UCC-128 Bar Code label affixed to the outside.
         3.2.1. The UCC-128 Bar Code carton number must be sent within the EDI
                ASN Document.
         3.2.2. The EDI ASN Document detail must match the contents of the
                physical carton as to UPC, Style, Color, Size and Units.
    3.3. The merchandise listed on the Carton Packing List must match the
         contents of the carton and the EDI ASN Document.

                                      -59-

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