ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT, made as of this 24th day of May, 2007 (this “ Agreement ”), by and among G-III Leather Fashions, Inc., a New York corporation (“ Buyer ”), G-III Apparel Group, Ltd., a Delaware corporation (“ Parent ”) (solely with respect to Section 10(m) hereof), Starlo Fashions Inc., a New York corporation (“ Starlo ”), Jessica Howard, Ltd., a New York corporation (“ Jessica Howard ”), Industrial Cotton, Inc., a New York corporation (“ Industrial Cotton ” and collectively with Starlo and Jessica Howard, “ Sellers ”), and Robert Glick and Mary Williams (each solely with respect to Section 10(e) hereof).

W I T N E S S E T H :

WHEREAS, Sellers manufacture and market, inter alia , women’s dresses and sportswear under brands owned by Sellers;

WHEREAS, Sellers desire to sell, and Buyer desires to purchase, with certain exceptions, the assets owned and the businesses and operations conducted by Jessica Howard and Industrial Cotton, and the assets owned or licensed by Starlo and used or useful in the operations conducted by Jessica Howard and Industrial Cotton, including, without limitation, related to products sold under the Prime Industrial Cotton , Crafted Industrial Cotton , Nine Rivets , Jessica Howard , Elizabeth Howard , Eliza J. Howard and Eliza J labels (collectively, the “ Business ”), upon the terms and subject to the conditions set forth in this Agreement; and

WHEREAS, Buyer intends to create new Divisions (as defined below) in which to use the Assets (as defined below) in connection with its business.

NOW, THEREFORE, in consideration of the mutual premises and agreements contained herein, the parties hereto agree as follows:

1.

Definitions .  As used herein, the following terms shall have the following meanings:

1.1

Affiliates means, as to the Person in question, any Person that controls, is controlled by, or is under common control with, the Person in question; and the term “control” means possession of the power to direct or cause the direction of the management and policies of a Person whether through ownership of voting securities, by contract, or otherwise.

1.2

Assets means the tangible and intangible assets of Sellers used or useful in connection with the Business, as well as certain other enumerated assets, except for the “Excluded Assets” (as hereinafter defined).  Without limiting the generality of the foregoing, the Assets shall include the following:

(a)

all registered and unregistered trademarks, trade names, service marks, designs, franchises, licenses, permits, privileges and other proprietary rights, if any, including all applications, registrations and renewals in connection therewith, owned or held by

Sellers and used by or useful to Sellers in connection with the Business including, without limitation, those set forth in Schedule 1.2(a) hereto;

(b)

all furniture, fixtures, improvements, office materials and supplies, and other tangible personal property of every kind and description owned or held by Sellers that are used or useful in connection with the Business;

(c)

all rights and benefits of (i) Sellers under lease agreements entered into by, or for the benefit of, Sellers with respect to the Leased Premises, and (ii) Sellers under all other Contracts entered into by, or for the benefit of, Sellers in connection with the Business, all of which (including, without limitation, Consent Contracts) are set forth on Schedule 1.2(c) ;

(d)

all warranties, rights and other intangible assets of Sellers with respect to the Business that are not Excluded Assets;

(e)

all records and files of Sellers, including, without limitation, customer and supplier lists, records, files and account statements, correspondence with customers or suppliers and potential customers or suppliers and all related documents, records of purchase and invoices recording purchases, customer orders, stockroom records, financial accounting and credit records, personnel records, general correspondence and any similar document or record related to or useful in the Business, but specifically excluding the minute books and records relating solely to the incorporation of Sellers; provided, however, that in the case of Starlo, if any of the foregoing relate primarily to businesses or operations of Starlo other than the Business, the Assets shall include a true, correct and complete copy of such records and files;

(f)

all purchase and sales orders with respect to the Business in process on the Closing Date (as defined in Section 1.5) to the extent merchandise thereunder has not been shipped to customers of Sellers and which are not, therefore, accounts receivable (“ Orders-in-Process ”) as are specified on Schedule 1.2(f) ;

(g)

all samples, patterns, drawings, creative designs, ideas, sketches, plans and other similar matters with respect to the Business owned by Sellers, however evidenced (including those in the possession of third parties, but which are the property of Sellers);

(h)

all of Sellers’ goodwill and going concern value in the Business; and

(i)

all inventory of Sellers with respect to the Business, including inventory relating to Orders-in-Process, set forth on Schedule 1.2(i) (the “ Purchased Inventory ”).

1.3

Base Purchase Price means $4,285,000.

1.4

Closing means the consummation, on the Closing Date and at the Closing Place, of the purchase, assignment, conveyance and sale of the Assets contemplated hereunder.

2

1.5

Closing Date means the date on which the Closing occurs, which shall be the date that this Agreement is executed and delivered by all the parties hereto or such other date as the parties hereto may agree.

1.6

Closing Place means the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York, or such other place as the parties hereto may agree.

1.7

Code means the Internal Revenue Code of 1986, as amended.

1.8

Consent Contracts has the meaning assigned to such term in Section 1.22.

1.9

Contracts means written or oral contracts, leases, licenses, agreements, arrangements, commitments, instruments or understandings.

1.10

Customer Allowances means allowances, chargebacks, credits, rebates, deductions, reductions or settlements given to any customer resulting from alleged markdowns and/or losses claimed by such customer with respect to sales of products.

1.11

Designer Brands Division means a new division of Buyer to be created to operate business relating to new designer brands and related private label product.

1.12

Divisions means the Jessica Howard Division, the Designer Brands Division and the Positive Attitude Division.

1.13

EBITA means the earnings before interest and taxes and amortization of intangibles of the applicable Division, which shall be equal to the net sales of such Division less (i) cost of sales, including royalties and license fees and (ii) the expenses set forth on Schedule 1.13 hereto, all as determined in accordance with the Buyer’s accounting and allocation procedures utilized in preparing internal financial statements for Buyer’s divisions.

1.14

EBITA Period means the (i) the period beginning upon the Effective Time and ending on January 31, 2008, (ii) the period beginning on February 1, 2008 and ending on January 31, 2009, (iii) the period beginning on February 1, 2009 and ending on January 31, 2010 and (iv) the period beginning on February 1, 2010 and ending on January 31, 2011.

1.15

Effective Time means the close of business of the Business on the Closing Date.

1.16

Encumbrances means any mortgages, pledges, preemptive purchase rights, security interests, claims, liens, charges, or other encumbrances of any kind including, without limitation, any liens arising under Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code.

1.17

ERISA means the Employee Retirement Income Security Act of 1974, as amended, or any successor law, and regulations and rules issued pursuant to such act or any successor law.

1.18

Escrow Agent means Fulbright & Jaworski L.L.P.

3

1.19

Escrow Agreement means that certain escrow agreement dated as of the Closing Date by and among Buyer, Sellers’ Representative and the Escrow Agent in the form attached hereto as Exhibit A .

1.20

Escrow Amount means Eight Hundred Thousand Dollars ($800,000).

1.21

Escrow Funds means cash held by the Escrow Agent from time to time pursuant to the terms of the Escrow Agreement.

1.22

Excluded Assets means (a) all cash and marketable securities of each Seller, whether on hand or in banks, held by or on behalf of or for such Seller and all bank accounts or accounts with other financial institutions held by or in the name of or on behalf of such Seller, (b) all prepaid expenses, accounts and notes receivable of each Seller, (c) any claims or causes of action of each Seller, (d) all rights and benefits of Sellers under lease agreements entered into by or for the benefit of Sellers with respect to room 1401 located at 1385 Broadway, New York, New York and with respect to 2400 83rd Street, North Bergen, New Jersey (together, the “ Excluded Premises ”), (e) the lease agreements with respect to the Leased Premises, (f) all telephone systems used by Sellers at Leased Premises and/or the Excluded Premises, (g) all insurance policies of Sellers and all proceeds thereof, (h) any Contracts that cannot be assigned to Buyer without the consent of the counter-party or counter-parties thereto (the “Consent Contracts”), (i) all loan or factoring agreements and related documents by and between any of Sellers and their Affiliates, on the one hand, and one or more of The CIT Group/Commercial Services, Inc., JPMorgan Chase Bank, N.A. and Israel Discount Bank, on the other hand, and all amounts due thereunder to any Seller or its Affiliates, (j) that certain Settlement Agreement, dated as of August 24, 2006, by and between Levi Strauss & Co. and Industrial Cotton, (k) that certain Agreement dated June 13, 2006 by and between JV/China Ting, LLC and Jessica Howard and (l) the capital stock of Positive Attitude.

1.23

Glick means Robert Glick.

1.24

Government Entity means any United States or foreign, federal, state or local court or tribunal or administrative, governmental or regulatory body, agency, commission, division, department, board, bureau, public body, instrumentality or other authority.

1.25

Included Contracts means any and all Contracts included among the Assets and being assigned to Buyer hereunder.

1.26

Jessica Howard Division means a new division of Buyer to be created to operate the Business.

1.27

knowledge of Sellers or Sellers’ knowledge means the actual knowledge, after reasonable inquiry, of Glick and Jeff Elias.

1.28

Leased Premises means (i) the portion of the 10th floor at 1001 Sixth Avenue, New York, New York which is the subject of the lease dated May 18, 2005 between 1001 Sixth Associates and Alison Nicole, Inc.; (ii) the 17th floor at 1001 Sixth Avenue, New York, New York which is the subject of the lease dated April 22, 2005 between 1001 Sixth Associates and Jennifer Star, Inc.; and (iii) 14th floor, room 1407/1407A, located at 1385

4

Broadway, New York, New York which is the subject of the lease dated April 10, 2006 between 1385 Broadway Company and JJ&J, Inc.

1.29

Permitted Liens mean (a) statutory liens for Taxes to the extent that the payment thereof is not past due or to the extent the taxpayer is contesting such Taxes in good faith through appropriate proceedings, (b) statutory or common law liens to secure landlords, lessors or renters under real or personal property leases or rental agreements to the extent that no payment or performance under any such lease or rental agreement is in default, arrears or is otherwise past due, (c) deposits or pledges made in connection with, or to secure payment of, workers’ compensation, unemployment insurance or old age pension programs mandated under applicable laws, (d) statutory or common law liens in favor of carriers, warehousemen, mechanics and materialmen, statutory or common law liens to secure claims for labor, materials or supplies and other like liens, which secure obligations to the extent the payment thereof is not in arrears or otherwise past due, (e) for any Asset with respect to which any Seller is a lessee or licensee, any residual right, title or interest in or to such Asset held by the lessor or licensor of such Asset, and (f) other imperfections of title and Encumbrances that do not and will not, individually or in the aggregate, impair, detract from or interfere with the continued use and operation of such Assets or the Business.

1.30

Person means and includes an individual, a partnership, a joint venture, an association, a corporation, a trust, an unincorporated organization, a limited liability company and a Government Entity.

1.31

Positive Attitude means Positive Attitude, Inc., a New York corporation.

1.32

Positive Attitude Division means a new division of Buyer to be created to operate business relating to the Positive Attitude brand and related private label product.

1.33

Tax or Taxes means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code §59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, whether computed on a separate or consolidated, unitary or combined basis or in any other manner, including any interest, penalty, or addition thereto, whether disputed or not and including any obligation to indemnify or otherwise assume or succeed to the Tax liability of any other Person.

1.34

Tax Return means any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto and any amendment thereof.

1.35

Transition Services Agreement means that certain Transition Services Agreement dated as of the Closing Date by and among Buyer and Sellers in the form attached hereto as Exhibit B .

1.36

Williams means Mary Williams.

5

2.

Purchase of Assets and Purchase Price .

2.1

Purchase of Assets .  Subject to the terms and upon satisfaction of the conditions contained in this Agreement, at the Closing, Sellers shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from Sellers, all right, title and interest of Sellers in and to the Assets (but not the Excluded Assets), free and clear of all Encumbrances (except for Permitted Liens) for the consideration specified in Section 2.4.

2.2

Non-Assumption of Liabilities .  Except as specifically set forth in this Section 2.2, Buyer expressly does not, and shall not, assume or be deemed to have assumed under this Agreement or by reason of any transaction contemplated hereunder, any debts, liabilities (contingent or otherwise) or obligations of any Seller of any nature whatsoever.  Buyer shall and hereby agrees to assume and discharge as of the Effective Time, (i) the obligations arising subsequent to the Effective Time under the Included Contracts and (ii) payment for the piece goods and inventory on order listed on Schedule 2.2 hereto (collectively, the “ Assumed Obligations ”); provided, however, that notwithstanding any other provision of this Agreement, the Assumed Obligations shall not include (i) any debts, liabilities (contingent or otherwise) or obligations of any Seller (including, without limitation, trade accounts payable and liabilities that should be accrued on the Financial Statements (as defined herein) in accordance with generally accepted accounting principles up to and including the Closing Date) with respect to those Assumed Obligations referred to in this Section, arising out of any Contract (a) required to be listed but not listed on Schedule 1.2(c) hereto (regardless of any knowledge thereof on the part of Buyer) and (b) the benefits of which are not validly assigned to Buyer, (ii) any liability or obligation for Taxes, whether or not accrued, assessed or currently due and payable (a) of any Seller, whether or not it relates to the operation of any Seller’s business, (b) arising from the operation of any Seller’s business or the ownership of the Assets on or prior to the Effective Time, or (c) arising out of the consummation of the transactions contemplated hereby (for purposes of this Section 2.2, all real property Taxes, personal property Taxes and similar ad valorem obligations levied with respect to the Assets for a Tax period that includes (but does not end on) the Closing Date shall be apportioned between Sellers and Buyer based upon the number of days of such period included in the Tax period before (and including) the Closing Date and the number of days of such Tax period after the Closing Date), or (iii) any liability or obligation of any Seller to or with respect to employees and other personnel (their spouses, dependents and beneficiaries) of any Seller or any Employee Plan (as defined in Section 3.13), unless and except to the extent such liability or obligation is specifically assumed by Buyer under this Agreement.

2.3

Transfer and Assumption Documents .

(a)

At the Closing, Sellers shall deliver to Buyer such deeds, bills of sale, endorsements, assignments and other instruments of sale, conveyance, transfer and assignment, satisfactory in form and substance to Buyer and its counsel, as may be reasonably requested by Buyer, in order to convey to Buyer good and valid title to the Assets, free and clear of all Encumbrances (other than Permitted Liens).

(b)

At the Closing, Sellers shall deliver to Buyer all written consents which are required under any Included Contract; provided, however, that as to any such Included Contract the assignment of which by its terms requires prior consent of the parties thereto, if

6

such consent is not obtained prior to or on the Closing Date, Sellers shall deliver to Buyer written documentation setting forth arrangements for the transfer of the economic benefit of such Included Contracts to Buyer as of the Closing Date under terms and conditions reasonably acceptable to Buyer.

(c)

At the Closing, Buyer will deliver to Sellers such instruments and documents, satisfactory in form and substance to Sellers and their counsel, as may be reasonably requested by Sellers in order to effect the assumption of the Assumed Obligations by Buyer.

2.4

Purchase Price .  In consideration for the Assets, Buyer shall deliver to Sellers the following (which collectively comprise the “ Consideration ”) at the Closing:  (a) cash in an amount equal to the Base Purchase Price less the Escrow Amount and (b) cash in the amount set forth on Schedule 2.4 for the Purchased Inventory (subject to adjustment pursuant to Section 10(n)).

2.5

Escrow Amount .

(a)

A portion of the Base Purchase Price equal to the Escrow Amount shall be held and disbursed by the Escrow Agent in accordance with the terms of the Escrow Agreement and this Section 2.5.  If at any time, or from time to time, Buyer shall become entitled to receive one or more payments from Sellers under Section 9, Buyer shall, in accordance with the terms of the Escrow Agreement, receive a disbursement of the Escrow Funds in an amount equal to the lesser of (a) the full amount owed by Sellers to Buyer under Section 9 and (b) the full amount of the Escrow Funds then held by the Escrow Agent.  The obligation of Sellers to pay any amount under Section 9 shall be reduced by the actual amount of any such disbursement received by Buyer.

(b)

On the six (6) month anniversary of the Closing Date, the Escrow Agent shall, in accordance with the terms of the Escrow Agreement, calculate the difference between (x) $200,000 and (y) the sum of any disbursements of Escrow Funds made to Buyer in accordance with Section 2.5(a) and the amounts of all outstanding claims by Buyer against Sellers under Section 9 through the close of business on such date.  If the difference so calculated is greater than $0, the Escrow Agent shall release such amount to Sellers in accordance with the terms of the Escrow Agreement.

(c)

On the first (1st) anniversary of the Closing Date, the Escrow Agent shall, in accordance with the terms of the Escrow Agreement, calculate the difference between (x) $400,000 and (y) the sum of (1) any disbursements of Escrow Funds made to Buyer in accordance with Section 2.5(a) and (2) the amounts of all outstanding claims by Buyer against Sellers under Section 9 through the close of business on such date.  If the difference so calculated is greater than $0, the Escrow Agent shall release such amount to Sellers in accordance with the terms of the Escrow Agreement.

(d)

The Escrow Agent shall, in accordance with the terms of the Escrow Agreement, calculate the difference between the (x) the portion of the Escrow Amount not disbursed through the close of business on the date that is eighteen (18) months after the Closing Date and (y) the amount of all outstanding claims by Buyer against Sellers under Section

7

9 through the close of business on such date.  Upon the final resolution of and payment of such outstanding claims, Sellers shall be entitled to the balance, if any, of the Escrow Funds.  The Escrow Agent shall release any such balance to Sellers in accordance with the terms of the Escrow Agreement.

(e)

For purposes of this Section 2.5, a claim shall be outstanding under Section 9 if Buyer shall have delivered a Notice of Claim to the Sellers’ Representative in accordance with this Agreement and the claims referred to therein shall not have been finally resolved or any amounts due to Buyer with respect thereto shall not have been paid in full.  

(f)

Any portion of the Escrow Amount returned to Sellers pursuant to the Escrow Agreement shall constitute “Consideration.”

2.6

Allocation of Purchase Price.  Buyer and Sellers shall work together in good faith to determine promptly after the Closing, but in no event more than sixty (60) days after the Closing Date, the allocation of the Consideration (and all other capitalized costs) among the Assets in accordance with the applicable requirements of Section 1060 of the Code and the Treasury regulations thereunder (and any similar provision of state, local or foreign law, as appropriate).  Each of the parties hereto shall not, and shall not permit any of its Affiliates to, take a position (except as required pursuant to an order of any Governmental Entity) on any Tax Return (including Internal Revenue Service Form 8594) or before any Governmental Entity charged with the collection of any Tax, or in any judicial proceeding, that is in any way inconsistent with the allocation determined in accordance with this Section 2.6, unless required to do so by applicable law.  If any Governmental Entity makes or proposes an allocation with respect to the Assets that differs materially from the allocation prepared pursuant to this Section 2.6, each of Buyer, on the one hand, and Sellers, on the other hand, shall have the right, at its or their election and expense, to contest such entity’s determination.  In the event of such a contest, the other party or parties hereto shall cooperate reasonably with the contesting party but shall have the right to file such protective claims or returns as may be reasonably required to protect its or their interests.

3.

Representations and Warranties of Sellers .  Sellers, jointly and severally, hereby represent, warrant and covenant to Buyer that:

3.1

Organization and Good Standing .  Each Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has all requisite corporate power and authority to enter into and perform and do all things contemplated under this Agreement and all documents and agreements necessary to give effect to the provisions of this Agreement, to own and lease its assets and to carry on and operate its business and operations as now being conducted and as proposed to be conducted by it under existing agreements.  Each Seller is duly qualified to do business and is in good standing as a foreign corporation in every jurisdiction in which the nature of the business conducted by it requires such qualification, except for such failures to qualify and be authorized as would not, individually or in the aggregate, adversely affect the Assets or the Business in any material respect.   Schedule 3.1 sets forth, with respect to each Seller, a complete and accurate list of each jurisdiction in which such Seller is qualified to do business.  Except as set forth in Schedule 3.1 ,

8

no Seller has any ownership interest in any other limited liability company, corporation, partnership or other entity.

3.2

Organizational Documents .  A copy of the articles of incorporation as amended to the date hereof (certified by the Secretary of State of the State of New York) of each Seller and the bylaws of each Seller have been delivered to Buyer and such documents are complete and correct and represent the presently effective articles of incorporation and bylaws of each Seller.  The minutes of the meetings of the board of directors of each Seller authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (certified by the respective corporate secretaries of Sellers), copies of which have been delivered to Buyer, are true, accurate and complete as of the Closing Date.

3.3

Ownership of Sellers .   Schedule 3.3 lists the percentage equity ownership of each Seller and the names of the owners thereof, in each case as of the date hereof.

3.4

Authorization and Binding Obligations .  The execution, delivery and performance by each Seller of this Agreement have been duly and validly authorized by all necessary action, including approval of the entire transaction by the unanimous vote of the board of directors and shareholders of such Seller.  This Agreement has been duly executed and delivered by each Seller and constitutes a legal, valid and binding agreement of such Seller, enforceable in accordance with its terms, except as its enforceability may be limited by bankruptcy, insolvency, moratorium or other laws relating to or affecting creditors’ rights generally and the exercise of judicial discretion in accordance with general equitable principles.

3.5

No Contravention .  Except as set forth on Schedule 3.5 , the execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby and the compliance with the provisions hereof by each Seller does not, and as of the Closing Date will not, (a) violate any provisions of the articles of incorporation or bylaws of such Seller, (b) conflict with, result in the breach of, or constitute (or with notice or lapse of time or both constitute) a default under, or result in the creation of any Encumbrances upon any of the Assets, or require any authorization, consent, approval, exemption or other action by or notice to any third party or Governmental Entity, under or with respect to any Contract to which such Seller is a party or by which any of the Assets is bound or affected or (c) violate any laws, regulations, orders or judgments writs, injunctions, awards, decrees or licenses applicable to such Seller with respect to any of the Assets.

3.6

Title to Assets .  Except as set forth on Schedule 3.6 hereto, each Seller has good and valid title to all of the Assets to be transferred by it to Buyer hereunder, free and clear of any Encumbrances (other than Permitted Liens).  The bills of sale, assignments of leases, agreements, contracts and other arrangements, and other instruments delivered to Buyer by Sellers on the Closing Date will be in form and substance sufficient to vest in Buyer, and the transfer to Buyer by Sellers of the Assets on the Closing Date will convey to Buyer, good and valid title to the Assets, free and clear of any Encumbrances (other than Permitted Liens).  The Assets (i) are owned, licensed or leased by Sellers, as the case may be, and are in Sellers’ possession, (ii) constitute all assets currently used to conduct the Business as presently conducted, (iii) are in good operating condition and repair (taking into account the age of such

9

Assets) and (iv) are adequate for the uses and purposes for which they are being used.  No Person other than Sellers owns any asset used in the Business.

3.7

Financial Statements and Material Adverse Changes .

(a)

Schedule 3.7(a) contains true, correct and complete copies of the unaudited pro forma financial statements, including balance sheets and statements of income, retained earnings and cash flows of the Business as of, and for the year ended, December 31, 2006 (collectively, the “ Financial Statements ”).  Except as set forth on Schedule 3.7(a) , each of the Financial Statements is true, complete and correct in all material respects, fairly presents results of operations, financial condition, assets, liabilities and cash flows of the Business for the periods specified.  Except as set forth on Schedule 3.7(a) , all material liabilities and obligations of the Business, whether accrued, absolute, contingent, direct or indirect, perfected, inchoate, unliquidated or otherwise and whether due or to become due, have been disclosed in the Financial Statements or in any notes or narrative introduction thereto.  The statements of income included in the Financial Statements do not contain any material items of special or non-recurring income or other income not earned in the ordinary course of business except as expressly specified on Schedule 3.7(a) .  All amounts billed to customers of the Business reflected on the Financial Statements and Schedule 3.7(a) are for the Business and not for any other business.  Sellers acknowledge and agree that Buyer is relying on the accuracy and completeness of the Financial Statements in making its determination as to whether it must file the Financial Statements, or any portion thereof, with the Securities and Exchange Commission.

(b)

Except as set forth on Schedule 3.7(b) , there have been no material adverse changes, individually or in the aggregate, in the Assets, liabilities, business, prospects, revenues, expenses, results of operations or condition, financial or otherwise, of the Business since December 31, 2006.

3.8

Inventories .  Except as set forth on Schedule 3.8 hereto, Purchased Inventory does not include in any material amount any items below standard quality, damaged or spoiled, obsolete or of a quality or quantity not usable or saleable in the normal course of the Business as currently conducted within normal inventory “turn” experience.

3.9

Leases .  No Seller owns any real property used for the conduct of the Business.  The Leased Premises and the Excluded Premises (collectively, the “ Real Property ”) constitute all of the real property leased by or for the benefit of Sellers in connection with the Business.  All operations of the Business as presently conducted are located on the Real Property.  None of Sellers or their Affiliates has received any written notice of default under any lease to which it is a party.

3.10

Licenses and Authorizations .   Schedule 1.2(a) contains a true and complete list of all licenses and authorizations of Sellers used by them in the operation of the Business.  Such licenses and authorizations are in full force and effect.  Each Seller has complied in all material respects with, and is now in compliance in all material respects with, all laws, rules, regulations, orders and decrees applicable to such Seller as they relate to the Business.

10

3.11

Contracts .   Schedule 1.2(c) contains a true and complete list of all Contracts of every nature to which Jessica Howard or Industrial Cotton is a party or which relate to the Business (except for Contracts that are Excluded Assets other than Consent Contracts).  Each Seller has complied in all material respects (in accordance with their terms) with all of the provisions of such Contracts and with all of the provisions of the Orders-in-Process.  Except as set forth on Schedule 3.11 , no default by any Seller or, to the knowledge of Sellers, by any other party thereto, has occurred and is continuing with respect to any of such Contracts or Orders-in-Process.  All such Contracts and Orders-in-Process are valid and binding in accordance with their terms.

3.12

Franchises, Trademarks and Trade Names .  Except as set forth on Schedule 3.12 , all franchises, trademarks, trade names, service marks, copyrights, licenses, privileges and other proprietary rights held by any Seller that are used or useful in the Business, as described in Section 1.2(a), are owned by such Seller or licensed for its use and are valid and in good standing, free and clear of any Encumbrances (other than Permitted Liens).  Each Seller has taken all necessary action to protect such proprietary rights.  Among the other trademarks set forth on Schedule 3.12 , Prime Industrial Cotton , Crafted Industrial Cotton , Nine Rivets , Jessica Howard , Elizabeth Howard , Eliza J. Howard , Eliza J and Heavenly Jeans are either valid and/or enforceable trademarks, applications or registrations of Sellers and are transferable or otherwise licensable to Buyer.  The Business as conducted by Sellers does not infringe upon or conflict with any patent, trademark, trade name, service mark, copyright, license or other proprietary right of any third party, and, except as set forth on Schedule 3.12 , no Seller has received any notice of infringement upon or conflict with the asserted rights of others.

3.13

Employees .  Except as set forth in Schedule 3.13 , there are no collective bargaining agreements, professional or personal service contracts, incentive plans for salespeople, bonus plans and other compensatory agreements, plans, arrangements and practices including employee benefit plans within the meaning of 3(3) of ERISA (whether or not subject to ERISA), or employment agreements, incentive plans or arrangements or any other material plan, agreement or arrangement covering present or former employees or other personnel of any Seller who are engaged in the Business or with respect to which any Seller has any direct or indirect liability relating to the Business, whether in connection with the transactions contemplated by this Agreement or otherwise (the “ Employee Plans ”).   Schedule 3.13 sets forth, with respect to the employees of the Business whose names are set forth therein (i) the compensation received by them in each of 2005 and 2006, their current annual salary and all other compensation and fringe benefits to which they are or may be entitled; and (ii) the amount of accrued bonuses, vacation, sick leave, family leave and other leave for such personnel.  No Seller is in default in any material respect with respect to any of the foregoing obligations (whether such obligations relate to the employees set forth on Schedule 3.13 or otherwise), and Sellers will bear full responsibility for any such obligation outstanding, or due, owing or accrued prior to the Effective Time.  No Seller is in default in any material respect with respect to any (a) contributions or material obligations under any Employee Plan or (b) withholding or other employment taxes or payments on behalf of any current or former employee for which it is obligated on the date hereof.  There are no labor controversies pending or, to Sellers’ knowledge, threatened with respect to the employees of either Seller.  The employees of each Seller are not represented by any labor union and, to Sellers’ knowledge, no union organizational campaign is in progress with respect to such employees.

11

3.14

Employee Plans .  Except as specifically set forth on Schedule 3.14 , (i) no Seller maintains, contributes to (or has an obligation to contribute to) or has maintained, adopted or contributed to a pension plan (within the meaning of Section 3(2) of ERISA) which is subject to Title IV of ERISA or Section 302 of ERISA or Section 412 of the Code, (ii) there has been no accumulated funding deficiency within the meaning of 302(a)(2) of ERISA or Section 412 of the Code with respect to any funded pension plan which has resulted or could result in the imposition of an Encumbrance upon any of the Assets, and (iii) no Seller has incurred or will incur any liability, direct or indirect, contingent or otherwise under Title IV of ERISA.

3.15

Litigation .  Except as set forth in Schedule 3.15 , there are no actions, suits, proceedings or investigations of any nature at law or in equity, pending or, to Sellers’ knowledge, threatened against or relating to any Seller or any of the Assets, which might reasonably result in an adverse effect upon the business or operations or condition, financial or otherwise, of the Business or the Assets, which seeks to enjoin, prohibit or otherwise challenge the transactions contemplated hereby or which might reasonably result in an adverse effect on the enjoyment and use by Buyer of any of the Assets to be acquired hereunder.  No unsatisfied judgment, award, order or decree has been rendered against or affecting Sellers or the Assets which might reasonably result in an adverse effect upon the business or operations or condition, financial or otherwise, of the Business or any of the Assets or which adversely affects the validity or enforceability of any of the Contracts or Orders-in-Process listed in the Schedules hereto.

3.16

Taxes .

(a)

Each Seller has timely filed all Tax Returns that it was required to file.  All such Tax Returns were correct and complete in all material respects and were prepared in substantial compliance with all applicable laws and regulations.  Each Seller has made available to Buyer copies of all Tax Returns with respect to the conduct of the Business and the ownership of the Assets filed by it during the three (3) year period prior hereto.  None of such Tax Returns has been audited or is currently the subject of audit.  No Seller currently is the beneficiary of any extension of time within which to file any Tax Return.  Each Seller has paid, or made provisions in accordance with generally accepted accounting principles for the payment of, all Taxes due (whether or not shown or required to be shown on any Tax Return) through and including the Closing Date, including, but not limited to, with respect to 2006.  Sufficient reserves have been established to cover any unpaid Taxes of any Seller.  There are no Encumbrances on any of the assets of Sellers that arose in connection with any failure (or alleged failure) to pay any Tax, other than Permitted Liens.  There is not currently pending any dispute or claim concerning any Tax liability with respect to the income, business, operations or property of any Seller either claimed or raised by any Taxing authority.  No claim has been made by a Taxing authority in a jurisdiction where a Seller does not file Tax Returns that it is or may be subject to Tax in that jurisdiction.

(b)

All Taxes which each Seller was required by law to withhold, deposit or collect in connection with any amount paid or owing to any employee, independent contractor, creditor, partner or other third party have been duly withheld, deposited and collected and, to the extent required, have been paid to the relevant Taxing authority, and all Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed.

12

(c)

No Seller expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax liability of any Seller either (A) claimed or raised by any authority in writing or (B) as to which any director or officer (or other Person responsible for Taxes) of any Seller ha