ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement is entered into as of the 7th day of November, 2008 (the “Agreement” ), by and between Jaco Electronics, Inc, a New York corporation (the “Seller” ) and WPG Americas, Inc., a California corporation (the “ Purchaser ”).

WHEREAS, subject to the terms and conditions of this Agreement, the Purchaser wishes to purchase, and the Seller wishes to sell certain of the assets of the Seller used in the Business (as defined below), for the aggregate consideration set forth below, and the Seller wishes to assign to the Purchaser and the Purchaser wishes to assume certain of the Seller’s liabilities arising out of the conduct of the Business as set forth below.

NOW THEREFORE, in consideration of the premises and the mutual covenants made herein, the parties hereto, each intending to be legally bound, do hereby agree as follows:

  Definitions.

  Except as otherwise expressly provided in this Agreement or unless the context otherwise requires, the following terms, for all purposes of this Agreement, have the respective meanings hereinafter specified:

“Accounts Receivable” means all trade and other accounts receivable and notes and loans receivable or any other similar instruments of the Seller arising out of the conduct of the Business by the Seller and all rights in respect thereof.

“Acquired Assets” means all right, title and interest in and to all of the assets, properties, rights and business of every kind, nature and description, wherever located, whether real, personal, tangible or intangible, of the Seller existing as of the Closing Date used in the Business, excluding however all Excluded Assets, including without limitation:

  all inventories used in the Business, whether on hand or in transit, including but not limited to, finished goods, raw materials, work in process, supplies, packing material, and similar items as listed on Schedule A-1 (collectively, the “ Inventories ”);

  the backlog, compiled consistent with past practice and in the Ordinary Course of Business, for all accepted and unfulfilled orders for the sale of goods by the Business;

  all unfilled purchase orders for the Business;

  all machinery, equipment, hand tools, computers and other data processing hardware (and all generic software related thereto or used therewith as set forth on Schedule A-2 ) and other tangible personal property of similar nature located at any of the premises leased to or owned by the Seller and used solely in the conduct of the Business to the extent set forth on Schedule A-2 (collectively, the “Machinery and Equipment” );

  all office furniture, office equipment, fixtures and other tangible personal property of similar nature, located at any of the premises leased to or owned by the Seller and used solely in the conduct of the Business, all of which is listed on Schedule A-2 (collectively, the “Furniture and Fixtures” );

  all rights of the Seller in connection with the Business under any contracts, agreements, options, commitments, understandings, licenses, leases and instruments, including, without limitation, franchises, customer and supplier contracts, sales representative and distributor contracts and commission contracts with respect thereto, which, if material to the Business (which for purposes hereof shall mean any of the foregoing which requires payments to or from the Seller of more than $25,000 individually or in the aggregate, other than purchase orders) are listed on Schedule A-3 (collectively, and including the leases and other items described in subsections (i) and (o) of this definition, but excluding those items described in Schedule B-1 , the “Assigned Contracts” );

  all customer and supplier lists, mailing lists, catalogs, brochures and handbooks used in the Business;

  all Books and Records (or copies thereof) including, but not limited to, files, plans, notebooks, production and sales data and other data of the Seller, whether or not in tangible form or in the form of intangible computer storage media such as optical disks, magnetic disks, tapes and all similar storage media;

  all personal property or operating leases, other than the leases set forth on Schedule B-1 , agreements and other rights to use, occupy or possess, or otherwise, with respect to machinery, equipment, vehicles and other tangible personal property of similar nature to which the Seller is a party in connection with the conduct of the Business, and all rights arising under or pursuant to such leases, agreements and rights, all of which are set forth on Schedule A-4 ;

  all telephone and telecopier numbers owned or leased by the Seller including all such numbers listed on Schedule A-5 at the premises related to the Assumed Leases;

  all rights related to any portion of the Acquired Assets, including third party warranties and guarantees and other similar contractual rights, held by or in favor of the Seller, and arising out of, resulting from or relating to the Acquired Assets;

  to the extent assignable, all Permits for the conduct of the Business issued by or obtained from any Governmental Body;

  all rights to enforce any confidentiality, invention assignment and/or non-competition agreements between the Seller and its employees of the Business except;

  all claims and defenses relating to any of the foregoing or to the Assumed Liabilities;

  the Assumed Leases and any security deposits under such Assumed Leases; provided , that the Purchaser shall pay to the Seller the Security Deposit Amount at the Closing, and all Leasehold Improvements and Fixed Assets at the premises related to the Assumed Leases, all as set forth on Schedule A-6 ;

  all claims, prepayments, refunds, rebates, causes of action, choses in action, rights of recovery, rights of setoff and rights of recoupment and all rights under warranties with respect to the Acquired Assets; and

  except for Excluded Assets, all other assets and properties of the Seller that are used in the Business, tangible and intangible, wherever located and whether or not carried on the Seller’s Books and Records, including all goodwill, know-how and trade secrets of the Seller.

Notwithstanding anything to the contrary contained herein, under no circumstance shall the Acquired Assets include (i) any Excluded Assets or (ii) any Non-Business Assets.

“Adjustment Report” has the meaning set forth in Section 2(e)(iv).

“Affiliate” means a Person, directly or indirectly, under the control of, controlled by or under common control with another Person.

“Affiliated Group” means any affiliated group within the meaning of Section 1504(a) of the Code or any similar group defined under a similar provision of state, local or foreign law.

“Allocation Schedule” has the meaning set forth in Section 2(d).

“Arbitrator” has the meaning set forth in Section 2(e)(vi).

“Assigned Contracts” has the meaning set forth in subsection (f) in the definition of Acquired Assets.

“Assumed Leases” means the Leases included on Schedule A-6 , excluding, however, any such Leases (i) which Purchaser rejects by notice given to Seller at least ten (10) days prior to Closing and (ii) for which consent of the landlord is required but not obtained for the assignment thereof to the Purchaser;

“Assumed Liabilities” means the following liabilities of the Seller and no other liabilities:

the liabilities of the Seller in respect of accounts payable and accrued expenses incurred in connection with the Acquired Assets only as and to the extent of the total amount as set forth in the balance sheet for the Business as of the Closing Date included in the preparation of the Closing Purchase Price, including any post-Closing adjustments thereto as provided in Section 2(e); and

the liabilities and obligations of the Seller arising after the Closing Date under the Assigned Contracts that relate to benefits thereunder that are realized or delivered or that otherwise arise on or after the Closing Date.

Notwithstanding anything to the contrary contained herein, under no circumstances shall the Assumed Liabilities include any Retained Liabilities.

“Assumed Payables” means such accounts payable and such accrued expenses as are included in subsection (a) of the definition of Assumed Liabilities.

“Books and Records” means, with respect to the conduct of the Business, all records, invoices and other documents and information (be it in paper or electronic data form) necessary to the current or future operation of the Business or the ownership and current or future operation of the Acquired Assets including, without limitation, all employment records and files (with respect only to those employees of Seller hired by Purchaser), titles, registrations, contracts, customer and open vendor purchase orders, unpaid invoices, marketing and statistical information pertaining to the products of the Seller, its licenses, permits and leases assigned to Purchaser, and, to the extent in its possession, all bills of sale and warranties received by the Seller upon its acquisition of Machinery and Equipment, and Furniture and Fixtures.

“Business” means the business of the Seller as conducted on the date hereof and as conducted on the Closing Date in respect of the distribution of passive and active electronic components and supporting technology products and services, excluding in any event the Flat Panel Display Business.

“ Business Day ” means any day other than a Saturday, Sunday or other day on which banks in the State of New York are required or authorized by law or regulation to close.

“Closing” means the consummation of the transactions contemplated by this Agreement.

“Closing Date” means the third Business Day following the date on which the conditions specified in Section 7 are satisfied (subject to waiver of such conditions as provided in Section 7) and on which the Closing takes place, but in no event later than December 1, 2008.

“Closing Date Assumed Payables” has the meaning set forth in Section 2(e)(ii).

“Closing Date Fixed Assets Valuation” has the meaning set forth in Section 2(e)(ii).

“Closing Date Inventories Valuation” has the meaning set forth in Section 2(e)(ii).

“Closing Date Security Deposit Amount” has the meaning set forth in Section 2(e)(ii).

“Closing Purchase Price” has the meaning set forth in Section 2(e)(ii).

“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

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

“ Confidential Information ” has the meaning set forth in Section 3(e).

“ Credit Agreement ” means that certain Credit Agreement, dated as of December 22, 2006 among Seller and Interface Electronics Corp., as Borrowers, The Lenders Party thereto and The CIT Group/Business Credit, Inc., as Agent and CIT Capital Securities, LLC as Syndication Agent and as Sole Book runner and Sole Lead Arranger.

“Current Assumed Payables” has the meaning set forth in Section 2(e)(i).

“ Current Financial Statements” has the meaning set forth in the definition of Financial Statements.

“Current Fixed Assets Valuation” has the meaning set forth in Section 2(e)(i).

“Current Inventories Valuation” has the meaning set forth in Section 2(e)(i).

“Current Security Deposit Amount” has the meaning set forth in Section 2(e)(i).

“Default” means an event of default, as defined in any contract or other agreement or instrument, or any event which, with the passage of time or the giving of notice or both, would constitute an event of default or other breach under such contract or other agreement or instrument.

“Employment Agreements” means, in respect of the Business, agreements, understandings, arrangements or contracts (written or oral) with any Person to which the Seller is a party relating to employment, non-competition, management, agency or consulting including with respect to the payment of salary, bonuses, severance benefits, retirement benefits, or incentives.

“Encumbrances” means all claims, mortgages, pledges, liens, encumbrances, security interests and adverse interests of every nature whatsoever, other than rights of landlords under the Assumed Leases.

“Environmental Laws” means, any federal, state, local or foreign laws (including without limitation the common law), ordinance, rule, regulation, decree, judgment, injunction, demand letter, Order, request for information, or schedule or time table set forth in any federal, state, local or foreign law (including without limitation the common law), ordinance, rule, regulation, order, decree, judgment, injunction, demand letter or request for information issued, promulgated, approved or entered thereunder relating to pollution or protection of the environment or to occupational health or safety, including without limitation laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land, surface or subsurface strata), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.

“ERISA Affiliate” means a corporation that is or was a member of a controlled group of corporations with the Seller within the meaning of Section 4001(a) or (b) of ERISA or Section 414(b) of the Code, a trade or business (including a sole proprietorship, partnership, trust, estate or corporation) that is under common control with the Seller within the meaning of Section 414(m) of the Code, or a trade or business which, together with the Seller, is treated as a single employer under Section 414(o) of the Code.

“Escrow Agent” means HSBC Bank USA, N.A.

“Escrow Agreement” means the Escrow Agreement between Purchaser, Seller and Escrow Agent, dated the Closing Date and substantially in the form attached as Exhibit A hereto.

“ Escrow Amount ” means $1,000,000.

“Estimate” has the meaning set forth in Section 2(e)(ii).

“Excluded Assets” means:

(a)   all cash and Accounts Receivable of the Seller whether or not arising out of the conduct of the Business, including, without limitation, Seller’s unsecured bankruptcy claim against All American Semiconductor, Inc., et al., as evidenced by its Proof of Claim form, dated August 6, 2007;

(b)   all rights of the Seller under insurance policies whether or not with respect to the Business or the Acquired Assets;

(c)   the Leases for the Leased Real Property, other than the Assumed Leases, all security deposits thereunder and all related Leasehold Improvements and Fixed Assets, and such of the personal property leases which are used in the conduct of the Business as are listed in Schedule B-1 ;

(d)   all claims, suits, prepayments, refunds, rebates, causes of action, choses in action, rights of recovery, settlements, rights of restitution, rights of setoff and rights of recoupment, including, without limitation, all rights in respect of alleged antitrust price-fixing, conspiracy to control production capacity, and/or allocation of customers by the manufacturers of any products purchased by Seller prior to the Closing Date, including, but not limited to, dynamic random access memory (DRAM), static random access memory (SRAM), thin-film transistor liquid crystal display (TFT-LCD) and NAND flash (Flash), and all rights, claims and interests under warranties arising out of the conduct of the Business prior to the Closing Date, other than claims, prepayments, refunds, rebates, causes of action, choses in action, rights of recovery, rights of setoff and rights of recoupment and all rights under warranties with respect to the Acquired Assets;

(e)   all assets, properties and rights of the Seller used or useful in connection with the Flat Panel Display Business and not relating solely to or used solely in the Business;

(f)   all Inventories purchased by Seller from Maxim, Dallas and Diodes, all Inventories which are 100% reserved on Seller’s Financial Statements and all Military Inventory;

(g)   all of Seller’s websites;

(h)   Seller’s phone and fax numbers;

(i)   the name “Jaco” and any trademarks related thereto (and all designs, logos and slogans using such name) and the certificate of incorporation, corporate seals, minute books, stock books, Tax and supporting data prepared expressly in connection th erewith, and other records prepared directly in connection with the corporate organization and capitalization of the Seller and/or its respective operation as a corporation under applicable Laws; and

(j)   all Fixed Assets which Purchaser elects not to acquire by notice thereof given to Seller at least ten (10) days prior to Closing and Security Deposits for Leases which are not Assumed Leases.

“Final Fixed Assets Valuation” has the meaning set forth in Section 2(e)(vii).

“Final Inventories Valuation” has the meaning set forth in Section 2(e)(vii).

“Final Purchase Price” has the meaning set forth in Section 2(e)(vii).

“Final Security Deposit Amount” has the meaning set forth in Section 2(e)(vii).

“Financial Statements” means the balance sheet for the Business of the Seller extrapolated from Seller’s audited balance sheet as at June 30, 2008 and the unaudited interim balance sheet for the Business of the Seller as at October 31, 2008, and the statement of income and statement of cash flows for the Business of the Seller for each of the twelve month and three month periods, respectively, then ended, (the Financial Statements for the three month period ended on and as at October 31, 2008 are hereinafter referred to as the “Current Financial Statements” ), in each case, derived from Seller’s financial statements which have been prepared in accordance with GAAP consistently applied.

“Fixed Assets” means the Seller’s fixed assets identified in the Current Financial Statements which are used solely in connection with the Business.

“Flat Panel Display Business” means the Seller’s flat panel display and supporting technology products and services business.

“Generally Accepted Accounting Principles” (or “GAAP” ) has the meaning ascribed to it from time to time by the American Institute of Certified Public Accountants.

“Governmental Body” means any federal, state, provincial, municipal or other governmental department, commission, board, bureau, authority, court, agency or instrumentality, domestic or foreign.

“Hauppauge Office” means the office premises at Hauppauge, New York identified in Schedule A-6 .

“Indebtedness” means with respect to any Person, all obligations of such Person for borrowed money or with respect to deposits or advances of any kind (including amounts by reason of overdrafts and amounts owed by reason of letters of credit), all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person, all obligations of such Person issued or assumed as the deferred purchase price of property or services (other than accounts payable to creditors for goods and services incurred in the Ordinary Course of Business of such Person),  all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien or security interest on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, all obligations of such Person under leases required to be accounted for as capital leases under GAAP, and all guaranties by such Person.  Trade payables and check endorsements of a Person arising in the Ordinary Course of Business shall not be deemed to be Indebtedness.

“Law” or “Laws” means statutes, rules, regulations and ordinances of any Governmental Body.

“ Leased Real Property ” means all leaseholds or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interest in real property held or used by the Seller in the conduct of the Business.

“ Leases ” means all leases, subleases, licenses, concessions, and other agreements (written or oral) and all amendments thereof pursuant to which the Seller holds any Leased Real Property, including the right to all security deposits and other amounts and instruments deposited by or on behalf of the Seller thereunder.

“ Leasehold Improvements ” means all buildings, structures, improvements and fixtures located on any Leased Real Property which are owned by the Seller, regardless of whether title to such buildings, structures, improvements or fixtures are subject to reversion to the landlord or other third party upon the expiration or termination of the Lease for such Leased Real Property.

“Material Adverse Effect” means a material adverse effect on (i) the business, assets, operations, properties, results of operations or financial condition of the Business, the Acquired Assets or the Assumed Liabilities, taken with respect to the Business as a whole when compared to the condition of the Business as of October 31, 2008 or (ii) the ability of Seller to perform its material obligations hereunder or under any agreement related hereto; provided , however , that any effect, change or event relating to or arising out of the following shall not constitute a Material Adverse Effect: (x) a change (after the date hereof) in Law or GAAP or interpretations thereof that applies to the Purchaser, the Seller or the Business; or (y) a change (after the date hereof) in the United States economy, business conditions or securities markets in general.

“Military Inventory” means Inventory for military uses which require export licenses and for which Purchaser has not obtained the requisite licenses prior to the Closing Date or with respect to which any approvals or consents by applicable Laws have not been obtained prior to the Closing Date.

“Miscellaneous Inventory” means Inventory purchased by Seller from Persons with whom Seller is not party to a franchise agreement.

“Non-Business Assets” means:

(k)   all assets, properties, rights and businesses of the Seller of any kind, nature and description, wherever located, whether real, personal, tangible or intangible, which are not primarily related to and are not used primarily in the Business; and

(l)   the Purchase Price.

“Non-Compete Period” has the meaning set forth in Section 6(l)(i).

“Non-Franchise Inventory” means Inventory from those franchisors whose franchise agreement is not assigned to or acquired by Purchaser as provided in Section 4(x).

“Objection Notice” has the meaning set forth in Section 2(e)(v).

“Order” means any order, writ, injunction, decree, stipulation, judgment, award, determination, direction or demand of a Governmental Body.

“Ordinary Course of Business” means, the ordinary course of conduct of the Business consistent with Seller’s past custom and practice.

“OSHA Laws” means any applicable past, present or future federal, state, territorial, provincial, foreign or local law, common law doctrine, rule, order, decree, judgment, injunction, license, Permit or regulation relating to public or employee health or safety or any other like matter, together with any other laws (federal, state, territorial, provincial, foreign or local) including, without limitation, the Occupational Safety and Health Act (29 U.S.C. 651 et seq.), as such laws have been, or are, amended, modified or supplemented heretofore or from time to time hereafter and any analogous future federal, or present or future state or local laws, statutes and regulations promulgated thereunder.

“ Owned Real Property ” means all land, together with all buildings, structures, improvements, and fixtures located thereon, and all easements and other rights and interests appurtenant thereto owned by the Seller and used in the conduct of the Business.

“PBGC” means Pension Benefit Guaranty Corporation.

“Permits” means all licenses, clearances, ratings, permits, orders, approvals, authorizations and franchises, and all rights with respect thereto.

“Person” means any natural person, sole proprietorship, corporation, limited liability company, partnership, joint venture, unincorporated association, firm, trust or other entity.

“Plan” has the meaning set forth in Section 4(o).

“Post-Closing Periods” means (i) all tax periods beginning after the Closing Date and (ii) with respect to a tax period that includes, but does begin after, the Closing Date, the portion of such period which begins on, but does not include, the Closing Date.

“Pre-Closing Periods” means (i) all tax periods ending on or before the Closing Date and (ii) with respect to a tax period that includes, but does not end on, the Closing Date, the portion of such period which ends on and includes the Closing Date.

“Primary Franchisors” has the meaning set forth in Section 7(b)(iii)(B).

“Purchaser” has the meaning specified in the opening paragraph of this Agreement.

“Purchaser Restricted Business” has the meaning set forth in Section 6(l)(i).

“Real Property” means the Owned Real Property, the Leased Real Property and the Leasehold Improvements.

“Retained Liabilities” means any and all liabilities or obligations (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, whether accrued or unaccrued, whether due or to be come due, and whether claims with respect thereto are asserted before or after the Closing Date) of the Seller which are not Assumed Liabilities including, without limitation, the following:

(m)   all liabilities and obligations which arise out of or are based upon the ownership by Seller of any of the Excluded Assets or Non-Business Assets or the conduct of any business other than the Business;

(n)   any obligation or liability of the Seller arising under the Transaction Documents or from a breach of any representation, warranty, covenant or agreement contained in any of the Transaction Documents;

(o)   all liabilities and obligations of the Seller for costs and expenses incurred in connection with the preparation and negotiation of the Transaction Documents or the consummation of the transactions contemplated by the Transaction Documents;

(p)   all liabilities and obligations of the Seller which arise out of the ownership and operation of the Acquired Assets or the conduct of the Business on or prior to the Closing Date, including without limitation all liabilities and obligations which arise out of any claim, suit, action, arbitration proceeding, investigation or other similar matter which commenced prior to or is commenced after the Closing Date which is based upon, relates to or arises out of the foregoing, whether or not disclosed herein;

(q)   all liabilities and obligations of the Seller for any Taxes (including without limitation those attributable to the Acquired Assets) for Pre-Closing Periods;

(r)   all obligations of the Seller arising and due to be performed prior to the Closing Date under the Assigned Contracts and all liabilities and obligations arising out of any breach by the Seller or Seller’s failure to perform any obligation under any Assigned Contract in accordance with its terms prior to the Closing Date;

(s)   all liabilities and obligations arising out of events, conduct or conditions existing or occurring prior to the Closing Date that constitute a violation of or noncompliance with any Law, any Order, or Permit;

(t)   all liabilities and obligations (including without limitation costs of cleanup and remediation) resulting from any violation of any Environmental Law arising from conduct prior to the Closing Date;

(u)   all liabilities and obligations of the Seller with respect to, and claims of, any acts of negligence or tort including libel and slander, occurring prior to the Closing Date, including without limitation any workers compensation claim;

(v)   all claims against, or liabilities or obligations of or in connection with, any Employee Benefit Plans, including without limitation any excise Taxes, penalties or other liabilities imposed under ERISA or the Code based upon facts which existed prior to the Closing Date;

(w)   all liabilities and obligations of the Seller to pay severance, termination pay, redundancy pay, pay in lieu of notice, accrued vacation pay or other similar benefits to any current or former employee of the Seller whose employment is terminated (or treated as terminated) or who is not hired by Purchaser in connection with the consummation of the transactions contemplated by this Agreement and the intended conduct of the Business by the Purchaser after the Closing Date with fewer employees than the number of employees used by Purchaser in the conduct of the Business, and for all compensation and benefits accrued or incurred prior to the Closing Date in favor of employees of the Seller, including without limitation, personal time and accrued vacation, and personal time, premiums or benefits under any Employee Benefit Plan and severance pay;

(x)   all liabilities and obligations of the Seller under any agreements relating to the disposition of assets, businesses or companies (whether by sale of assets, sale of stock, merger or otherwise) entered into at any time prior to the Closing Date;

(y)   all obligations for refunds, returns, rebates, discounts, promotional credits, warranty claims, indemnification claims and the like in respect of transactions occurring prior to the Closing Date;

(z)   all Indebtedness of the Seller;

(aa)   all accounts payable and all accrued expenses incurred by Seller in connection with the Acquired Assets and the Business, which are not Assumed Payables, and

(bb)   any other liabilities or obligations of the Seller not included in the definition of Assumed Liabilities.

“ Security Deposit Amount ” means an amount equal to the aggregate amount of the security deposits related to the Assumed Leases at the Closing.

“Seller” has the meaning set forth in the opening paragraph of this Agreement.

“Seller Restricted Business” has the meaning set forth in Section 6(l)(ii).

“Seller’s Knowledge” or “Knowledge of Seller” means the actual knowledge of Joel Girsky and Jeffrey Gash.

“Subsidiary” means any Person, more than 50% of the voting stock or other voting power of which is owned, directly or indirectly, by another Person, or which is otherwise directly or indirectly controlled by such other Person.

“Tax” means any and all taxes, charges, fees, levies, deficiencies or other assessments of whatever kind or nature including, without limitation, all net income, gross income, profits, gross receipts, excise, real or personal property, sales, ad valorem, withholding, social security, retirement, excise, employment, unemployment, minimum, estimated, severance, stamp, property, occupation, environmental, windfall profits, use, service, net worth, payroll, franchise, license, gains, customs, transfer, recording and other taxes, customs duty, fees assessments or charges of any kind whatsoever, imposed by any Governmental Body, including any liability therefor as a transferee (including without limitation under Section 6901 of the Code or any similar provision of applicable Law), as a result of Treasury Regulation §1.1502-6 or any similar provision of applicable Law, or as a result of any Tax sharing or similar agreement, together with any interest, penalties or additions to Tax relating thereto.

“Tax Proceeding” has the meaning set forth in Section 4(h)(iii).

“Tax Return” means any return, declaration, report, information return or statement, and any amendment thereto, including without limitation any consolidated, combined or unitary return or other document (including any related or supporting information), filed or required to be filed with any Taxing Authority in connection with the determination, assessment, collection, payment, refund or credit of any federal, state, local or foreign Tax or the administration of any Laws relating to any Tax or ERISA.

“Taxing Authority” means the United States Internal Revenue Service or any other applicable Governmental Body.

“Transaction Documents” means this Agreement, the Escrow Agreement, the Transition Services Agreement, a Bill of Sale, an Assignment and Assumption Agreement, Assignments of the Assumed Leases, each of which shall be in form and substance reasonably satisfactory to Purchaser and Seller, and all other agreements, instruments, documents, schedules, exhibits and other writings contemplated by or delivered in connection with this Agreement.

“Transaction Taxes” has the meaning set forth in Section 2(g).

“Transition Services Agreement” means the Transition Services Agreement between Purchaser and Seller, dated the date hereof, in the form attached as Exhibit B hereto.

“Unreturned Non-Franchise Inventory” has the meaning set forth in Section 4(x).

“WARN Act” means the Worker Adjustment and Restraining Notification Act, 29 U.S.,§§2101-2109.

As used herein, references to “franchise agreements” shall include any franchise agreement, vendor agreement, distribution agreement or similar type of agreement, and references to “franchisors” shall include the counter-party to any such agreement.

  Purchase of Acquired Assets and Assumption of Assumed Liabilit i es .

  Purchase and Sale of the Acquired Assets.

  Subject to the terms and conditions of this Agreement, the Purchaser shall purchase and acquire from the Seller, and the Seller shall sell, transfer, convey, assign and deliver to the Purchaser, for the consideration specified below in this Article 2 at the Closing, all of the Acquired Assets.

  Payment of the Purchase Price; Escrow Amount .

At the Closing, the Purchaser shall pay: (i) to the Seller or such other Persons as the Seller shall direct in writing, an amount equal to Closing Purchase Price, less the Escrow Amount, in cash or by wire transfer of immediately available funds to such account(s) as Seller shall so indicate; and (ii) to the Escrow Agent, the Escrow Amount to be held by the Escrow Agent subject to the terms and conditions of the Escrow Agreement.

  Assignment and Assumption of Liabilities .

  Subject to the terms and conditions of this Agreement, the Seller shall assign and the Purchaser shall assume and become responsible for, from and after the Closing Date, the Assumed Liabilities.  On and after the Closing Date, and subject to the provisions in Section 9 regarding indemnification, the Purchaser shall have complete control over the payment, settlement, or other disposition of, or any dispute involving, any of the Assumed Liabilities, and the Purchaser shall conduct and control all negotiations and proceedings with respect to the Assumed Liabilities.  The Purchaser’s assumption of the Assumed Liabilities shall in no way expand the rights or remedies of any third party against the Seller or the Purchaser as compared to the rights and remedies which such third party would have had against either of them if the Purchaser had not assumed the Assumed Liabilities pursuant to this Agreement, except to the extent of Purchaser becoming liable for same as provided herein, as they exist immediately prior to the Closing.

  Notwithstanding anything to the contrary set forth herein, the Purchaser shall not assume or become responsible for, and the Seller shall remain exclusively liable for all Retained Liabilities.

  Allocation of Purchase Price .

The parties agree to allocate the Final Purchase Price and the Assumed Liabilities among the Acquired Assets in compliance with Section 1060(b) of the Code (the “Allocation Schedule” ).  The parties agree to file all Tax Returns and other statements for Tax purposes consistently with the allocation set forth on the Allocation Schedule and in particular to report the information required by Section 1060(b) of the Code in a manner consistent with such allocation.  Neither the Purchaser nor the Seller shall take a position in any Tax proceeding, Tax audit or otherwise inconsistent with the allocation set forth on the Allocation Schedule; provided , however , that (i) nothing contained herein shall require the Purchaser or the Seller to contest any challenge to such allocation, and (ii) nothing contained herein shall prevent the Purchaser or the Seller from filing protective amended Tax Returns or claims for refunds after a Taxing Authority has challenged such allocation.  Each of the Purchaser and the Seller shall notify the other if it receives notice that any Taxing Authority proposes any allocation different from the Allocation Schedule.

  Measurement of Assumed Payables, Inventories and Fixed Assets.

  The Seller has provided to the Purchaser on Schedule 2(e)(i) (A) the accounts payable and the accrued expenses included in the Assumed Payables, (B) the Inventories, (C) the Fixed Assets and (D) the Security Deposit Amount, in each case as of October 31, 2008, which the Seller represents and warrants have been derived from the Seller’s financial statements, which have been prepared in accordance with GAAP consistently applied.  Seller represents and warrants to Purchaser that as of such date, the Assumed Payables, so determined, were $10,208,033 (the “Current Assumed Payables” ), the Inventories, so determined, were $16,323,739 (the “Current Inventories Valuation” ), the Fixed Assets, so determined, were $300,000 (the “Current Fixed Assets Valuation” ) and the Security Deposit Amount, so determined, was $80,444 (the “Current Security Deposit Amount” ).

  No later than three (3) Business Days prior to the Closing, the Seller shall deliver to the Purchaser the Seller’s reasonable, good faith estimate (the “Estimate” ) of the Assumed Payables, Inventories, Fixed Assets and the Security Deposit Amount, each as of the Closing Date (the “Closing Date Assumed Payables” , the “Closing Date Inventories Valuation” , the “Closing Date Fixed Assets Valuation” and the “ Closing Date Security Deposit Amount ”, respectively (excluding any Security Deposit Amount for Leases which are not Assumed Leases and Fixed Assets which Purchaser has elected not to acquire as provided in clause (j) of the definition of Excluded Assets); provided , that the Purchaser shall assume any Assumed Payables that the Seller discovers and provides to the Purchaser within sixty (60) days after the Closing Date.  The sum of the Closing Date Inventories Valuation, the Closing Date Fixed Assets Valuation and Closing Date Security Deposit Amount reduced by the Closing Date Assumed Payables, shall be referred to herein as the “ Closing Purchase Price ”.  No later than three (3) Business Days prior to the Closing the Seller shall make available to the Purchaser its work papers and provide the Purchaser with reasonable access at reasonable times to its records used in determining the Estimate.

  The Seller covenants that the Estimate shall be prepared in good faith by the Seller and that the Closing Date Assumed Payables, the Closing Date Inventories Valuation, the Closing Date Fixed Assets Valuation and the Closing Date Security Deposit Amount will be prepared on a consistent basis with the preparation of the Financial Statements and the valuation of the Current Assumed Payables, Current Inventories, Current Fixed Assets and Current Security Deposit Amount as set forth on Schedule 2(e)(i) and consistent with past practice.

  As soon as reasonably practicable after the Closing Date, but not more than sixty (60) days after the Closing Date, the Purchaser shall prepare and deliver to the Seller as of the close of business on the Closing Date a report sheet (the “Adjustment Report” ) showing its computation of the Closing Purchase Price.  If the Purchaser does not timely deliver an Adjustment Report, then the Purchaser shall be deemed to have accepted the calculation of the Closing Purchase Price, as set forth in the Estimate.

  If an Adjustment Report is timely delivered, then within fourteen (14) days after receipt of the Adjustment Report, the Seller, by written notice to the Purchaser, may object to the Closing Purchase Price, as set forth in the Adjustment Report, setting forth in such notice (the “Objection Notice” ), its objection in reasonable detail and the Seller’s proposal or proposals with respect to the calculation of such items.  If the Seller does not timely deliver an Objection Notice, then the Seller shall be deemed to have accepted the calculation of such items as set forth in the Adjustment Report.

  If an Objection Notice is timely delivered, then within ten (10) days following the delivery of the Objection Notice, the Seller and the Purchaser shall attempt, in good faith, to resolve all disputes between them concerning the Objection Notice.  If the Purchaser and the Seller cannot resolve such disputes within such ten (10) day period, then the matters in dispute shall be determined by RSM McGladrey, Inc. or such other nationally recognized accounting firm, as is mutually acceptable to the Purchaser and the Seller (such accounting firm, the “ Arbitrator ” ).  Promptly, but not later than thirty (30) days after acceptance of this appointment, the Arbitrator shall determine (based solely on presentation by the Seller and the Purchaser to the Arbitrator, and not by independent review) those items in dispute and will render its report as to its resolution of such terms and resulting calculations of the Closing Purchase Price.  In determining each disputed item, the Arbitrator may not assign a value to such item greater than the greatest value for such item claimed by either Party or less than the lowest value for such term claimed by either Party.  For the purposes of the Arbitrator’s calculation of the Closing Purchase Price, the amounts to be included shall be the appropriate amounts from the Adjustment Report as to items that are not in dispute, and the amounts determined by the Arbitrator as to items from the Objection Notice that are submitted for resolution by the Arbitrator.  The Seller and the Purchaser shall cooperate with the Arbitrator in making its determination and such determination shall be conclusive and binding upon the parties.  The Seller and the Purchaser shall share equally all costs and fees related to such determination by the Arbitrator, including without limitation, the costs relating to any negotiations with the Arbitrator with respect to terms and conditions of such Arbitrator’s engagement, and the Purchaser and the Seller shall be severally liable for one-half of any amounts paid as a result of any indemnification required by the Arbitrator as a condition to its engagement or the performance of such engagement.

  The term “Final Assumed Payables” shall mean the Closing Date Assumed Payables (a) as set forth in the Estimate if the Purchaser accepts the Estimate as delivered or does not timely deliver an Adjustment Report, (b) as set forth in the Adjustment Report if the Seller accepts the Adjustment Report as delivered or does not timely deliver an Objection Notice, or (c) as determined pursuant to Section 2(e)(vi) above, if the Seller timely delivers an Objection Notice.  The term “Final Inventories Valuation” shall mean the Closing Date Inventories Valuation (a) as set forth in the Estimate if the Purchaser accepts the Estimate as delivered or does not timely deliver an Adjustment Report, or (b) as set forth in the Adjustment Report if the Seller accepts the Adjustment Report as delivered or does not timely deliver an Objection Notice, or (c) as determined pursuant to Section 2(e)(vi) above, if the Seller timely delivers an Objection Notice.  The term “Final Fixed Assets Valuation” shall mean the Closing Date Fixed Assets Valuation (a) as set forth in the Estimate if the Purchaser accepts the Estimate as delivered or does not timely deliver an Adjustment Report, or (b) as set forth in the Adjustment Report if the Seller accepts the Adjustment Report as delivered or does not timely deliver an Objection Notice, or (c) as determined pursuant to Section 2(e)(vi) above, if the Seller timely delivers an Objection Notice.  The term “Final Security Deposit Amount” shall mean the Closing Date Security Deposit Amount (a) as set forth in the Estimate if the Purchaser accepts the Estimate as delivered or does not timely deliver an Adjustment Report, or (b) as set forth in the Adjustment Report if the Seller accepts the Adjustment Report as delivered or does not timely deliver an Objection Notice, or (c) as determined pursuant to Section 2(e)(vi) above, if the Seller timely delivers an Objection Notice.  The sum of the Final Inventories Valuation, the Final Fixed Assets Valuation and the Final Security Deposit Amount reduced by the Final Assumed Payables shall be referred to herein as the “Final Purchase Price” .

  If for any reason the amount of the Final Purchase Price shall exceed the Closing Date Purchase Price as reflected in the Estimate, then Purchaser shall pay the amount of such excess within five (5) Business Days of the determination of the Final Purchase Price, in cash or by wire transfer of immediately available funds to such account(s) as Seller shall so indicate.  If for any reason the amount of the Final Purchase Price shall be less than the Closing Date Purchase Price as reflected in the Estimate, then Seller shall pay the amount of such deficiency within five (5) Business Days of the determination of the Final Purchase Price, in cash or by wire transfer of immediately available funds to such account(s) as Purchaser shall so indicate.

  Miscellaneous Inventory and Non-Franchise Inventory .

Purchaser shall use its reasonable best efforts to diligently sell all Miscellaneous Inventory and Unreturned Non-Franchise Inventory on a first in, first out basis consistent with Seller’s past practices.  All such sales by Purchaser shall be bona fide sales to third parties who are not Affiliates of Purchaser.  Purchaser shall provide Seller, on a monthly basis, a report with such documentation as Seller reasonably requests, which shows the net profit or net loss (the difference between (x) the purchase price on Seller’s books, net of specific reserves and (y) the sale price, or “0” for any Miscellaneous Inventory or Unreturned Non-Franchise Inventory which is not sold at the end of six (6) months following the Closing Date), and at the end of such six (6) month period Purchaser and Seller shall determine the net effect thereof.  If there is a net loss, then 50% thereof shall be released to the Purchaser pursuant to the terms of the Escrow Agreement and the balance of the Escrow Amount shall be released to the Seller pursuant to the terms of the Escrow Agreement.  If there is a net profit, then Purchaser shall pay 50% thereof to Seller within ten (10) days following the end of such six (6) month period.  Purchaser may, at its option, elect to keep any Miscellaneous Inventory and Unreturned Non-Franchise Inventory which is not sold at the end of such six (6) month, in which case such Miscellaneous Inventory and Unreturned Non-Franchise Inventory will be excluded from the foregoing calculation.  At the end of such 6 month period, the Purchaser shall promptly return all unsold Miscellaneous Inventory and Unreturned Non-Franchise Inventory which Purchaser has not elected to keep, to the Seller at Purchaser’s expense, which will be included in the foregoing calculation.  In no event shall the Seller have any obligation to the Purchaser for Miscellaneous Inventory and/or Unreturned Non-Franchise Inventory in excess of the Escrow Amount.

  Transaction Taxes .

Any and all federal, state, county or local excise, stamp, transfer, sale, registration and other Taxes, fees and duties (including any interest, additions to tax and penalties with respect thereto) and any and all transfer, registration, recording or similar fees and charges imposed in connection with the transfer of the Acquired Assets and the consummation of the transactions contemplated by this Agreement (collectively “Transaction Taxes” ) shall be paid by the Purchaser.  The Purchaser shall give a Tax Return related to Transaction Taxes to the Seller for its review with sufficient time for incorporation of the Seller’s reasonable comments prior to filing, and shall give the Seller copies of the Tax Return as filed, together with proof of payment of the Tax shown thereof, promptly after filing.  Seller and Purchaser agree to cooperate with each other and to comply with all applicable laws, rules and regulations governing sales and use taxes, including those concerning exemption for property purchased for resale (e.g., inventory), occasional or isolated sales or transactions involving tangible personal property and any other available exemption in order to maximize any lawful exemption from such tax that may be available thereunder, provided , that any out-of-pocket costs and expenses related thereto shall be borne by Purchaser, and Purchaser shall not be required to register in any jurisdiction in which it is not now registered.

  The Closing and Certain Conduct Prior to and Subsequent to the Closing

  The Closing

The Closing shall take place on the Closing Date, at 10:00 A.M., New York time, at the offices of Morrison Cohen LLP, 909 Third Avenue, New York, NY 10022.

  Conduct of Business .

From the date hereof through the Closing Date, the Seller shall conduct the Business in the Ordinary Course of Business, and in such manner that (i) would not be reasonably likely to result in a Material Adverse Effect, (ii) there shall not be included in the accounts payable and accrued expenses of the Seller in respect of the Business as of the Closing Date any items which would not have been attributed to the Business consistent with past practices, (iii) the Inventories shall not include any inventories which would not have been included in the inventories of the Business consistent with past practices, or (iv) the Leasehold Improvements at the premises related to the Assumed Leases which may be removed in accordance with the provisions of the Leases therefor, and all other fixed assets included in the Acquired Assets including Machinery and Equipment and Furniture and Fixtures, will have on and as of the Closing Date an aggregate net book value on Seller’s Books and Records determined on the same basis and in the same manner as in the Financial Statements.  Without limiting the generality of, and in addition to, the foregoing, prior to the Closing Date, the Seller shall not, except as the Purchaser may otherwise consent to in writing, do any of the following:

  other than in the Ordinary Course of Business, enter into or materially modify any policy or procedure with respect to credit to customers or collection of receivables with respect to the Business or any of the Acquired Assets;

  fail to pay any claim, cost, expense or liability, including any account payable or trade payable, of the Seller with respect to the Business or the Acquired Assets in a timely manner, given the Seller’s prior practices with respect to the Business or any of the Acquired Assets and in accordance with the normal payment periods for such payables;

  except in the Ordinary Course of Business, amend, waive, surrender or terminate or agree to the amendment, waiver, surrender or termination of any Assigned Contract;

  settle, cancel, compromise, waive or release any right, claim, action or proceeding of substantial value to the Seller with respect to the Business or the Acquired Assets, not in the Ordinary Course of Business involving (either singly or in the aggregate) more than $10,000 other than the negotiation of lease terminations of the Leased Real Property identified in Schedule B-1 , and the termination of employees of the Business; or

  enter into any transactions by and between or among any divisions of the Seller or between the Business and any other business of the Seller except for purchases of inventory in the Ordinary Course of Business in amounts, on terms and for the particular items purchased, consistent with past practices, and except for other transactions consistent with past practices.

  Access and Information .

From the date hereof through the Closing Date, the Seller shall, and shall cause the Seller’s officers, directors, employees, agents, accountants and counsel, upon the appropriate waiver of the attorney client privilege for the specific matter requested, to, upon reasonable notice, (i) afford the officers, employees and authorized agents, accountants, counsel and representatives of the Purchaser reasonable access, during normal business hours, to (A) the offices, properties, facilities, books, contracts and records of the Seller in respect of the Business or the Acquired Assets, and (B) those officers, director