SCHEDULE 14A

                                 (RULE 14A-101)

                     INFORMATION REQUIRED IN PROXY STATEMENT
                            SCHEDULE 14A INFORMATION
           PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
                   EXCHANGE ACT OF 1934 (AMENDMENT NO. _____)

Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
         |X|  Preliminary Proxy Statement            |_|  Confidential, For Use
         |_|  Definitive Proxy Statement                  of the Commission Only
         |_|  Definitive Additional Materials             (as permitted by Rule
         |_|  Soliciting Material Pursuant to             14a-6(e)(2)
              ss.240.14a-12


                              TARRANT APPAREL GROUP
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                (Name of Registrant as Specified in Its Charter)


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    (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

         |_|      No Fee  Required
         |X|      Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
                  and 0-11.

         (1)      Title  of  each  class  of  securities  to  which  transaction
                  applies:

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         (2)      Aggregate number of securities to which transaction applies:

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         (3)      Per  unit  price  or other  underlying  value  of  transaction
                  computed pursuant to Exchange Act Rule 0-11:

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         (4)      Proposed maximum aggregate value of transaction: $106,988,000

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          (5)      Total fee paid: $11,448

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         |_|      Fee paid with preliminary materials:

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         |_|      Check  box if any part of the fee is  offset  as  provided  by
                  Exchange Act Rule 0-11(a)(2) and identify the filing for which
                  the offsetting fee was paid previously.  Identify the previous
                  filing  by  registration  statement  number,  or the  form  or
                  schedule and the date of its filing.

         (1)      Amount previously paid:

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         (2)      Form, Schedule or Registration Statement No.:

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         (3)      Filing party:

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         (4)      Date filed:

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                              TARRANT APPAREL GROUP

                          ______________________, 2007

Dear Shareholders:

         I am  pleased  to inform  you that the Board of  Directors  of  Tarrant
Apparel Group (or Tarrant) has approved a Stock and Asset Purchase  Agreement to
purchase  the  business  and assets of The  Buffalo  Group.  The  Buffalo  Group
consists of a group of related  entities  founded and managed by Messrs.  David,
Gabriel, Charles, Gilbert and Michel Bitton and their affiliates.  The stock and
asset purchase  agreement  provides for the purchase of the outstanding  capital
stock of four principal operating  subsidiaries  through which The Buffalo Group
carries on its operations  and certain  intellectual  property  assets held in a
trust that are used in the business operations of The Buffalo Group. The Buffalo
Group  designs,  imports and sells  branded high fashion denim and other apparel
products  primarily  in Canada  and the United  States,  and  licenses  to third
parties rights to its brand names and trademarks for apparel and accessories.

         The  consideration  for the stock and assets to be purchased  under the
stock and asset purchase  agreement will consist of $40 million in cash, subject
to reduction  before closing,  promissory  notes in the principal  amount of $15
million and securities of Tarrant and its wholly-owned  Canadian subsidiary.  In
the  stock and  asset  purchase  transaction,  Tarrant's  wholly-owned  Canadian
subsidiary  will issue to the sellers 13 million shares of its non-voting  stock
that will be  exchangeable  into shares of Tarrant common stock on a one for one
basis.  In addition,  Tarrant will issue to the voting trustee of a voting trust
130,000  shares of Tarrant's  Series A preferred  stock with voting  rights that
will  entitle the  sellers,  as the  beneficiaries  of the trust,  to direct the
trustee to vote a number of shares equal to the number of exchangeable shares to
be issued by Tarrant's Canadian  subsidiary that remain outstanding from time to
time. The shares of Tarrant common stock underlying the  exchangeable  shares to
be issued in the stock and asset purchase transaction will collectively comprise
approximately 30% of the total outstanding  capital stock of Tarrant immediately
after  the  closing  of the  transactions  contemplated  by the  stock and asset
purchase  agreement.  The shares of  Tarrant's  Series A  preferred  stock to be
issued in the transaction will  effectively  comprise  approximately  30% of the
total  voting  power  of  Tarrant   immediately   after  the  closing  of  these
transactions.  Tarrant will also assume certain obligations of The Buffalo Group
and will make up to $12 million in earn-out  payments if  specified  performance
benchmarks are satisfied.  Additionally, the sellers will be entitled to receive
a certain contingent payment if the highest volume weighted average market price
of  Tarrant's  common  stock over a  specified  period  does not equal or exceed
$3.076 per share.

         In connection with this acquisition transaction, the Board of Directors
has  approved  amendments  to our  existing  credit  agreement  with  Guggenheim
Corporate Funding LLC and our credit facility with GMAC Commercial Financial LLC
to provide that $55 million under these  facilities will be available to finance
the cash consideration  payable under the stock and asset purchase agreement and
to repay some or all of Buffalo's  obligations  under Buffalo's  existing credit
facility.  In connection with the amendment of the Guggenheim  credit  facility,
Tarrant   proposes   to  issue  to   Guggenheim   warrants  to  purchase  up  to
_______________  additional  shares of our common stock.  The Board of Directors
has also approved certain other agreements and transactions  contemplated by the
stock and asset purchase agreement.

         We are  inviting  our  shareholders  to  attend a  special  meeting  of
shareholders to vote on the stock and asset acquisition and the related issuance
of shares and other securities. The special meeting is scheduled for __________,
2007,  at  ______________,  at the time and for the  purposes  set  forth in the
accompanying Notice of Special Meeting of Shareholders.


                                       ii



         The  specific  matters to be  considered  at the  special  meeting  are
described in the  accompanying  Notice of Special Meeting of Shareholders and in
the proxy statement. These transactions have been approved by the Board but will
not be completed  unless they are approved by holders of a majority of Tarrant's
outstanding  common stock or by holders of a majority of the shares  represented
and voting at the special  meeting,  as applicable.  We require your approval of
the stock and asset  acquisition  and  related  transactions  to comply with the
California  Corporations  Code and the NASDAQ  Marketplace  Rules.  Under  these
rules,  we must obtain the  approval of our  shareholders  before  completing  a
reorganization  transaction and before issuing common stock or other  securities
exchangeable  for common stock in an amount to exceed a specified  percentage of
the shares of our common stock or voting stock outstanding  before completion of
the  transaction.  If Tarrant  shareholders  wish to approve the stock and asset
purchase  agreement and the other  transactions  contemplated  by the agreement,
they must approve the related transactions  described in the accompanying Notice
of Special  Meeting of  Shareholders,  including the issuance of Tarrant  common
stock, other securities  exercisable for common stock and the shares of Series A
preferred stock.

         The close of business on _________, 2007 has been fixed for determining
the  shareholders  entitled to vote at the special  meeting.  Accordingly,  only
shareholders  of record on that date are  entitled to notice of, and to vote at,
the special meeting or any adjournment or postponement of the special meeting.

         Your vote is  important.  Please take the time to vote on the proposals
by completing  and mailing the enclosed  proxy card,  even if you plan to attend
the  special  meeting.  Thank you for your  interest  and  participation  in the
affairs of Tarrant Apparel Group.

                       Sincerely,

                       Chairman of the Board and Interim Chief Executive Officer

         NEITHER  THE U.S.  SECURITIES  AND  EXCHANGE  COMMISSION  NOR ANY STATE
SECURITIES  REGULATOR  HAS APPROVED  THE ISSUANCE OF COMMON STOCK IN  CONNECTION
WITH THE STOCK AND ASSET  ACQUISITION  OR DETERMINED IF THIS PROXY  STATEMENT IS
ACCURATE OR ADEQUATE. ANY REPRESENTATIONS TO THE CONTRARY IS A CRIMINAL OFFENSE.

         THIS PROXY STATEMENT IS DATED _____________, 2007, AND WAS FIRST MAILED
TO SHAREHOLDERS ON OR ABOUT ____________, 2007.


                             ADDITIONAL INFORMATION

         Certain business and financial  information about Tarrant Apparel Group
may be  incorporated  by reference  from  documents  that are not included in or
delivered  with this proxy  statement.  This  information  is  available  to you
without  charge upon your written or oral request.  You can obtain the documents
incorporated  by reference in this proxy statement by requesting them in writing
or by telephone  from Tarrant at 3151 East  Washington  Boulevard,  Los Angeles,
California  90023,  Attention:   Chief  Financial  Officer,   Telephone:   (323)
780-8250.

         See also  "Where You Can Find More  Information."  If you would like to
request documents, please do so by _____________, 2007, in order to receive them
before the special meeting.


                                      iii



                              TARRANT APPAREL GROUP
                    NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

                   TO BE HELD ON _______________________, 2007

TO THE SHAREHOLDERS:

         NOTICE IS  HEREBY  GIVEN  that a Special  Meeting  of  Shareholders  of
Tarrant   Apparel   Group,   a   California   corporation,   will   be  held  on
_________________,  _____________, 2007, at 10:00 A.M., local time, at Tarrant's
corporate  headquarters located at 3151 East Washington Boulevard,  Los Angeles,
California, for the following purposes:

         1. To adopt the Stock and Asset  Purchase  Agreement  dated December 6,
2006, by and among Tarrant  Apparel  Group,  4366883 Canada Inc., a wholly-owned
subsidiary of Tarrant,  3681441 Canada Inc.,  Buffalo Inc., 3163946 Canada Inc.,
Buffalo  Corporation,  BFL Management Inc., as sole trustee of The Buffalo Trust
and the  shareholders  of the  target  entities,  the stock  and asset  purchase
transactions and the other transactions contemplated by the purchase agreement.

         2. To approve  the  issuance  of shares of Tarrant  common  stock,  and
securities  exercisable  for  common  stock,  in an amount to exceed  20% of the
outstanding shares of Tarrant's common stock.

         3. To approve the  issuance  of 130,000  shares of  Tarrant's  Series A
Special Voting preferred stock, no par value, which have rights to vote a number
of shares exceeding 20% of the outstanding voting stock of Tarrant.

         4. To transact any other  business  that may  properly  come before the
special meeting or any adjournment or postponement.

         Tarrant's Board of Directors  unanimously  recommends that shareholders
vote FOR each of the  proposals as described in the attached  materials.  Before
voting,  you should  carefully  review all of the  information  contained in the
attached  proxy  statement  and in  particular  you should  consider the matters
discussed under "Risk Factors" under the first Proposal listed above.

         All shareholders are cordially invited to attend the special meeting in
person.  WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,  PLEASE SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY CARD, WHICH YOU MAY REVOKE AT ANY TIME BEFORE
ITS USE. Only  shareholders  of record at the close of business on  ___________,
2007,  are  entitled  to notice of and to vote at the  special  meeting  and any
adjournment  thereof.  A complete list of  shareholders  entitled to vote at the
special meeting will be available at the special  meeting.  This proxy statement
is first being mailed to shareholders on or about ______________, 2007.

         For more information about the proposed transactions, please review the
accompanying proxy statement, including the exhibits.

                           By order of the Board of Directors

                           Secretary
                           Los Angeles, California
                           _________________, 2007


                                       iv



                                TABLE OF CONTENTS

SUMMARY TERM SHEET.............................................................1
INFORMATION CONCERNING SOLICITATION AND VOTING................................13
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS.................................15
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION...................................16
RISK FACTORS..................................................................20
PROPOSAL 1 - STOCK AND ASSET ACQUISITION......................................34
STOCK AND ASSET PURCHASE AGREEMENT............................................49
TERMS OF THE EXCHANGEABLE SHARES AND RELATED MATTERS..........................55
SERIES A PREFERRED STOCK AND THE VOTING TRUST.................................59
UNAUDITED PRO FORMA FINANCIAL INFORMATION.....................................60
TARRANT APPAREL GROUP.........................................................65
BUSINESS OF THE BUFFALO GROUP.................................................71
BUFFALO'S SELECTED FINANCIAL DATA.............................................77
BUFFALO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
   AND RESULTS OF OPERATIONS..................................................78
PROPOSAL 2 - ISSUANCE OF TARRANT COMMON STOCK AND WARRANTS IN THE
   ACQUISITION TRANSACTION....................................................87
PROPOSAL 3 - ISSUANCE OF SERIES A PREFERRED STOCK.............................90
OTHER MATTERS.................................................................92
WHERE YOU CAN FIND MORE INFORMATION...........................................92






EXHIBIT A -       STOCK AND ASSET PURCHASE AGREEMENT
EXHIBIT B -       FAIRNESS OPINION
EXHIBIT C -       CALIFORNIA DISSENTERS' RIGHTS STATUTE
EXHIBIT D -       COMBINED FINANCIAL  STATEMENTS OF THE BUFFALO GROUP AS OF, AND
                  FOR, THE NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED), AND
                  THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
EXHIBIT E -       ANNUAL REPORT FOR THE YEAR ENDED  DECEMBER 31, 2005 OF TARRANT
                  APPAREL GROUP*
EXHIBIT F -       QUARTERLY REPORT FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30,
                  2006 OF TARRANT APPAREL GROUP*

*Previously  filed with the SEC and  omitted  from this  filing.  Report will be
attached and delivered to shareholders with the definitive proxy statement.


                                       v



                              TARRANT APPAREL GROUP
                                 PROXY STATEMENT
                               SUMMARY TERM SHEET

         THIS SUMMARY HIGHLIGHTS SELECTED  INFORMATION FROM THIS PROXY STATEMENT
AND MAY NOT CONTAIN  ALL OF THE  INFORMATION  THAT IS  IMPORTANT  TO YOU.  FOR A
COMPLETE UNDERSTANDING OF THE INFORMATION SET FORTH IN THIS PROXY STATEMENT, YOU
SHOULD  CAREFULLY READ THIS ENTIRE PROXY STATEMENT AND THE DOCUMENTS TO WHICH IT
REFERS.

THE SPECIAL MEETING


DATE, TIME AND PLACE OF      The special meeting will be held on ______________,
SPECIAL MEETING              2007, beginning at  10:00 A.M.,  Los Angeles  time,
                             at Tarrant's corporate headquarters located at 3151
                             East Washington  Boulevard, Los Angeles, California
                             90023.

RECORD DATE: SHAREHOLDERS    Only   holders   of   record  of   Tarrant   common
                             stock   on    [ENTITLED     TO    VOTE;     QUORUM]
                             __________________, 2007, are entitled to notice of
                             and to  vote  at  the  special  meeting.  As of the
                             record date, there were  __________________  shares
                             of Tarrant common stock outstanding.  The presence,
                             in person or by proxy, of the holders of at least a
                             majority  of our  common  stock will  constitute  a
                             quorum.

VOTE REQUIRED                The vote of  holders  of a  majority  of  Tarrant's
                             outstanding  common  stock is  required  to vote in
                             favor  of  Proposal  1 for this  proposal  to pass.
                             Assuming a quorum is present,  the affirmative vote
                             of a majority of the shares represented and voting,
                             either present in person or represented by proxy at
                             the special  meeting are  required to vote in favor
                             of Proposals 2 and 3 for such proposals to pass.

RECOMMENDATION OF BOARD OF   Our  Board of Directors  unanimously  approved each
DIRECTORS                    of the  Proposals to be  considered  at the special
                             meeting. The Board recommends that the shareholders
                             vote FOR each proposal.

PROPOSAL 1 -- ACQUISITION OF STOCK AND ASSETS OF THE BUFFALO GROUP


COMPANIES AND ASSETS         Tarrant  Apparel  Group  is a design  and  sourcing
INVOLVED IN THE              company for private  label and private brand casual
ACQUISITION                  apparel  serving  mass  merchandisers,   department
                             stores,  branded  wholesalers and specialty  chains
                             located  primarily in the United States.  Tarrant's
                             major customers include retailers, such as Chico's,
                             Macy's   Merchandising   Group,  the  Avenue,  Lane
                             Bryant, Lerner New York, Mothers Work, J.C. Penney,
                             Kohl's, Sears, Mervyn's and Wal-Mart.  Our products
                             are  manufactured  in a  variety  of woven and knit
                             fabrications and include jeans wear,  casual pants,
                             t-shirts,  shorts,  blouses, shirts and other tops,
                             dresses and jackets.

                             The target companies,  Buffalo Inc., 3163946 Canada
                             Inc., 3681441 Canada Inc. and Buffalo  Corporation,





                             and The  Buffalo  Trust,  are  part  of a group  of
                             entities  we refer  to as The  Buffalo  Group.  The
                             Buffalo  Group  was  founded  in 1985 by Mr.  David
                             Bitton and is currently  under the common  control,
                             ownership and management of Messrs. David, Gabriel,
                             Charles,  Gilbert and Michel Bitton,  whom we refer
                             to collectively as the Bitton  brothers,  and their
                             affiliates.  The Buffalo Group designs, imports and
                             markets  high  fashion   denim  and  other  apparel
                             products  sold  primarily  in Canada and the United
                             States.   The  Buffalo  Group  operates  45  retail
                             locations  in Canada and one location in the United
                             States. It also licenses to third parties the right
                             to operate a limited  number of  retails  stores in
                             other  countries  abroad,  such as  Mexico  and the
                             Philippines.  The  Buffalo  Group  also  sells  its
                             products through a variety of wholesale accounts in
                             Canada   and   the   United    States,    including
                             Bloomingdale's,   Nordstrom's,   Fred  Segal's  and
                             Macy's East and West.

SUMMARY OF THE STOCK AND     The  parties  to  the  stock  and  asset   purchase
ASSET ACQUISITION            agreement  include us,  4366883  Canada  Inc.,  our
                             wholly-owned   Canadian   subsidiary  to  which  we
                             sometimes   refer  as  TAG  Canada  in  this  proxy
                             statement, the target companies, their shareholders
                             and the  trustee of The  Buffalo  Trust.  Under the
                             stock and asset  purchase  agreement,  among  other
                             things, each of the following will occur:

                             1)       Tarrant  will   acquire  all   outstanding
                                      shares of capital  stock of the  following
                                      principal  operating  subsidiaries  of The
                                      Buffalo Group:

                                      o        Buffalo     Inc.,     a    Canada
                                               corporation,  and 3163946  Canada
                                               Inc., a Canada corporation, which
                                               are wholly-owned  subsidiaries of
                                               Buffalo International, Inc.;

                                      o        3681441  Canada  Inc.,  a  Canada
                                               corporation  and  a  wholly-owned
                                               subsidiary   of  4183517   Canada
                                               Inc.; and

                                      o        Buffalo  Corporation,  a Delaware
                                               corporation  and  a  wholly-owned
                                               subsidiary of 3979512 Canada Inc.

                             2)       Concurrently  with the  purchase  of these
                                      shares, Tarrant will acquire the assets of
                                      The  Buffalo  Trust  that  are used by the
                                      operating subsidiaries in the operation of
                                      The Buffalo Group's business.

                             3)       As   consideration   for  the  outstanding
                                      capital    stock    of    the    operating
                                      subsidiaries  to be sold to  Tarrant,  the
                                      sellers of the operating subsidiaries will
                                      receive $17  million in cash,  $11 million
                                      in  promissory   notes   issuable  by  TAG
                                      Canada, and 13,000,000 exchangeable shares
                                      of TAG Canada,  which will be exchangeable
                                      into an equal  number of shares of Tarrant
                                      common stock comprising  approximately 30%


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                                      of  Tarrant's  total  outstanding  capital
                                      stock immediately after the closing of the
                                      acquisition;

                             4)       In  combination   with  the   exchangeable
                                      shares,  Tarrant will issue 130,000 shares
                                      of Series A preferred  stock of Tarrant to
                                      a trustee of a voting  trust,  under which
                                      the sellers  will have the right to direct
                                      the  trustee  to vote a number  of  shares
                                      equal to the number of exchangeable shares
                                      of TAG Canada that remain  outstanding  at
                                      any time;

                             5)       The sellers will be entitled to receive up
                                      to $12  million in  earn-out  payments  if
                                      certain     conditions    and    specified
                                      performance benchmarks are satisfied;

                             6)       The  sellers  also  will  be  entitled  to
                                      receive  a   contingent   payment  if  the
                                      highest  volume  weighted  average  market
                                      price of  Tarrant's  common stock over any
                                      10  day  trading  period  with  a  trading
                                      volume of at least  500,000  shares during
                                      the five years  following the closing does
                                      not equal or exceed $3.076 per share;

                             7)       As  consideration  for  the  assets  to be
                                      purchased  under the  purchase  agreement,
                                      The Buffalo Trust will receive $23 million
                                      in  cash,   subject  to  reduction  before
                                      closing   based  on  the  revenue  of  The
                                      Buffalo   Trust,   and   $4   million   in
                                      promissory  notes  to  be  issued  by  TAG
                                      Canada;

                             8)       Tarrant will operate the Buffalo  business
                                      it  acquires  as a  separate  division  of
                                      Tarrant,  and will appoint  Gabriel Bitton
                                      as  the  President  of  Tarrant's  Buffalo
                                      division  upon  completion of the proposed
                                      acquisition; and

                             9)       Messrs.  Gabriel  Bitton and Luis  Padilla
                                      or, if either or both of Messrs. Bitton or
                                      Padilla are  unwilling  to serve or unable
                                      to serve due to death or disability or for
                                      other reasons as specified in the purchase
                                      agreement,  any other  nominee or nominees
                                      of the sellers  reasonably  acceptable  to
                                      Tarrant,  will be  nominated  to  serve on
                                      Tarrant's    Board   of   Directors   upon
                                      completion of the proposed acquisition.

                             A copy of the stock and asset purchase agreement is
                             attached to this proxy statement as Exhibit A.

PURCHASE PRICE DEPOSIT       Upon   signing   the  stock   and  asset   purchase
                             agreement,  Tarrant paid $5 million as a deposit on
                             the  purchase  price  payable  under  the  purchase
                             agreement.  If the transaction  closes, this amount
                             will  be  used  to pay a  portion  of the  purchase
                             price. Under certain circumstances, if the purchase
                             agreement is terminated  and the  transaction  does
                             not close,  the  deposit  will be  retained  by the
                             sellers as  liquidated  damages  under the purchase
                             agreement. Under other circumstances,  including if
                             shareholder  approval  of  the  transaction  is not
                             obtained,  if the transaction  does not close,  the


                                       3



                             amount will be returned to Tarrant,  as provided in
                             the purchase agreement.

EARN-OUT PAYMENTS            Under the  purchase  agreement,  we are required to
                             make earn-out  payments of up to $12 million if The
                             Buffalo Group satisfies  specified earnings targets
                             from 2007 through 2010. The earn-out amount for any
                             of these years will  become  payable if The Buffalo
                             Group  achieves the specified  earnings  target for
                             that year.  If the  applicable  earnings  target is
                             achieved  with respect to any fiscal year,  we will
                             be  required  to make  an  earn-out  payment  of $3
                             million for that year.  Upon  occurrence of certain
                             acceleration  events  specified  under the purchase
                             agreement,   we   will  be   required   to  pay  an
                             accelerated earn-out amount calculated based on the
                             net  present  value  of  the  aggregate   remaining
                             earn-out amounts as if all such remaining  earn-out
                             amounts  would  have been  earned  in full.  Events
                             triggering these  accelerated  payment  obligations
                             include  the  consummation  of a change of  control
                             transaction,   the   termination   of  Mr.  Gabriel
                             Bitton's employment by us without cause (as defined
                             in  the  purchase   agreement)   or  Mr.   Bitton's
                             resignation  for good  reason,  our failure to make
                             any  required  earn-out  payments and our breach of
                             certain  specified   obligations  relating  to  the
                             ongoing  management of The Buffalo Group  following
                             the acquisition.

CONTINGENT PAYMENTS          As  part of the  consideration  payable  under  the
                             purchase agreement, the sellers will be entitled to
                             receive a contingent  payment if the highest volume
                             weighted  average market price of Tarrant's  common
                             stock over any 10  consecutive  trading days during
                             the  five  years   following  the  closing  of  the
                             transaction  does not  equal or exceed  $3.076  per
                             share, in which case the contingent payment will be
                             determined by  multiplying  the number of shares of
                             common  stock  issued or  issuable  to the  sellers
                             (including   shares   issuable   upon  exchange  of
                             exchangeable  shares) by the difference between the
                             specified  minimum  price per  share of $3.076  and
                             such highest volume  weighted  average market price
                             of Tarrant's common stock.

EXCHANGEABLE SHARES          The  exchangeable   shares  to  be  issued  in  the
                             acquisition  will be issued by 4366883 Canada Inc.,
                             a  wholly-owned  Canadian  subsidiary  of  Tarrant,
                             which  we  refer  to as  TAG  Canada  or  Tarrant's
                             Canadian    subsidiary    throughout   this   proxy
                             statement.  The exchangeable  shares,  as nearly as
                             practicable,  will be the  economic  equivalent  of
                             Tarrant common stock. The exchangeable  shares will
                             be  exchangeable  at any time at the  option of the
                             holder,  on a  one-for-one  basis,  for  shares  of
                             Tarrant  common  stock.  The  exchangeable   shares
                             provide the  opportunity for the sellers to achieve
                             a Canadian tax  deferral in certain  circumstances,
                             as described in the attached proxy statement.

SERIES A PREFERRED STOCK     Tarrant will issue shares of its Series A preferred
                             stock  to give  the  sellers  the  right to vote 13


                                       4



                             million shares of Tarrant's common stock before the
                             exchange  of  the  exchangeable  shares.  We aim to
                             accomplish this by issuing 130,000 shares of Series
                             A preferred stock to a trustee under the terms of a
                             voting  trust   created  for  the  benefit  of  the
                             sellers.  Each  share of Series A  preferred  stock
                             will have 100 votes.  Under the terms of the voting
                             trust  agreement  between us and the  trustee,  the
                             sellers  will have the right to direct the  trustee
                             to vote the shares of Series A  preferred  stock on
                             shareholder  matters.  As a condition to exchanging
                             shares of  exchangeable  shares for Tarrant  common
                             stock,  we will  redeem a  corresponding  number of
                             shares  of  Series  A  preferred  stock so that the
                             shares of preferred  stock and exchanged  shares of
                             common stock that remain outstanding at any time do
                             not  entitle  their  holders the right to vote more
                             than 13 million shares on a combined basis.

EMPLOYMENT MATTERS           In  connection  with the  proposed  acquisition  of
                             Buffalo and as a condition to the  consummation  of
                             the  transactions   contemplated  by  the  purchase
                             agreement,   Tarrant  will  enter  into  employment
                             agreements  with each of the  Bitton  brothers  and
                             grant to the Bitton brothers options to purchase up
                             to two million  shares of Tarrant  common  stock in
                             the aggregate.

REGISTRATION RIGHTS          Tarrant  will be required to register the resale by
                             the sellers of the shares of Tarrant  common  stock
                             underlying the exchangeable  shares to be issued to
                             the sellers in the acquisition under the terms of a
                             registration  rights agreement  between Tarrant and
                             the sellers.

FINANCING                    As a condition to the  consummation of the proposed
                             acquisition,  Tarrant  will  enter into one or more
                             amendments to its credit  agreement with Guggenheim
                             Corporate  Funding LLC and its  facility  with GMAC
                             Commercial  Finance LLC. We expect $__ million will
                             be made  available  to  Tarrant  under its  amended
                             credit  facilities  with  Guggenheim and GMAC-CF to
                             pay for the cash portion of the  purchase  price in
                             the proposed  acquisition of Buffalo and to pay off
                             some  or  all  of   Buffalo's   obligations   under
                             Buffalo's  existing credit facility.  In connection
                             with  the  amendment  of the  Guggenheim  facility,
                             Tarrant  will  issue  to  Guggenheim   warrants  to
                             purchase   shares  of  Tarrant  common  stock,   as
                             described under Proposal 2 in this proxy statement.

PURPOSE OF ACQUISITION       Tarrant is proposing to consummate the transactions
                             contemplated   by  the  stock  and  asset  purchase
                             agreement for the purpose of acquiring the business
                             and operations of The Buffalo Group.

REASONS FOR ACQUISITION      The Board of  Directors  of  Tarrant  believes  the
                             acquisition of The Buffalo Group will contribute to
                             its success  and has  identified  various  benefits
                             that are  likely  to result  from the  acquisition.
                             Tarrant's Board believes the acquisition will:

                             o        expand  Tarrant's   operations  by  adding
                                      additional proprietary brands and products
                                      to compete more effectively;


                                       5



                             o        expand the scope,  scale and  strength  of
                                      Tarrant's   operations  by  expanding  its
                                      marketing,    sales    and    distribution
                                      capabilities;

                             o        enhance Tarrant's  capabilities to compete
                                      in  Canada,  the  United  States and other
                                      markets and  utilize  The Buffalo  Group's
                                      existing      sales     and      marketing
                                      infrastructure as a platform for expanding
                                      sales of Tarrant's apparel products;

                             o        provide   potential    opportunities   for
                                      Tarrant  to  penetrate   new  markets  and
                                      expand its share in existing markets;

                             o        enhance     sales     capabilities     and
                                      profitability    by   transforming    from
                                      primarily   a   wholesale   model   to   a
                                      combination retail and wholesale model;

                             o        enhance  operating   efficiencies  through
                                      vertical   integration  and  consolidation
                                      activities;

                             o        expand Tarrant's management team and Board
                                      of   Directors   by   adding    management
                                      personnel  and  two  new  directors   with
                                      significant   experience  in  the  apparel
                                      industry;

                             o        reduce costs based on increased  volume of
                                      sourced merchandise;

                             o        improve  Tarrant's  ability  to  withstand
                                      pricing pressures resulting in inexpensive
                                      apparel imports;

                             o        enhance Tarrant's  operations by improving
                                      product mix of higher priced products; and

                             o        enhance long-term shareholder value.

BACKGROUND AND               Tarrant and The Buffalo Group have been  discussing
NEGOTIATIONS RELATED TO      the  possibility  of  Tarrant's  acquisition of the
THE ACQUISITION              Buffalo business since the beginning of  2006.  The
                             discussions  led to  entering  into the  Stock  and
                             Asset Purchase Agreement on December 6, 2006.

OWNERSHIP AND VOTING         Based  on  the  number  of  outstanding  shares  of
POWER UPON COMPLETION        Tarrant   common  stock  as  of  the  record  date,
OF THE ACQUISITION           immediately  after the  closing of the  acquisition
                             transaction,  our  existing  shareholders  will own
                             approximately  70% of our total  capital  stock and
                             total voting power,  calculated after giving effect
                             to the  exchange of all  exchangeable  shares to be
                             issued  by TAG  Canada in the  acquisition  and the
                             exercise in full of all options and  warrants to be
                             issued in connection with the transaction.


                                       6



EFFECT IN BOOK VALUE         Based on  shareholder's  equity of $16.1 million as
PER SHARE                    of September 30, 2006,  the book value per share of
                             shares held by the existing shareholders of Tarrant
                             is $0.53.  Immediately  following  the  acquisition
                             transaction,  assuming the transaction had occurred
                             as  of  September   30,  2006,   and  assuming  all
                             exchangeable   shares  are  exchanged  for  Tarrant
                             common  stock  and  all options to be issued in the
                             transaction  are  exercised  in full, the PRO FORMA
                             book  value  per share of shares  held by Tarrant's
                             existing  shareholders  would  be $0.72, reflecting
                             an  increase in book value per share of $0.19.

CONDITIONS TO THE            The completion of the acquisition is subject to the
ACQUISITION                  satisfaction  of a number of conditions,  including
                             the following:

                             o        approval of the  acquisition  by Tarrant's
                                      shareholders;

                             o        absence  of a  change  having  a  material
                                      adverse  effect of $1.5 million or more in
                                      value  with  respect  to  Tarrant  and the
                                      other  parties  to  the  stock  and  asset
                                      purchase agreement;

                             o        accuracy of representations and warranties
                                      except  as   specified   in  the  purchase
                                      agreement and except for inaccuracies that
                                      could not reasonably be expected to result
                                      in a  change  having  a  material  adverse
                                      effect of $1.5 million or more in value;

                             o        absence of adverse litigation; and

                             o        receipt of all required consents.

TERMINATION OF               The  stock  and  asset  purchase  agreement  may be
ACQUISITION AGREEMENT        terminated:

                             o        by mutual written consent of the parties;

                             o        upon  delivery  of notice by either of the
                                      parties if the  closing  has not  occurred
                                      before  March  31,  2007,  so  long as the
                                      terminating   party  has  not  caused  the
                                      failure to close;

                             o        by Tarrant upon 30 days' written notice if
                                      there has been a change  having a material
                                      adverse  effect of $1.5 million or more in
                                      value on the  business or assets we agreed
                                      to purchase or if any seller has  breached
                                      any  representation  or covenant under the
                                      purchase agreement;

                             o        by Tarrant on or before March 31, 2007, if
                                      we are  unable to obtain  approval  of the
                                      transaction and the purchase  agreement at
                                      the special meeting of shareholders;


                                       7



                             o        by  the  sellers  upon  30  days'  advance
                                      written   notice   if  there  has  been  a
                                      material adverse change on the business or
                                      assets of Tarrant; and

                             o        by  Tarrant if we are unable to obtain the
                                      financing   necessary   to  complete   the
                                      acquisition.

EFFECT OF TERMINATION        If we terminate  the purchase  agreement due to the
                             occurrence  of a  material  adverse  change  in the
                             business and assets we are purchasing or due to the
                             breach by the sellers of their  representations  or
                             covenants under the agreement,  we will be entitled
                             to a refund of the $5 million  deposit  and we will
                             have the right to pursue  all  legal  remedies  for
                             damages, except that the sellers will not be liable
                             for   damages  in  excess  of  $5  million  in  the
                             aggregate.  If we terminate the purchase  agreement
                             due  to  our   inability   to  obtain   shareholder
                             approval, we will be entitled to a refund of the $5
                             million  deposit but we will be required to pay the
                             sellers a  termination  fee equal to all actual and
                             reasonable   out-of-pocket   expenses  incurred  in
                             connection  with the  transactions  contemplated by
                             the purchase  agreement  and other  agreements.  In
                             general,  if the  sellers  terminate  the  purchase
                             agreement  under the terms  specified  above or the
                             purchase  agreement  is  terminated  for failure to
                             close before the expiration  date, the sellers will
                             be entitled to retain the $5 million deposit amount
                             we paid upon  signing  the  purchase  agreement  as
                             their sole and  exclusive  remedy and as liquidated
                             damages.

FAIRNESS OPINION             In deciding to approve the stock and asset purchase
                             agreement,  the Tarrant Board considered an opinion
                             from  Marshall & Stevens,  Inc. as to the fairness,
                             from a financial  point of view,  to Tarrant of the
                             consideration  payable  under  the  stock and asset
                             purchase agreement.  The opinion states that, as of
                             its  date  and   based  on  and   subject   to  the
                             assumptions  and   limitations   contained  in  the
                             opinion,  the terms of the proposed acquisition and
                             the  consideration  to be paid to the  sellers  are
                             fair  from a  financial  point of view to  Tarrant.
                             This opinion is included as Exhibit B to this proxy
                             statement, and we encourage you to read it.

ACCOUNTING TREATMENT         Tarrant  will  account  for  the  acquisition  as a
                             purchase under the purchase method of accounting.

MATERIAL TAX                 Tarrant   took  into   account  a  variety  of  tax
CONSEQUENCES TO TARRANT      considerations    in   an   attempt   to   mitigate
AND ITS SHAREHOLDERS         potentially  adverse tax consequences,  but Tarrant
                             is  unaware  of  any  material   tax   consequences
                             associated  with the  acquisition.  The acquisition
                             should not result in any material tax  consequences
                             to either Tarrant or its shareholders.

DISSENTERS' RIGHTS           If the acquisition is approved by the required vote
                             of Tarrant's  shareholders  and is not abandoned or


                                       8



                             terminated,  holders of Tarrant's  common stock who
                             did not vote in favor  of the  acquisition  and who
                             notify Tarrant in writing of their intent to demand
                             payment  of  their  shares  if the  acquisition  is
                             consummated,  may be entitled to dissenters' rights
                             in certain circumstances by complying with Sections
                             1300  through 1312 of the  California  Corporations
                             Code. Tarrant's shareholders must notify Tarrant of
                             their  intent to  dissent no later than the date of
                             the special meeting.

REASON FOR THE PROPOSAL      We are  seeking  our  shareholders  approval of the
                             stock and asset purchase agreement, the acquisition
                             of The  Buffalo  Group and the  other  transactions
                             contemplated  under the purchase agreement in order
                             to  comply  with  applicable  provisions  under the
                             California  General  Corporation  Law.  Under these
                             provisions,  we are required to obtain  shareholder
                             approval  of any  reorganization  transaction  that
                             results in our shareholders  before the transaction
                             to own less than 5/6th of the  outstanding  capital
                             stock  of  our   company   immediately   after  the
                             transaction.  We refer to these requirements as the
                             California  Rule.  Tarrant  is also  subject to the
                             NASDAQ  Marketplace  Rules,  which prohibit Tarrant
                             from issuing, without shareholder approval,  common
                             stock or securities  exercisable  into common stock
                             in  an   acquisition   transaction   in  excess  or
                             potentially  in  excess  of 20% of the  outstanding
                             shares of Tarrant common stock before issuance.  We
                             refer to these requirements and rules as the NASDAQ
                             20% Rule.  The terms of the purchase  agreement and
                             the proposed  acquisition of The Buffalo Group will
                             result  in  the   issuance   of  shares  and  other
                             securities  in an amount that  require  shareholder
                             approval under the  California  Rule and the NASDAQ
                             20% Rule.  Accordingly,  we are seeking shareholder
                             approval of the purchase agreement, the acquisition
                             and  the  other  transactions  contemplated  by the
                             purchase  agreement  to comply with these rules and
                             requirements.

VOTE REQUIRED TO             The  affirmative  vote of holders of a majority  of
APPROVE THE STOCK AND        Tarrant's  outstanding  common stock is required to
ASSET PURCHASE               approve the Stock and Asset Purchase  Agreement and
AGREEMENT AND THE            the acquisition.
ACQUISITION

PROPOSAL 2 -- ISSUANCE OF TARRANT COMMON STOCK AND WARRANTS IN THE ACQUISITION

SHARES RESERVED FOR          As explained  in  connection  with  Proposal 1, the
ISSUANCE UPON                exchangeable  shares  issuable by TAG Canada in the
EXCHANGE OF                  acquisition transaction will be exchangeable at any
EXCHANGEABLE SHARES          time at the option of the holder,  on a one-for-one
                             basis,  for shares of Tarrant  common stock.  Under
                             the  terms  of  the   stock   and  asset   purchase
                             agreement,  Tarrant is required to reserve an equal
                             number of shares of its common  stock for  issuance


                                       9



                             upon exchange of the exchangeable  shares.  Tarrant
                             will issue these  shares of common stock at various
                             times after the completion of the acquisition  when
                             and  if the  holders  of  the  exchangeable  shares
                             exercise  their rights to exchange these shares for
                             shares of Tarrant common stock.

WARRANTS ISSUABLE IN         In  connection   with  the  acquisition  and  as  a
CONNECTION WITH              condition to its consummation,  Tarrant is amending
AMENDMENT TO CREDIT          its  credit  facility  with  Guggenheim   Corporate
FACILITY                     Funding LLC  (Guggenheim)  to increase  the amounts
                             available to Tarrant under the credit facility.  As
                             consideration  for Guggenheim's  agreement to amend
                             the facility and provide this funding, Tarrant will
                             issue to Guggenheim  warrants to purchase shares of
                             Tarrant common stock.

BACKGROUND AND               In June 2006,  Tarrant  entered  into a $65 million
DESCRIPTION OF               credit facility with Guggenheim,  as administrative
GUGGENHEIM AND               agent  and  collateral  agent for  lenders  under a
GMAC-CF FINANCINGS           credit  agreement  with  Guggenheim.  This facility
                             consists  of an  initial  term  loan  of up to  $25
                             million,  of which we borrowed $15.5 million at the
                             initial closing.  The facility also provides for an
                             additional  term  loan of $40  million  to  finance
                             acquisitions  acceptable to  Guggenheim.  Under the
                             terms of our credit agreement with  Guggenheim,  we
                             issued to Guggenheim warrants to purchase up to 3.9
                             million  shares of our common  stock.  Concurrently
                             with  the   completion   of  our   financing   with
                             Guggenheim,  we expanded our credit  facility  with
                             GMAC  Commercial  Financial LLC by  increasing  our
                             borrowing  limit  to  a  maximum  of  $55  million,
                             including  a letter  of credit  of $4  million.  We
                             entered   into   these    facilities    partly   in
                             anticipation of a possible acquisition  transaction
                             with The  Buffalo  Group,  and to provide the funds
                             necessary  to  finance  the  cost  of our  expanded
                             operations.

PURPOSE OF AMENDMENTS        Tarrant is  amending  the  Guggenheim  and  GMAC-CF
                             credit  facilities to provide that $55 million will
                             be made  available  under the facilities to finance
                             the cash  portion  of the  purchase  price  payable
                             under  the   purchase   agreement   and  to  obtain
                             additional   funds  to  pay  off  some  or  all  of
                             Buffalo's   obligations  under  Buffalo's  existing
                             credit facility.

TERMS OF WARRANTS            As consideration for amending the Guggenheim credit
                             facility, we are issuing to Guggenheim new warrants
                             to purchase  up to an  aggregate  of  _____________
                             shares  of our  common  stock.  The  term of  these
                             warrants are substantially the same as the warrants
                             we issued to Guggenheim  previously under the terms
                             of our existing  credit  facility with  Guggenheim.
                             The warrants we are  proposing to issue have a term
                             of ten  years  and are  exercisable  at a price  of
                             $_____  per  share  with  respect  to  ___%  of the
                             shares,  $_____ per share with  respect to ____% of
                             the shares,  $_____ per share with respect to ____%
                             of the  shares,  $_____ per share  with  respect to
                             ___%  of the  shares  and  $_____  per  share  with
                             respect  to  _____%  of the  shares.  The  exercise
                             prices  are  subject  to  adjustment   for  certain
                             dilutive  issuances  pursuant  to the  terms of the
                             warrants.   A  portion  of the  warrants  will  not


                                       10



                             become  exercisable  unless  and until a  specified
                             portion of the initial term loan is actually funded
                             by the lenders under the credit facility.

REASONS FOR PROPOSAL         Tarrant is seeking  approval of the issuance of its
                             shares of common  stock and  warrants  to  purchase
                             shares  of  common  stock in an amount in excess of
                             20% of the shares of common stock  outstanding.  As
                             explained  under  Proposal 1, Tarrant is subject to
                             the  California  Rule,  which  requires  Tarrant to
                             obtain  shareholder  approval of any reorganization
                             transaction that results in our shareholders before
                             the  transaction  to own  less  than  5/6th  of the
                             outstanding    capital   stock   of   our   company
                             immediately   after   the   transaction.   Also  as
                             explained  in Proposal 1, Tarrant is subject to the
                             NASDAQ  20%  Rule,  which  prohibits  Tarrant  from
                             issuing, without shareholder approval, common stock
                             or securities  exercisable  into common stock in an
                             acquisition transaction in excess or potentially in
                             excess of 20% of the outstanding  shares of Tarrant
                             common  stock  before  issuance.  The  terms of the
                             acquisition   transaction  and  related  Guggenheim
                             financing  contemplate  the  issuance  of shares of
                             Tarrant  common  stock  and  warrants  to  purchase
                             common stock in excess or  potentially in excess of
                             the amounts that require shareholder approval under
                             the  California  Rule  and  the  NASDAQ  20%  Rule.
                             Accordingly,  we are  seeking our  shareholders  to
                             approve  the  issuance  of the  shares  of  Tarrant
                             common   stock  to  be  issued  in   exchange   for
                             exchangeable  shares  issuable by TAG Canada in the
                             acquisition,  and the  issuance  to  Guggenheim  of
                             warrants to purchase shares of Tarrant common stock
                             on the terms described in this proxy statement.

VOTE REQUIRED TO             Assuming a quorum is present,  the affirmative vote
APPROVE THE ISSUANCE OF      of a majority of the shares represented and voting,
COMMON STOCK AND             either present in person or represented by proxy at
WARRANTS                     the special  meeting are  required to vote in favor
                             of the  issuance  of common  stock and  warrants in
                             connection  with the  acquisition  and the  related
                             financing transactions.

PROPOSAL 3 -- ISSUANCE OF SPECIAL VOTING SHARES OF PREFERRED STOCK

TERMS OF SERIES A            Under the terms of the purchase agreement,  Tarrant
PREFERRED STOCK              agreed  to issue  130,000  shares  of its  Series A
                             preferred voting stock as further consideration for
                             the  purchase  of the  stock and  assets  under the
                             purchase  agreement.  Tarrant's  Board of Directors
                             designated  130,000  shares of  Series A  preferred
                             stock   in   connection    with   the   acquisition
                             transaction.   The  Series  A  preferred  stock  is
                             entitled  to  voting  rights   identical  to  those
                             applicable to shares of Tarrant  common stock.  The
                             Series A preferred  stock will be deposited under a
                             Voting  Trust  Agreement.  Each  share of  Series A
                             preferred stock will be entitled to 100 votes,  and
                             on a combined basis, the 130,000 shares of Series A
                             preferred  will be  entitled  to a number  of votes
                             equal to the number of  exchangeable  shares of TAG
                             Canada   that  are   issued   in  the   acquisition


                                       11



                             transaction. The shares of Series A preferred stock
                             will  be   redeemed   at   nominal   value  as  the
                             exchangeable  shares are exchanged for common stock
                             of  Tarrant,   so  that  the  total   voting  power
                             represented by the Series A preferred stock and the
                             shares of Tarrant  common  stock that are issued in
                             exchange  for  exchangeable  shares does not exceed
                             the  voting  rights  represented  by the  shares of
                             Series A preferred  stock  issued at the closing of
                             the acquisition transaction.

VOTING TRUST                 The  shares of  Series A  preferred  stock  will be
                             deposited  into a voting trust under the terms of a
                             Voting Trust Agreement between Tarrant,  TAG Canada
                             and  Computershare  Trust Company of Canada, as the
                             trustee of the voting  trust  under the  agreement.
                             The voting trust will be created for the benefit of
                             the holders of the exchangeable shares to be issued
                             by TAG  Canada in the  transaction.  In  accordance
                             with the  terms  and  procedures  set  forth in the
                             voting  trust  agreement,  the trustee of the trust
                             will vote the shares of Series A preferred stock in
                             accordance with the  instructions of holders of the
                             exchangeable shares.

REASON FOR ISSUING           We are issuing the Series A preferred stock to give
SERIES A PREFERRED STOCK     the sellers the same voting  rights they would have
                             had if  they  were to  receive  shares  of  Tarrant
                             common stock at the closing of the acquisition. The
                             exchangeable shares to be issued by TAG Canada will
                             be  non-voting  shares  and  will not  entitle  the
                             sellers with any voting  rights with respect to the
                             shares  of  Tarrant  common  stock  underlying  the
                             exchangeable  shares until such time as the sellers
                             exercise  their  exchange  rights and  receive  the
                             shares of Tarrant common stock. Accordingly, we are
                             issuing the shares of Series A  preferred  stock to
                             give the  sellers  the right to direct  the vote of
                             the same  number of shares to which they would have
                             been  entitled  if they were to  receive  shares of
                             Tarrant common stock  underlying  the  exchangeable
                             shares at the closing.

REASON FOR PROPOSAL          As  described  elsewhere  in this proxy  statement,
                             Tarrant  is  subject  to the  NASDAQ  20% Rule.  In
                             addition  to  the   restrictions   described  under
                             Proposal  2,  this  rule  prohibits   Tarrant  from
                             issuing securities in an acquisition transaction in
                             excess  or  potentially  in  excess  of  20% of the
                             outstanding  voting power of Tarrant.  Although the
                             Series A preferred  stock is not  convertible  into
                             Tarrant common stock,  the Series A preferred stock
                             entitles  its  holder to vote a number of shares in
                             excess of 20% of Tarrant's shares of voting capital
                             stock.  Accordingly,  the  issuance of the Series A
                             preferred  stock without  shareholder  approval may
                             violate  the NASDAQ 20% Rule.  Accordingly,  we are
                             seeking our shareholders to approve the issuance of
                             the special voting Series A preferred  stock in the
                             acquisition transaction.

VOTE REQUIRED TO             Assuming a quorum is present,  the affirmative vote
APPROVE ISSUANCE OF          of a majority of the shares represented and voting,
PREFERRED STOCK              present either in person or represented by proxy at
                             the special  meeting,  is required to vote in favor
                             of the issuance of the shares of Series A preferred
                             stock.


                                       12



                              TARRANT APPAREL GROUP
                                 PROXY STATEMENT

                       FOR SPECIAL MEETING OF SHAREHOLDERS
                          TO BE HELD ON ________, 2007

                 INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL INFORMATION

         The  enclosed  proxy is  solicited  on behalf of the Board of Directors
(the "Board") of Tarrant Apparel Group, a California corporation, for use at the
Special Meeting of Shareholders to be held on __________________,  2007 at 10:00
A.M. local time, or at any adjournment or postponement thereof, for the purposes
set forth herein and in the accompanying Notice of Special Meeting.  The special
meeting will be held at Tarrant's  corporate  headquarters  located at 3151 East
Washington Boulevard, Los Angeles, California 90023. The Company intends to mail
this proxy statement and  accompanying  proxy card on or about  _______________,
2007, to all shareholders entitled to vote at the special meeting.

SOLICITATION

         Tarrant  will bear the entire  cost of  soliciting  proxies,  including
preparation,  assembly,  printing and mailing of this proxy statement, the proxy
and any additional information furnished to shareholders. Copies of solicitation
materials  will  be  furnished  to  banks,  brokerage  houses,  fiduciaries  and
custodians  holding in their names shares of common stock  beneficially owned by
others to forward to such  beneficial  owners.  Tarrant  may  reimburse  persons
representing  beneficial  owners of common  stock for their costs of  forwarding
solicitation  materials  to such  beneficial  owners.  In addition to use of the
mail, proxies may be solicited personally or by telephone,  telegraph, facsimile
or other means of communication by directors, officers and employees of Tarrant,
who will not be specifically  compensated for these  activities,  but who may be
reimbursed  for  reasonable  expenses in connection  with the  solicitation.  No
additional  compensation  will be paid to  directors,  officers or other regular
employees for such services.

VOTING, RECORD DATE AND QUORUM

         The close of  business  on  ______________,  2007 has been fixed by the
Tarrant  Board as the  record  date for  determination  of the  shareholders  of
Tarrant  entitled  to notice  of,  and to vote at,  the  special  meeting.  Only
shareholders  of record  as of the  close of  business  on the  record  date are
entitled  to notice of,  and to vote at, the  special  meeting.  Each  holder of
Tarrant  common  stock on the record date is entitled to one vote per share held
on all matters  properly  presented at the special  meeting.  As of the close of
business on the record date,  ______________ shares of Tarrant common stock were
outstanding  and  entitled to vote,  and held by  approximately  ____ holders of
record.

         The  presence  in  person  or by proxy at the  special  meeting  of the
holders of at least a majority  of the votes  entitled to be cast at the special
meeting is necessary to constitute a quorum for the transaction of business.

         If  an  executed  proxy  card  is  returned  and  the  shareholder  has
explicitly  abstained from voting on any matter,  the shares  represented by the
proxy will be  considered  present at the special  meeting  for the  purposes of
determining  a quorum  and will  count as votes  cast on the matter but will not
count as votes cast in favor of any proposal and, therefore,  will have the same
effect as a vote against the matter.  Broker  non-votes  will be counted for the
purposes of determining whether a quorum exists at the special meeting, but will
not be considered to have been voted on any matter.


                                       13



         If the enclosed proxy card is properly executed,  dated and returned to
Tarrant in time to be voted at the special  meeting,  the shares  represented by
the proxy will be voted in accordance with the instructions  marked on the proxy
card.  Executed but unmarked  proxies will be voted for approval and adoption of
each  proposal.  The Tarrant Board does not know of any matters other than those
described  in the Notice of Special  Meeting  of  Shareholders  that are to come
before the special meeting. If any other business is properly brought before the
special meeting,  including, among other things, a motion to adjourn or postpone
the special  meeting to another time and/or place for the purpose of  soliciting
additional  proxies in favor of the proposal to approve and adopt each  proposal
or to  permit  dissemination  of  information  regarding  material  developments
relating to proposals or otherwise  germane to the special meeting,  one or more
of the persons named in the proxy card will vote the shares  represented  by the
proxy upon those  matters as  determined  in their  discretion.  If the  special
meeting is  adjourned  for any  reason,  the  approval  of any  proposal  may be
considered and voted upon by shareholders at the subsequent  reconvened meeting,
if any.

HOW TO VOTE

         Please sign, date and return the enclosed proxy card promptly.  If your
shares are held in the name of a bank,  broker,  or other holder of record (that
is, in "street  name") you will receive  instructions  from the holder of record
that you must follow for your shares to be voted.

REVOCABILITY OF PROXIES

         The  presence  of  a  shareholder  at  the  special  meeting  will  not
automatically  revoke that shareholder's proxy. Any proxy given pursuant to this
solicitation may be revoked by the person giving it by providing  written notice
of such  revocation to Tarrant at any time before it is voted,  by delivery of a
duly executed,  later-dated proxy or by attending the special meeting and voting
in person.  All written  notices of  revocation  and other  communications  with
respect to  revocation  of proxies  should be addressed to 3151 East  Washington
Boulevard, Los Angeles, California 90023, Attention: Chief Financial Officer.

VOTES REQUIRED TO APPROVE PROPOSALS

         Shares  represented  by executed  proxies  that are not revoked will be
voted in accordance  with the  instructions  in the proxy,  or in the absence of
instructions,  in accordance with the recommendations of the Board of Directors.
The vote of holders of a majority of Tarrant's  outstanding common stock will be
required  to approve  Proposal  1.  Assuming a quorum is present at the  special
meeting,  the vote of the majority of the shares represented and voting,  either
in person or by proxy,  at the special  meeting will be required to approve each
of Proposal 2 and Proposal 3.

RECOMMENDATIONS OF TARRANT'S BOARD OF DIRECTORS

         The Board of Directors unanimously approved each of the Proposals to be
considered at the special meeting and recommends that shareholders also vote FOR
approval of each Proposal.


                                       14



                  CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

         This  proxy  statement  and the  documents  that  are  incorporated  by
reference  contain  forward-looking  statements  that are  subject  to risks and
uncertainties.  You should not place undue reliance on these  statements,  which
only speak as of the date of this proxy  statement.  Forward-looking  statements
include  the  information  concerning  possible  or  assumed  future  results of
operations  of Tarrant and the  businesses  and assets of The Buffalo Group that
Tarrant  proposes  to  acquire  under the stock  and asset  purchase  agreement,
including any forecasts,  projections and descriptions of anticipated  synergies
related  to the  transactions  contemplated  by the  stock  and  asset  purchase
agreement.  You should note that many factors could affect the actual  financial
results of Tarrant and The Buffalo  Group,  and could  cause  actual  results to
differ materially from those in the  forward-looking  statements.  These factors
include the following:

         o        the  stock  and  asset  acquisition   transactions  not  being
                  completed;

         o        costs  or  difficulties  related  to  the  integration  of the
                  businesses being greater than expected;

         o        demands  placed on  management by the increase in the combined
                  company's size;

         o        unanticipated increases occurring in connection with financing
                  and other costs;

         o        general  economic or business  conditions being less favorable
                  than expected;

         o        legislative  or  regulatory  changes  adversely  affecting the
                  businesses in which the companies are engaged; and

         o        other  opportunities  being  presented  to and  pursued by the
                  companies.


                                       15



                   QUESTIONS AND ANSWERS ABOUT THE ACQUISITION

Q:       WHAT IS THE TRANSACTION TARRANT IS PROPOSING TO CONSUMMATE?

A:       Tarrant is proposing to acquire the business and  operations of a group
of related entities we refer to as The Buffalo Group, which are under the common
control,  ownership and management of Messrs. David, Gabriel,  Charles,  Gilbert
and Michel Bitton and their  affiliates.  As more fully  described in this proxy
statement,  The Buffalo Group designs,  imports and sells high fashion denim and
other  apparel  products  marketed  under the BUFFALO  label and other labels in
Canada and the United States. We sometimes refer to this business and operations
as The Buffalo  Group,  Buffalo or the Buffalo  business  throughout  this proxy
statement.  To accomplish  the proposed  acquisition  from a legal  perspective,
Tarrant is  proposing  to  purchase  all  outstanding  shares of three  Canadian
companies and one U.S. company,  which are the principal operating  subsidiaries
through  which The  Buffalo  Group  carries  on its  business.  Tarrant  is also
proposing  to purchase  the assets of The Buffalo  Trust,  which are used in the
business  and  operations  of the The Buffalo  Group.  The  transaction  will be
carried out pursuant to the terms of a stock and asset purchase  agreement dated
December  6, 2006,  by and among us,  4366883  Canada,  Inc.,  our  wholly-owned
Canadian  subsidiary which we also refer to as TAG Canada  throughout this proxy
statement,  the  shareholders of the companies  whose stock Tarrant  proposes to
purchase  and the  trustee  of The  Buffalo  Trust,  as the seller of the assets
Tarrant proposes to acquire. We sometimes refer to this stock and asset purchase
agreement as the purchase  agreement  and we refer to these sellers of the stock
and assets Tarrant proposes to purchase as the sellers in this proxy statement.

Q:       WHAT IS THE  PURCHASE  PRICE  FOR  THE  STOCK  AND  ASSETS  TARRANT  IS
PROPOSING TO PURCHASE?

A:       Under the terms of the purchase  agreement,  the purchase price for the
stock of the companies  Tarrant proposes to purchase  consists of $17 million in
cash,  13,000,000  exchangeable  shares of TAG  Canada,  Tarrant's  wholly-owned
Canadian  subsidiary,  promissory  notes  to be  issued  by  TAG  Canada  in the
aggregate principal amount of $11 million, certain contingent amounts payable if
the highest  volume  weighted  average  market price of  Tarrant's  common stock
during the  specified  determination  period does not equal or exceed $3.076 per
share, and certain  earn-out  amounts payable if the Buffalo  business  achieves
specified performance benchmarks. The exchangeable shares of TAG Canada will be,
as nearly as  practicable,  the economic  equivalent of shares of Tarrant common
stock. These exchangeable  shares will be exchangeable at any time at the option
of the holder,  on a one-for-one  basis, for shares of Tarrant common stock. The
exchangeable shares are also redeemable by TAG Canada in certain circumstances.

         The purchase price for the assets Tarrant proposes to purchase consists
of $23  million  in cash,  subject to  reduction  based on the amount of revenue
generated by The Buffalo Trust, and a promissory note in the principal amount of
$4 million.

         The cash  payable  and the  promissory  notes to be  issued  under  the
purchase  agreement,  as well as the  contingent,  earn-out  and  other  amounts
payable under the purchase agreement, are denominated in U.S. dollars.  However,
a  significant  portion of TAG  Canada's  business,  including  the  predominate
portion of the revenues that it will generate from Buffalo's business in Canada,
will be denominated in Canadian  dollars.  Also, the  performance  criteria that
need to be satisfied  for payment of the earn-out  payments are  denominated  in
Canadian  dollars.  In addition,  the  adjustments  to the purchase price of the
assets will be  determined  in Canadian  dollars  and then  converted  into U.S.
dollars   using  the  exchange  rate   specified  in  the  purchase   agreement.
Accordingly, we face currency fluctuation risk to the extent there is an adverse
change  in the  relative  value  of the  Canadian  dollar.  If the  value of the
Canadian dollar declines relative to the U.S. dollar,  the value of the payments
we are  required to make to the sellers may be higher,  which could  effectively
cause us to pay a higher price for the stock and assets we are acquiring.


                                       16



         The Buffalo Group's U.S.  wholesale business will be acquired through a
U.S.  subsidiary  of  Tarrant,   which  will  operate  the  business  after  the
acquisition. This U.S. wholesale business comprises a significant portion of The
Buffalo  Group's  business  and  revenue  generated  by  this  business  will be
denominated in U.S. dollars.

         In  conjunction  with the  issuance of  exchangeable  shares  under the
purchase agreement and in order to achieve economic  equivalency with the shares
of Tarrant  common  stock,  Tarrant  will issue  130,000  shares of its Series A
preferred stock. Each shares of Series A preferred stock will be entitled to 100
votes and the shares of Series A preferred  stock will  collectively be entitled
to 13  million  votes  in  the  aggregate,  which  is  equal  to the  number  of
exchangeable  shares  to be issued in the  transaction.  The  shares of Series A
preferred  stock  will be issued to a trustee  under a voting  trust  agreement,
under the terms of which the  sellers  will have the right to direct the trustee
to vote the shares.  Upon any exchange of exchangeable shares and as a condition
to the exchange, Tarrant will be entitled to redeem shares of Series A preferred
stock at  nominal  value so that the total  number of votes  represented  by the
outstanding  shares of Series A  preferred  stock and shares of  Tarrant  common
stock  issued in exchange for  exchangeable  shares is not higher than the total
number  of votes  corresponding  to the  original  130,000  shares  of  Series A
preferred stock issued in the acquisition.

         As a condition to the  consummation  of the  acquisition,  Tarrant will
enter into  employment  agreements with Mr. Gabriel Bitton and each of the other
Bitton  brothers,  pursuant  to which  Tarrant  will grant to these  individuals
options to purchase up to an aggregate of two million  shares of Tarrant  common
stock as  further  inducement  to  providing  services  under  their  respective
employment agreements.

Q:       WHY  ARE  EXCHANGEABLE  SHARES  BEING  ISSUED  TO  THE  SELLERS  IN THE
TRANSACTION?

A:       The  sellers  are  Canadian   entities,   domiciled   in  Canada.   The
exchangeable share structure,  which is frequently used in transactions  between
U.S. and Canadian companies,  is intended to provide the sellers the opportunity
to make a valid tax  election to defer  Canadian  income tax on any capital gain
resulting from the sale, until the exchangeable shares are exchanged for Tarrant
common stock. Each exchangeable  share is substantially the economic  equivalent
of a  share  of  Tarrant  common  stock  and is  exchangeable  at any  time on a
one-for-one basis for a share of Tarrant common stock. In addition,  the holders
of these  exchangeable  shares  will,  through  the shares of Series A preferred
stock and the voting trust agreement, effectively have the ability to cast votes
along with holders of Tarrant  common stock.  These shares of Series A preferred
stock will be  redeemed as the  exchangeable  shares are  exchanged  for Tarrant
common stock, as described elsewhere in this proxy statement.

Q:       WHY IS TARRANT PROPOSING TO PURCHASE THE BUFFALO BUSINESSES?

A:       Tarrant is proposing to purchase the  businesses  and assets of Buffalo
because  we  believe  that the  combination  of  Tarrant's  business  with these
businesses  and assets will create a stronger,  more  competitive  company  with
greater growth potential than either Tarrant or Buffalo would have on its own.

Q:       WHAT WILL HAPPEN TO MY COMMON STOCK IN THE ACQUISITION?

A:       Each share of Tarrant  common stock will be unaffected by the stock and
asset  acquisition  and will remain  outstanding.  Each share of Tarrant  common
stock,  however,  will  represent  a smaller  ownership  percentage  of a larger
company.


                                       17



Q:       HOW WILL THE  ACQUISITION  AFFECT THE  DISTRIBUTION  OF TARRANT  COMMON
STOCK AMONG SHAREHOLDERS?

A:       Before the acquisition,  non-affiliates  own 57% and affiliates own 43%
of  the  outstanding  common  stock  of  Tarrant.   Immediately   following  the
acquisition,  the same  non-affiliates  would own 30%, the same affiliates would
own  40% and the  sellers  would  own 30% of the  outstanding  common  stock  of
Tarrant,  assuming that all of the exchangeable shares are exchanged for Tarrant
common stock. Additionally,  some or all of the sellers may become affiliates of
Tarrant at the closing and  significantly  increase the  percentage of Tarrant's
outstanding common stock owned by affiliates.

Q:       HOW DOES THE BOARD OF DIRECTORS OF TARRANT RECOMMEND I VOTE MY SHARES?

A:       The Tarrant Board unanimously  recommends that you vote FOR each of the
proposals described in this proxy statement.

Q:       WHAT DO I NEED TO DO NOW?

A:       After carefully  reading and  considering the information  contained in
this proxy  statement,  please fill out,  sign and date your proxy card and mail
your signed  proxy card in the enclosed  return  envelope as soon as possible so
that your shares may be represented at the special meeting.

Q:       WHAT SHAREHOLDER VOTES ARE NEEDED TO APPROVE THE ACQUISITION?

A:       The  affirmative  vote of the holders of a majority of the  outstanding
shares of Tarrant  common  stock is required to approve the  proposed  stock and
asset purchase  agreement and the  acquisition  transaction  contemplated by the
agreement.

Q:       ARE TARRANT SHAREHOLDERS ENTITLED TO DISSENTERS' RIGHTS?

A:       If the  acquisition  is  approved  by the  required  vote of  Tarrant's
shareholders and is not abandoned or terminated, holders of the Tarrant's common
stock who did not vote in favor of the  acquisition  and who  notify  Tarrant in
writing of their intent to demand payment of their shares if the  acquisition is
consummated, may, by complying with Sections 1300 through 1312 of the California
Corporations  Code, a copy of which is attached hereto as Exhibit C, be entitled
to dissenters' rights as described therein.  Tarrant's  shareholders must notify
Tarrant of their intent to dissent no later than the date of the special meeting
of shareholders.

Q:       IF MY SHARES  ARE HELD IN "STREET  NAME" BY MY  BROKER,  WILL MY BROKER
VOTE MY SHARES FOR ME?

A:       Your broker will vote your shares only if you provide  instructions  on
how to vote. You should follow the directions  provided by your broker regarding
how to instruct  your broker to vote your  shares.  Without  instructions,  your
shares will not be voted.

Q:       CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?

A:       Yes. You can change your vote at any time before your proxy is voted at
the special meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second, you can
complete and submit a new proxy. If you choose either of these two methods,  you
must submit your notice of revocation to Tarrant at the address set forth at the
end of this section or submit your new proxy in the same way you submitted  your
prior proxy. Third, you can attend the special meeting and vote in person.

Q:       WHAT HAPPENS IF I DO NOT VOTE?


                                       18



A:       If you do not  submit  a proxy  or vote at the  special  meeting,  your
shares  will not be counted  for the purpose of  determining  the  presence of a
quorum and your inaction will have the same effect as a vote against Proposal 1,
Proposal  2 and  Proposal  3. If you submit a proxy and  affirmatively  elect to
abstain from voting,  your shares will be counted for the purpose of determining
the  presence  of a quorum but will not be voted at the  special  meeting.  As a
result,  your abstention will have the same effect as a vote against Proposal 1,
Proposal 2 and Proposal 3.

Q:       WHEN DO YOU EXPECT THE STOCK AND ASSET ACQUISITION TO BE COMPLETED?

A:       We are working  towards  completing the stock and asset  acquisition as
soon as possible. We expect to complete the transactions by March 31, 2007.

Q:       ARE THERE ANY RISKS I SHOULD  CONSIDER IN DECIDING  WHETHER TO VOTE FOR
THE PROPOSALS DESCRIBED IN THIS PROXY STATEMENT?

A:       We have listed in the section  entitled  "Risk Factors" the risks among
other that you should  consider  in  deciding  whether to vote for  Proposal  1,
Proposal 2 and Proposal 3 described in this proxy statement.

Q:       WHO CAN HELP ANSWER MY QUESTIONS?

A:       If you have any questions  about the stock and asset  acquisition or if
you need additional  copies of this proxy  statement or the enclosed proxy,  you
should  contact  Tarrant  Apparel Group,  3151 East  Washington  Boulevard,  Los
Angeles,  California 90023,  Attention:  Investor  Relations,  Telephone:  (323)
780-8250, Facsimile: (323) 881-0332, email: investors@tags.com.


                                       19



                                  RISK FACTORS

         AN INVESTMENT IN TARRANT'S  COMMON STOCK IS SUBJECT TO MANY RISKS.  YOU
SHOULD CAREFULLY  CONSIDER THE RISKS DESCRIBED  BELOW,  TOGETHER WITH ALL OF THE
OTHER  INFORMATION  INCLUDED IN THIS PROXY  STATEMENT,  INCLUDING  THE FINANCIAL
STATEMENTS  AND THE  RELATED  NOTES,  BEFORE YOU DECIDE  WHETHER TO APPROVE  THE
ACQUISITION. TARRANT'S BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD
BE HARMED BY ANY OF THE  FOLLOWING  RISKS.  THE TRADING  PRICE OF THE  TARRANT'S
COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS,  AND YOU COULD LOSE ALL OR
PART OF YOUR INVESTMENT.

RISKS ASSOCIATED WITH THE ACQUISITION

         WE MAY NOT SUCCESSFULLY  INTEGRATE  BUFFALO'S  OPERATIONS INTO OUR OWN,
AND  THE  INTENDED  BENEFITS  OF THE  STOCK  AND  ASSET  ACQUISITION  MAY NOT BE
REALIZED,  WHICH  COULD  HAVE A  NEGATIVE  IMPACT  ON  OUR  BUSINESS  AFTER  THE
ACQUISITION.

         Achieving  the  intended  benefits  of the  acquisition  and our future
operations  and earnings  will depend in part on growing  Buffalo's  operations,
combining the operations of Buffalo with our existing operations, and developing
new markets for  Buffalo's  products  and our  products.  We will be required to
successfully  integrate Buffalo's business into our own and to realize synergies
and cost savings. This integration may be especially difficult and unpredictable
because our principal  operations  are based in Los Angeles,  California,  and a
significant  part of the  operations of Buffalo are based in Canada.  We may not
succeed  in  integrating  Buffalo's  business  with  our  own.  If  we  fail  to
successfully  integrate  our  businesses  and/or  fail to realize  the  intended
benefits of the  acquisition,  our business would be adversely  impacted and the
market  price of our common  stock could  decline.  To achieve  the  anticipated
benefits of the merger, we will need to, among other things:

         o        realize  the   anticipated   increases  in  gross  margin  and
                  profitability from expansion of our retail operation;

         o        demonstrate  to  vendors,  suppliers  and  customers  that the
                  acquisition  will not  result in adverse  changes to  customer
                  service standards or business focus; and

         o        effectively  control the progress of the  integration  process
                  and the associated costs.

         Our  assessment  of  the  potential   synergies  and  cost  savings  is
preliminary  and  subject to change.  We may need to incur  additional  costs to
realize the potential synergies and cost savings,  and there can be no assurance
that such costs will not be material.

         THE  INTEGRATION  OF  BUFFALO  WITH OUR  EXISTING  BUSINESS  WILL  MAKE
SUBSTANTIAL  DEMANDS ON OUR RESOURCES,  WHICH COULD DIVERT NEEDED ATTENTION AWAY
FROM OUR OTHER OPERATIONS.

         Our  integration  of  Buffalo  with our  existing  business  will  make
substantial demands on our management,  operational  resources and financial and
internal  control systems.  Our future operating  results will depend in part on
our ability to continue to implement  and improve our  operating  and  financial
controls.  The devotion of management's  time to the integration of Buffalo with
our  business  may limit the time  available  to  management  to attend to other
operational, financial and strategic issues of our company.

         YOU WILL EXPERIENCE  IMMEDIATE AND SUBSTANTIAL  DILUTION AS A RESULT OF
THIS TRANSACTION.

         Under the terms of the proposed  Buffalo  acquisition,  4366883  Canada
Inc., our  wholly-owned  Canadian  subsidiary to which we sometimes refer as TAG
Canada  throughout this proxy  statement,  will issue  13,000,000  shares of its
non-voting stock that will be exchangeable into an equal number of shares of our
common stock. In addition, we will issue shares of our Series A preferred stock,


                                       20



which in the aggregate will entitle the sellers to vote a number of shares equal
to the  exchangeable  shares issued by TAG Canada that remain  outstanding  from
time to  time.  Assuming  full  exchange  of the  exchangeable  shares  and full
redemption  of the  Series A  preferred  stock,  but  assuming  no  exercise  of
outstanding  warrants or options,  the sellers will own approximately 30% of our
outstanding  capital stock. Also, by virtue of the Series A preferred stock, the
sellers will have the right to vote 30% of our voting  stock.  In  addition,  in
connection with the acquisition, we will grant to the Bitton brothers options to
purchase up to two million  shares of our common  stock.  These  options will be
exercisable at an exercise price per share equal to the fair market value of our
common stock on date of closing.  We also have  allocated to other  personnel of
Buffalo options to purchase up to one million shares of Tarrant common stock. In
addition,  in  connection  with  the  amendment  of  our  credit  facility  with
Guggenheim  Corporate  Funding  LLC,  we will issue to  Guggenheim  warrants  to
purchase  __________ shares of our common stock at an exercise price of ________
per share.  The exercise of these  options and  warrants  will result in further
dilution to our existing shareholders.

         THE ACQUISITION WILL RESULT IN SIGNIFICANT  COSTS TO US, WHETHER OR NOT
IT IS COMPLETED, WHICH COULD RESULT IN A REDUCTION IN OUR INCOME AND CASH FLOWS.

         The  proposed  acquisition  will  result  in  significant  costs to us.
Transaction  costs are  estimated to be at least $1.7  million.  These costs are
expected to consist  primarily of fees for attorneys,  accountants,  filing fees
and financial printers. We will also incur substantial fees and costs associated
with the amended credit facility that we are putting in place in connection with
the proposed acquisition. All of these costs will be incurred whether or not the
transaction is completed. In addition, if the stock and asset purchase agreement
is terminated under specified circumstances, the $5 million deposit we made upon
signing the purchase  agreement  will be retained by the sellers and will not be
returned  to  us.  Under  most  circumstances,  we  are  also  required  to  pay
out-of-pocket  expenses  incurred by Buffalo in connection with the transaction.
Incurring  these  expenses  will cause a reduction in our income and cash flows,
and harm our business.

         FAILURE TO  COMPLETE  THE  ACQUISITION  COULD  CAUSE OUR STOCK PRICE TO
DECLINE.

         If the proposed  acquisition  is not  consummated  for certain  reasons
specified in the purchase agreement, our stock price may decline because we will
incur  significant  costs  relating  to the  acquisition  that must be paid even
though the acquisition is not completed.  Most  importantly,  the sellers may be
entitled  to  retain  the  $5  million  deposit.  In  addition,  we  will  incur
significant  legal,  accounting and other  expenses,  and may be required to pay
Buffalo's  out-of-pocket  expenses.  If the acquisition is not completed for any
reason,  our stock price may decline to the extent that the current market price
reflects a market assumption that the acquisition will be completed.

         IF  THE  CONDITIONS  TO THE  PROPOSED  ACQUISITION  ARE  NOT  MET,  THE
ACQUISITION  WILL NOT OCCUR,  WHICH  COULD  CAUSE OUR STOCK PRICE TO DECLINE AND
HARM OUR BUSINESS.

         Specified  conditions  must be  satisfied  or  waived to  complete  the
acquisition,  including,  without limitation, our ability to obtain financing to
complete  the   acquisition   and  approval  of  the   acquisition  and  related
transactions by our shareholders. These conditions are summarized in the section
captioned "Stock and Asset Purchase  Agreement - Conditions to Completion of the
Acquisition"  and are  described  in detail  in the  stock  and  asset  purchase
agreement.  We cannot assure you that each of the conditions  will be satisfied.
If  the  conditions  are  not  satisfied  in a  timely  manner  or  waived,  the


                                       21



transaction will not occur or will be delayed and we may lose some or all of the
intended or perceived  benefits of the transaction,  which could cause our stock
price to decline and harm our business.

         WE COULD BE EXPOSED TO UNKNOWN  LIABILITIES  OF  BUFFALO,  WHICH  COULD
CAUSE US TO INCUR SUBSTANTIAL FINANCIAL OBLIGATIONS AND HARM OUR BUSINESS.

         If there are  liabilities of Buffalo of which we are not aware,  in all
likelihood, we would assume these liabilities and may have little or no recourse
against  the  sellers.  If we were  to  discover  that  there  were  intentional
misrepresentations   made  to  us  by  the   sellers   or   Buffalo,   or  their
representatives,  we would explore all possible  legal remedies to compensate us
for any loss.  However,  there is no  assurance  that  legal  remedies  would be
available or collectible. Our board of directors considered the possibility that
we could be exposed to unknown  liabilities  in connection  with  evaluating the
acquisition  transaction.  Accordingly,  if such unknown  liabilities  exist, we
could incur substantial financial obligations,  which could adversely affect our
financial condition and harm our business.

         WE OR THE  SELLERS  MAY  WAIVE  ONE OR  MORE OF THE  CONDITIONS  TO THE
TRANSACTION WITHOUT RE-SOLICITING SHAREHOLDER APPROVAL FOR THE TRANSACTION.

         Each of the conditions to our  obligations  and the  obligations of the
sellers to complete the transaction  may be waived,  in whole or in part, to the
extent  permitted by applicable  laws, by agreement  between us and the sellers.
Our Board of  Directors  will  evaluate  the  materiality  of any such waiver to
determine  whether  amendment of this proxy  statement  and  re-solicitation  of
proxies is warranted.  However, we generally do not expect any such waiver to be
sufficiently  material to warrant  re-solicitation  of the shareholders.  If our
Board of Directors  determines any such waiver is not  sufficiently  material to
warrant re-solicitation of shareholders, we will have the discretion to complete
the acquisition  without seeking further  shareholder  approval.  Any waiver not
deemed material by the Board of Directors,  and not put before the  shareholders
for approval,  would not be expected to create a material risk to  shareholders.
The Board of Directors would only waive a condition after making a determination
that any such waiver  would have no material  affect on the rights and  benefits
Tarrant and its shareholders expect to receive from the acquisition transaction.
If the  Board  chooses  to waive a  condition,  a  shareholder  will not have an
opportunity  to vote on that waiver and our company  and  shareholders  will not
have the benefit, if any, of the condition waived.

         SALES OF BUFFALO  PRODUCTS  COULD  DECLINE OR BE  INHIBITED IF CUSTOMER
RELATIONSHIPS ARE DISRUPTED BY THE ACQUISITION, WHICH WOULD HARM OUR BUSINESS.

         The acquisition may have the effect of disrupting relationships between
Buffalo and its customers.  Buffalo's wholesale customers or potential wholesale
customers  may  delay  or alter  buying  patterns  during  the  pendency  of and
following the acquisition transaction.  Customers may defer purchasing decisions
as they evaluate the  likelihood of  successful  completion of the  acquisition.
These  customers or potential  customers may instead  increase their purchase of
competing products relative to products purchased from Buffalo.  Any significant
delay or reduction  in orders for  Buffalo's  products  could cause our sales to
decline following the acquisition, which could cause our operating results to be
lower than expected.  This could cause a decline in our stock price and harm our
business.

         UNAVAILABILITY OF FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH U.S.
GENERALLY  ACCEPTED  ACCOUNTING  PRINCIPLES  MAKES IT MORE DIFFICULT TO OBTAIN A
MEANINGFUL AND ACCURATE  UNDERSTANDING  OF HOW THE ACQUISITION  TRANSACTION WILL
AFFECT OUR COMPANY, OUR OPERATING RESULTS AND OUR FINANCIAL CONDITION.


                                       22



         The Buffalo Group is a Canadian enterprise and its financial statements
were  prepared  in  accordance  with  Canadian  generally  accepted   accounting
principles  (or  GAAP),  and  not  in  accordance  with  U.S.  GAAP.  There  are
significant  differences between Canadian GAAP and U.S. GAAP. Although the notes
to the Buffalo financial  statements  included in this proxy statement include a
reconciliation of the financial statements to U.S. GAAP, a review of the Buffalo
financial  statements  may not be as  meaningful  for a  complete  and  accurate
understanding  of  Buffalo's   financial  condition  and  operating  results  in
comparison with those of our company.

         FOLLOWING THE  ACQUISITION,  THE EXISTING  SECURITY  HOLDERS OF BUFFALO
WILL BE ABLE TO EXERCISE  SIGNIFICANT CONTROL OR INFLUENCE OVER OUR COMPANY, AND
THE  ACQUISITION  WILL  RESULT  IN  DIMINUTION  OF  VOTING  CONTROL  BY  CURRENT
SHAREHOLDERS OF OUR COMPANY.

         Assuming  all  exchangeable  shares  of TAG  Canada to be issued in the
acquisition  transaction  are  converted  into shares of our common  stock,  the
security   holders  of  Buffalo  (or  the  sellers)  and  their  principals  and
shareholders,  including Mr. Gabriel Bitton,  his brothers and their affiliates,
will hold or have the right to direct  the  voting of  approximately  30% of our
outstanding  voting shares on a  post-transaction  basis. Also, by virtue of the
shares  of Series A  preferred  stock to be  issued  in the  transaction,  these
parties will have  substantially the same voting rights that they would have had
if they were to receive  shares of Tarrant  common  stock at the  closing of the
acquisition.  As a result,  our  existing  shareholders  will not exert the same
degree of voting power with  respect to the combined  company that they did with
our company before the consummation of the acquisition transaction. Accordingly,
the  security  holders of  Buffalo,  their  principals,  shareholders  and their
affiliates, will have significant influence over the management of our business,
the election of directors and all matters requiring shareholder approval.

         In addition,  Mr.  Gabriel  Bitton and a second  nominee of the sellers
will serve on our Board of Directors. In addition, Mr. Gabriel Bitton will serve
as the Chief  Executive  Officer of the  operations and business we acquire from
The Buffalo  Group and will,  subject to the control of our Board of  Directors,
have general  supervision,  direction and control of the day-to-day  operations,
business and officers of the acquired business. Accordingly,  Gabriel Bitton and
his brothers will retain  significant  control over the operation of the Buffalo
business following the completion of the acquisition.

         A SUBSTANTIAL  NUMBER OF SHARES WILL BE ELIGIBLE FOR FUTURE SALE BY THE
SECURITY  HOLDERS OF BUFFALO AND THE SALE OF THOSE SHARES COULD ADVERSELY AFFECT
OUR STOCK PRICE.

         As part of the stock and asset purchase agreement with Buffalo, we have
agreed to register  for sale all of the shares of common  stock  underlying  the
exchangeable shares being issued as a result of the proposed transaction and the
2,000,000  options  to be  issued  to the  Bitton  brothers.  We also  agreed to
register the shares of our common stock underlying warrants issued to Guggenheim
Corporate  Funding LLC and other lenders  under the terms of our amended  credit
facilities  with  these  lenders.  Once  that  registration   statement  becomes
effective,  all of the  shares of common  stock  underlying  these  exchangeable
shares,  options and warrants would become  eligible for immediate  public sale,
which  could  adversely  affect  the public  market  for our  common  stock if a
significant  portion of these  shares  were to be offered  for sale at any given
time.  Although we will enter into a lock-up  agreement with the Bitton brothers
that will limit the  number of shares  they and their  affiliates  can sell in a
three-month  period,  they will  still have the  ability  to sell a  significant
number of shares in the public market. This could cause a significant decline in
the market price for our common stock and  therefore  affect the value of any of
our securities you may own.


                                       23



         SOME OF BUFFALO'S  MATERIAL  AGREEMENTS HAVE  PROVISIONS  WHICH REQUIRE
THAT BUFFALO  OBTAIN  CONSENTS  FROM OTHER  PARTIES TO SUCH  AGREEMENTS,  AND/OR
PROVISIONS GRANTING  TERMINATION RIGHTS TO THE OTHER PARTIES TO SUCH AGREEMENTS,
IN CONNECTION  WITH A MERGER OR CHANGE OF CONTROL.  BUFFALO'S  FAILURE TO OBTAIN
SUCH CONSENTS OR THE EXERCISE OF SUCH TERMINATION  RIGHTS COULD ADVERSELY IMPACT
OUR ABILITY TO CONSUMMATE THE ACQUISITION.

         Some  of  Buffalo's  material  agreements,  including  the  substantial
majority of its retail  store lease  agreements,  require  that  Buffalo  obtain
consents from other parties in connection with mergers or changes of control and
grant to certain  parties the right to terminate  such  agreements in connection
with  mergers or changes of  control.  Buffalo is  currently  in the  process of
soliciting  consents  from all  required  third  parties and is not aware of any
third parties who intend to exercise  termination rights granted under Buffalo's
material agreements. However, there can be no assurance that Buffalo will obtain
consents  from all  required  third  parties or that third  parties  entitled to
exercise  termination rights under Buffalo's material agreements will not do so.
Buffalo's failure to obtain necessary third party consents and the exercise by a
significant  number of third  parties of  termination  rights  would  materially
adversely  impact  the  terms  of  the  acquisition,   potentially  violate  the
conditions  to the closing,  and could result in our failure to  consummate  the
acquisition.

         WE WILL  INCUR A  NUMBER  OF  BURDENSOME  FINANCIAL  AND  NON-FINANCIAL
OBLIGATIONS AS A RESULT OF THE ACQUISITION TRANSACTION AND THE RELATED FINANCING
WITH GUGGENHEIM  CORPORATE FUNDING LLC, AND OUR INABILITY TO SATISFY THESE COULD
MATERIALLY AND ADVERSELY AFFECT OUR FINANCIAL RESULTS AND FINANCIAL  CONDITIONS,
AND HARM OUR BUSINESS.

         We are required to make  substantial cash payments and issue securities
under the terms of the purchase agreement and ancillary  agreements  relating to
the  acquisition.  In  particular,  we are amending our credit  facilities  with
Guggenheim  Corporate Funding LLC and GMAC Commercial Finance LLC to finance the
cash  portion of the  purchase  price  that we agreed to pay under the  purchase
agreement and to refinance  Buffalo's  existing  working  capital  facility.  We
intend  to  borrow   approximately  $55  million  under  these  expanded  credit
facilities to pay this purchase price and refinance  Buffalo's  existing working
capital facility. We also expect that we will borrow additional funds to finance
the operating  capital  requirements of our expanded  business after we complete
the acquisition.  Accordingly, our borrowings and debt service requirements will
increase  dramatically  as a result  of the  proposed  acquisition  and  related
financing with Guggenheim and other lenders,  and we will face risks  associated
with the use of debt to finance the  acquisition  such as  refinancing  risk. We
will also be subject to financial and non-financial  restrictive covenants under
the terms of our credit  facility.  Any violation of these various  covenants or
our inability to satisfy our debt service requirements could cause us to default
under our credit facility with  Guggenheim and our credit  facilities with other
lenders.  If we materially  default or breach our  obligations  under our credit
facilities,  we  could  be  required  to pay a higher  rate of  interest  on our
borrowings.  Our lenders  could also  accelerate  our repayment  obligations  or
require us to repay all amounts under the credit  facilities.  Accordingly,  our
default of obligations under our credit facilities will  significantly  increase
our cash  flow  needs and cause us to incur  substantial  damages,  all of which
could harm our business.

         OUR STOCK PRICE MAY DECLINE AS A RESULT OF THE ACQUISITION, WHICH COULD
IN TURN CAUSE US TO MAKE  ADDITIONAL  PAYMENTS TO THE SELLERS UNDER THE TERMS OF
THE STOCK AND ASSET PURCHASE AGREEMENT.

         Under  the terms of the stock  and  asset  purchase  agreement,  we are
required to make  certain  contingent  payments to the sellers for shares of our
common stock  issuable in exchange for the  exchangeable  shares of our Canadian
subsidiary  that we issue in the  transaction.  The contingent  payments will be


                                       24



based on the  market  price of our  common  stock  during  the five year  period
following the closing of the  transactions  contemplated  by the stock and asset
purchase  agreement.  The contingent  payments will be determined by comparing a
minimum share price to the highest  volume  weighted  average price per share of
our common  stock over any ten  consecutive  trading  days  during the five year
period following the closing date,  during which the aggregate trading volume is
at least 500,000 shares. With respect to each share of our common stock issuable
in exchange  for shares of our  Canadian  subsidiary  that we are issuing in the
transaction,  if during the five years  following  the closing  date this volume
weighted  average price per share does not equal or exceed the minimum per share
price of $3.076,  we will be required to make a contingent  payment equal to the
difference  between this minimum per share price and the highest volume weighted
average  price per share  during  the five year  period.  Any right to receive a
contingent payment is transferable either together with, or separately from, the
shares of common stock to which the right relates.

         If  acquisition  is  completed,  the market  price of our common  stock
following the  acquisition may vary  significantly  from the market price on the
closing date. These variances may arise due to, among other things:

         o        changes in the combined business,  operations and prospects or
                  any portion of the business, operations or prospects;

         o        apparel industry performance; and

         o        general market and economic conditions and other factors.

         If our stock price fails to increase to  sufficient  levels  during the
five year period  following  the closing,  it would give rise to the  contingent
payment obligations  described above, which would increase the amount of cash we
would be required to pay in connection with the proposed acquisition. This would
result in a decrease  in our cash  position  and could  have a material  adverse
effect on our business and financial condition.

         WE ARE  EXPOSED TO THE RISK OF  CURRENCY  FLUCTUATIONS  RELATING TO THE
AMOUNTS  PAYABLE  UNDER THE PURCHASE  AGREEMENT,  AND A RELATIVE  DECLINE IN THE
VALUE OF THE UNITED STATES DOLLAR COULD INCREASE THE PURCHASE PRICE WE PAY UNDER
THE PURCHASE AGREEMENT, WHICH COULD HARM OUR BUSINESS.

         The cash  payable  and the  promissory  notes to be  issued  under  the
purchase  agreement,  as well as the  contingent,  earn-out  and  other  amounts
payable under the purchase agreement, are denominated in U.S. dollars.  However,
a significant portion of TAG Canada's business,  including a substantial portion
of the  revenues  that  it  will  generate  from  Buffalo's  business,  will  be
denominated in Canadian dollars.  Also, the performance criteria that need to be
satisfied  for payment of the  earn-out  payments  are  denominated  in Canadian
dollars.  In addition,  the adjustments to the purchase price of the assets will
be determined in Canadian dollars and then converted into U.S. dollars using the
exchange rate specified in the purchase agreement. Accordingly, we face currency
fluctuation  risk to the extent there is an adverse change in the relative value
of the Canadian dollar.  If the value of the Canadian dollar increases  relative
to the U.S.  dollar,  the value of the  payments we are  required to make to the
sellers may be higher. This could effectively cause us to pay a higher price for
the stock and assets we are acquiring, which could harm our business.

RISK ASSOCIATED WITH THE BUSINESS OF BUFFALO


                                       25



         A  SIGNIFICANT   PORTION  OF  BUFFALO'S   BUSINESS   INVOLVES   DESIGN,
IMPORTATION  AND  SALES  OF  APPAREL   PRODUCTS  THROUGH   WHOLESALE   ACCOUNTS.
ACCORDINGLY,  MANY OF THE  BUSINESS  RISKS  FACED BY BUFFALO  ARE THE SAME AS OR
SIMILAR TO THE RISKS FACED BY US.

         BUFFALO  CURRENTLY  OWNS AND  OPERATES  A LIMITED  NUMBER OF  PRINCIPAL
BRANDS. IF BUFFALO IS UNSUCCESSFUL IN MARKETING AND DISTRIBUTING THOSE BRANDS OR
IN EXECUTING OTHER STRATEGIES, ITS RESULTS OF OPERATIONS AND FINANCIAL CONDITION
WILL BE ADVERSELY AFFECTED.

         Buffalo  currently  markets  and  sells a limited  number of  principal
brands.  If Buffalo is unable to successfully  market and distribute its branded
products,  or if the recent  popularity of its premium brands  decreases,  or if
Buffalo is unable to execute on a strategy to acquire and/or license  additional
brands,  its results of  operations  and financial  condition  will be adversely
affected.

         BUFFALO'S  WHOLESALE BUSINESS IS HIGHLY  CONCENTRATED.  THE DECISION BY
ANY OF BUFFALO'S  LARGE  CUSTOMERS TO DECREASE ITS PURCHASES OF PRODUCTS OR STOP
CARRYING  BUFFALO  PRODUCTS  COULD HAVE A MATERIAL  ADVERSE  EFFECT ON BUFFALO'S
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

         In 2005,  approximately  30% of the Buffalo  combined revenue came from
four  customers.  In the first  nine  months of 2006,  approximately  32% of the
Buffalo combined revenue came from these four customers. Continued consolidation
in the retail industry could further  decrease the number of, or concentrate the
ownership of, stores that carry Buffalo's and its licensees' products.  Also, as
Buffalo expands the number of its retail stores, it runs the risk that wholesale
customers  will perceive that Buffalo is  increasingly  competing  directly with
them,  which  may lead  them to  reduce  or  terminate  purchases  of  Buffalo's
products.  In addition, in recent years there has been a significant increase in
the number of designer  brands  seeking  placement in department  stores,  which
makes any one brand potentially less attractive to department stores. If any one
of our major  customers  decides to decrease  purchases  from  Buffalo,  to stop
carrying  Buffalo's  products or to carry its  products  only on less  favorable
terms,  Buffalo's sales and profitability  could  significantly  decrease.  This
could have a material  adverse  effect on Buffalo's  results of  operations  and
financial condition.

         BUFFALO'S  OPERATING RESULTS MAY FLUCTUATE  SIGNIFICANTLY,  WHICH COULD
CAUSE  UNCERTAINTY  REGARDING OUR OPERATING RESULTS AND RESULT IN A REDUCTION OR
DECLINE IN OUR STOCK PRICE.

         Buffalo's  management expects that Buffalo will experience  substantial
variations  in its net sales and operating  results from quarter to quarter.  We
believe the  factors  that  influence  this  variability  of  quarterly  results
include:

         o        the timing of introduction of new product lines;

         o        the level of consumer acceptance of each new product line;

         o        general economic and industry  conditions that affect consumer
                  spending and retailer purchasing;

         o        the availability of manufacturing capacity;

         o        the seasonality of the markets in which Buffalo participates;

         o        the timing of trade shows;

         o        the product mix of customer orders;

         o        the  timing  of the  placement  or  cancellation  of  customer
                  orders;


                                       26



         o        the weather;

         o        transportation delays;

         o        quotas and other regulatory matters;

         o        the occurrence of charge backs in excess of reserves; and

         o        the timing of  expenditures in anticipation of increased sales
                  and actions of competitors.


         As a result of fluctuations in Buffalo's revenue and operating expenses
that  may  occur,  management  believes  that  period-to-period  comparisons  of
Buffalo's  results  of  operations  are  not a good  indication  of  its  future
performance.  It is possible that in some future quarter or quarters,  operating
results will be below the expectations of securities  analysts or investors.  In
that case, our common stock price could fluctuate significantly or decline.

         THE FINANCIAL  CONDITION OF CUSTOMERS COULD AFFECT BUFFALO'S RESULTS OF
OPERATIONS.

         Certain  retailers,   including  some  of  Buffalo's  customers,   have
experienced  in  the  past,   and  may  experience  in  the  future,   financial
difficulties,  which increase the risk of extending credit to such retailers and
the risk that  financial  failure  will  eliminate  a customer  entirely.  These
retailers  have  attempted  to  improve  their  own  operating  efficiencies  by
concentrating  their purchasing power among a narrowing group of vendors.  There
can be no assurance that Buffalo can remain a preferred  vendor for its existing
customers.  A decrease in business from or loss of a major customer could have a
material adverse effect on Buffalo's results of operations. In addition, Buffalo
could assume the collection risk on sales to the customer  itself,  require that
the  customer  provide a letter of  credit,  or choose  not to make sales to the
customer.

         FAILURE  TO MANAGE  ITS GROWTH AND  EXPANSION  COULD  IMPAIR  BUFFALO'S
BUSINESS.

         Buffalo has experienced periods of rapid growth since its inception. No
assurance  can be given  that  Buffalo  will be  successful  in  maintaining  or
increasing  sales  in the  future.  Any  future  growth  in sales  will  require
additional  working  capital and may place a significant  strain on  management,
management  information  systems,  inventory  management,  sourcing  capability,
distribution  facilities  and  receivables  management.  Any disruption in order
processing,  sourcing or  distribution  systems could cause orders to be shipped
late, and under  industry  practices,  retailers  generally can cancel orders or
refuse to accept  goods due to late  shipment.  Such  cancellations  and returns
would result in a reduction in revenue,  increased  administrative  and shipping
costs and a further burden on Buffalo's operations and distribution facilities.

         BUFFALO'S DEPENDENCE ON INDEPENDENT  MANUFACTURERS  REDUCES ITS ABILITY
TO  CONTROL  THE  MANUFACTURING  PROCESS,  WHICH  COULD  HARM  BUFFALO'S  SALES,
REPUTATION AND OVERALL PROFITABILITY.

         Like us,  Buffalo  depends on  independent  contract  manufacturers  to
secure  a  sufficient   supply  of  raw   materials   and  maintain   sufficient
manufacturing and shipping capacity in an environment characterized by declining
prices,  labor  shortage,  continuing  cost pressure and  increased  demands for
product innovation and speed-to-market. This dependence could subject Buffalo to
difficulty in obtaining  timely delivery of products of acceptable  quality.  In
addition, a contractor's failure to ship products to us in a timely manner or to
meet the required  quality  standards  could cause us to miss the delivery  date
requirements of our customers.  The failure to make timely  deliveries may cause
Buffalo's  customers  to cancel  orders,  refuse to  accept  deliveries,  impose
non-compliance charges through invoice deductions or other charge-backs,  demand


                                       27



reduced prices or reduce future orders, any of which could harm Buffalo's sales,
reputation and overall  profitability.  Buffalo does not have material long-term
contracts with any of its independent  contractors and any of these  contractors
may  unilaterally  terminate their  relationship  with Buffalo at any time. As a
result,  Buffalo  competes with other  companies for the production  capacity of
independent  manufacturers.  If Buffalo's vendors or manufacturers  fail to ship
its fabrics or products on time or to meet its quality  standards  or are unable
to fill its orders,  Buffalo might not be able to deliver products to its retail
stores and  wholesale  customers  on time or at all.  To the  extent  Buffalo is
unable to secure or maintain relationships with independent contractors that are
able to fulfill Buffalo's requirements; its business would be harmed.

         Buffalo has in place a vendor compliance  agreement with its suppliers,
but  Buffalo  does not  control  its  contractors  or its labor  practices.  The
violation  of  federal,  state  or  foreign  labor  laws  by one of the  Buffalo
contractors  could  result in it being  subject  to fines and its goods that are
manufactured  in violation of such laws being seized or their sale in interstate
commerce  being  prohibited.  To  date,  Buffalo  has not  been  subject  to any
sanctions that,  individually or in the aggregate,  have had a material  adverse
effect on its business,  and Buffalo is not aware of any facts on which any such
sanctions could be based. There can be no assurance, however, that in the future
Buffalo will not be subject to sanctions as a result of violations of applicable
labor laws by its  contractors,  or that such sanctions will not have a material
adverse effect on its business and results of operations.  In addition,  certain
of  Buffalo's   customers,   require   strict   compliance   by  their   apparel
manufacturers,  including  Buffalo,  with  applicable  labor  laws and visit its
facilities  often.  There can be no assurance  that the  violation of applicable
labor laws by one of  Buffalo's  contractors  will not have a  material  adverse
effect on its relationship with its customers.

         SINCE  BUFFALO DOES NOT CONTROL ITS  LICENSEES'  ACTIONS AND DEPENDS ON
ITS  LICENSEES FOR A SUBSTANTIAL  PORTION OF ITS EARNINGS FROM  OPERATIONS,  THE
CONDUCT OF THESE LICENSEES COULD HARM OUR BUSINESS.

         Buffalo  licenses to others the rights to produce  and market  products
that are sold with its trademarks.  If the quality, focus, image or distribution
of our licensed  products  diminish,  consumer  acceptance of and demand for the
Buffalo brands and products could decline.  This could  materially and adversely
affect  Buffalo's  business  and results of  operations.  A decrease in customer
demand for any of these  product lines could have a material  adverse  effect on
our results of operations and financial condition.

         BUFFALO  SUCCESS  DEPENDS ON ITS  ABILITY  TO  PROTECT IS  INTELLECTUAL
PROPERTY RIGHTS, AND ITS INABILITY TO DO SO COULD HAVE A MATERIAL ADVERSE EFFECT
ON BUFFALO'S BUSINESS.

         Buffalo's success and competitive  position depend  significantly  upon
its trademarks and other  proprietary  rights.  Buffalo takes steps to establish
and protect its trademarks worldwide. Despite any precautions Buffalo my take to
protect its intellectual property, policing unauthorized use of its intellectual
property is difficult,  expensive and time consuming,  and Buffalo may be unable
to determine the extent of any unauthorized use. Buffalo also places significant
value on its trade dress and the overall  appearance  and image of its products.
However, we cannot assure you that Buffalo can prevent imitation of its products
by others or prevent others from seeking to block sales of Buffalo  products for
violating  their  trademarks and proprietary  rights.  We also cannot assure you
that others will not assert  rights in, or ownership  of,  trademarks  and other
proprietary  rights of Buffalo,  that its proprietary  rights would be upheld if
challenged  or that it would,  in that event,  not be  prevented  from using its
trademarks,  any of which  could have a  material  adverse  effect on  Buffalo's
financial  condition  and results of  operations.  Further,  Buffalo could incur
substantial costs in legal actions relating to its use of intellectual  property
or  the  use of  its  intellectual  property  by  others;  even  if  Buffalo  is


                                       28



successful,  the  costs  incurred  could  have a  material  adverse  effect.  In
addition,  the laws of certain  foreign  countries  do not  protect  proprietary
rights to the same extent as do the laws of the United  States and  Canada,  and
the inability to have adequate  protection of proprietary  rights under the laws
of these foreign countries could reduce the value of our proprietary  rights and
harm our business after we acquire The Buffalo Group.

         AFTER  OUR   ACQUISITION   OF  BUFFALO   AND  ITS  RETAIL   OPERATIONS,
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS,  COMPARABLE STORE SALES,  SALES
PER SQUARE  FOOT OR OTHER  METRICS  USED TO MEASURE  THE  PERFORMANCE  OF RETAIL
STORES COULD HAVE A MATERIAL  ADVERSE EFFECT ON BUFFALO'S  RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.

         The quarterly  results of operations  for Buffalo's  individual  retail
stores and its comparable  store sales and sales per square foot have fluctuated
in the past and can be expected to fluctuate in the future.  These  fluctuations
are caused by a variety of factors, including:

         o        Shifts in consumer tastes and fashion trends;

         o        The timing of new store  openings and the relative  proportion
                  of new stores to mature stores;

         o        Calendar shifts of holiday or seasonal periods;

         o        Changes in merchandise mix;

         o        The timing of promotional events;

         o        Actions by competitors;

         o        Weather conditions;

         o        Changes in style;

         o        Changes in the business environment;

         o        Population trends;

         o        Changes in  patterns  of  commerce  such as the  expansion  of
                  electronic commerce; and

         o        The  level  of  pre-operating  expenses  associated  with  new
                  stores.

         After  our  acquisition  of  Buffalo  and  its  retail  operations,  an
unfavorable  change in any of the above  factors  could have a material  adverse
effect on our results of operations and financial condition.

         WE  MAY  BE  UNSUCCESSFUL  IN  IMPLEMENTING  BUFFALO'S  PLANNED  RETAIL
EXPANSION,  WHICH COULD HARM OUR BUSINESS AND  NEGATIVELY  AFFECT OUR RESULTS OF
OPERATIONS.

         To open and operate new stores successfully, Buffalo must:

         o        Identify desirable locations, the availability of which is out
                  of its control:

         o        Negotiate  acceptable  lease terms,  including  desired tenant
                  improvement allowances;

         o        Build and equip the new stores;

         o        Source sufficient levels of inventory to meet the needs of the
                  new stores;


                                       29



         o        Hire, train and retain competent store personnel;

         o        Successfully  integrate  the  new  stores  into  its  existing
                  operations;

         o        Maintain  access  to funds  sufficient  to  support  expansion
                  plans; and

         o        Satisfy  the  fashion  preferences  of  customers  in the  new
                  geographic areas.

         Any of these  challenges  could delay store openings or prevent us from
completing  Buffalo's  store  opening  plans after our  acquisition  of Buffalo.
Unfavorable  economic and business conditions and changing consumer  preferences
could also interfere with current plans to expand. We cannot be sure that we can
successfully  complete  the  planned  expansion  or that the new stores  will be
profitable.  If current retail store  expansion  plans,  both  domestically  and
internationally,  fail to meet expected results,  our overhead and other related
expansion costs would increase  without an offsetting  increase in sales and net
revenue.  This could have a material adverse effect on our results of operations
and financial condition.

         BUFFALO'S  BUSINESS  COULD BE HARMED IF ITS  FAILS TO  MAINTAIN  PROPER
INVENTORY LEVELS.

         Buffalo maintains an inventory of selected products that it anticipates
will be in high  demand.  Buffalo  may be  unable  to sell the  products  it has
ordered in advance from manufacturers or that it has in its inventory. Inventory
levels in excess of customer  demand may result in inventory  write-downs or the
sale of excess  inventory at discounted or closeout  prices.  These events could
significantly  harm our  operating  results  and impair the image of the brands.
Conversely,  if Buffalo underestimate consumer demand for its products or if its
manufacturers  fail to  supply  quality  products  in a  timely  manner,  it may
experience  inventory   shortages,   which  might  result  in  unfilled  orders,
negatively impact customer  relationships,  diminish brand loyalty and result in
lost revenues, any of which could harm business.

RISK ASSOCIATED WITH THE APPAREL INDUSTRY

         OUR SALES ARE HEAVILY INFLUENCED BY GENERAL ECONOMIC CYCLES.

         Apparel  is a cyclical  industry  that is  heavily  dependent  upon the
overall level of consumer spending.  Purchases of apparel and related goods tend
to be highly  correlated with cycles in the disposable  income of our consumers.
Our customers  anticipate and respond to adverse changes in economic  conditions
and uncertainty by reducing  inventories and canceling orders. As a result,  any
substantial deterioration in general economic conditions,  increases in interest
rates,  acts of war,  terrorist  or  political  events  that  diminish  consumer
spending and confidence in any of the regions in which we compete,  could reduce
our sales and adversely affect our business and financial condition.

         OUR  BUSINESS IS HIGHLY  COMPETITIVE  AND DEPENDS ON CONSUMER  SPENDING
PATTERNS.

         The  apparel  industry  is highly  competitive.  We face a  variety  of
competitive challenges including:

         o        anticipating  and  quickly  responding  to  changing  consumer
                  demands;

         o        developing innovative,  high-quality products in sizes, colors
                  and styles that appeal to  consumers of varying age groups and
                  tastes;

         o        competitively  pricing our  products  and  achieving  customer
                  perception of value; and

         o        the need to provide strong and effective marketing support.


                                       30



         WE  MUST  SUCCESSFULLY  GAUGE  FASHION  TRENDS  AND  CHANGING  CONSUMER
PREFERENCES TO SUCCEED.

         Our success is largely  dependent upon our ability to gauge the fashion
tastes of our customers and to provide  merchandise  that  satisfies  retail and
customer demand in a timely manner. The apparel business fluctuates according to
changes in consumer  preferences  dictated in part by fashion and season. To the
extent we misjudge  the market for our  merchandise;  our sales may be adversely
affected.  Our ability to anticipate and effectively respond to changing fashion
trends depends in part on our ability to attract and retain key personnel in our
design,  merchandising  and marketing staff.  Competition for these personnel is
intense,  and we  cannot be sure that we will be able to  attract  and  retain a
sufficient number of qualified personnel in future periods.

         OUR BUSINESS IS SUBJECT TO SEASONAL TRENDS.

         Historically,  our  operating  results  have been  subject to  seasonal
trends when measured on a quarterly  basis.  This trend is dependent on numerous
factors,  including the markets in which we operate,  holiday seasons,  consumer
demand,  climate,  economic  conditions  and numerous  other factors  beyond our
control.  There can be no assurance  that our historic  operating  patterns will
continue in future  periods as we cannot  influence  or  forecast  many of these
factors.

RISKS ASSOCIATED WITH THE COMBINED BUSINESSES

         WE WILL LIKELY REQUIRE  ADDITIONAL  CAPITAL TO FUND  BUFFALO'S  PLANNED
RETAIL EXPANSION AND FOR OTHER PURPOSES.

         We will  need  additional  capital  to fund  Buffalo's  planned  retail
expansion.  We may not be able to fund our future growth or react to competitive
pressures if we lack sufficient funds.  Following closing of the acquisition and
in the  future  we may need to raise  additional  funds  through  equity or debt
financings or collaborative  relationships.  This additional  funding may not be
available or, if available,  it may not be available on economically  reasonable
terms.  The  cost of  servicing  additional  debt  could  harm or  business  and
financial  condition.   In  addition,  any  additional  funding  may  result  in
significant  dilution  to  existing  shareholders.  If  adequate  funds  are not
available,  we may be required to curtail our operations or obtain funds through
collaborative  partners  that may require us to release  material  rights to our
products.

         THE PROPOSED ACQUISITION AND RELATED FINANCINGS MAY PLACE A SIGNIFICANT
DEBT BURDEN ON US,  WHICH COULD LIMIT OUR  FLEXIBILITY  IN MANAGING OUR BUSINESS
AND EXPOSE US TO CERTAIN RISKS.

         The completion of the proposed  acquisition will involve the incurrence
of substantial  additional  debt. The  acquisition  could result in our becoming
more leveraged on a consolidated basis under certain economic measures,  and our
flexibility  in  responding to adverse  changes in economic,  business or market
conditions may be adversely affected, which could have a material adverse effect
on our results of operations.

         Our high degree of leverage  may have  important  consequences  to you,
including the following:

         o        we may have difficulty  satisfying our  obligations  under our
                  senior credit facilities or other indebtedness and, if we fail
                  to comply with these  requirements,  an event of default could
                  result;


                                       31



         o        we may be required to  dedicate a  substantial  portion of our
                  cash  flow   from   operations   to   required   payments   on
                  indebtedness,  thereby  reducing the availability of cash flow
                  for working  capital,  capital  expenditures and other general
                  corporate activities;

         o        covenants  relating to our  indebtedness may limit our ability
                  to obtain  additional  financing for working capital,  capital
                  expenditures and other general corporate activities;

         o        covenants   relating  to  our   indebtedness   may  limit  our
                  flexibility  in planning  for, or reacting to,  changes in our
                  business and the industry in which we operate;

         o        we may be more vulnerable to the impact of economic  downturns
                  and adverse developments in our business; and

         o        we may be placed at a  competitive  disadvantage  against  any
                  less leveraged competitors.

         The occurrence of any one of these events could have a material adverse
effect on our business,  financial condition,  results of operations,  prospects
and ability to satisfy our obligations under our senior notes.

         THE COMBINED  BUSINESSES WILL HAVE SIGNIFICANT  INTERNATIONAL SALES AND
WILL BE SUBJECT TO RISKS ASSOCIATED WITH OPERATING IN INTERNATIONAL MARKETS.

         International  sales will comprise a significant portion of the revenue
generated by our company  after the  completion of the Buffalo  acquisition.  We
estimate that international  sales,  including sales in Canada, will account for
approximately  15% of our total revenue for the first fiscal  quarter  following
the completion of the acquisition. Political and economic conditions outside the
United States could make it difficult for us to increase our international sales
or to operate  abroad.  International  operations  are subject to many  inherent
risks, including:

         o        adverse changes in tariffs;

         o        political,  social  and  economic  instability  and  increased
                  security concerns;

         o        fluctuations in currency exchange rates;

         o        longer  collection  periods  and  difficulties  in  collecting
                  receivables from foreign entities;

         o        exposure to different legal standards;

         o        ineffectiveness of international distributors;

         o        reduced  protection  for  our  intellectual  property  in some
                  countries;

         o        burdens of complying with a variety of foreign laws;

         o        import and export license requirements and restrictions of the
                  United States and each other country in which we operate;

         o        trade restrictions;

         o        the imposition of governmental controls;

         o        unexpected    changes   in   regulatory    or    certification
                  requirements;

         o        difficulties   in   staffing   and   managing    international
                  manufacturing and sales operations; and


                                       32



         o        potentially  adverse tax  consequences and the complexities of
                  foreign value added tax systems.

         We believe  that  international  sales will  continue to  increase  and
represent a significant  portion of our sales,  and we intend to further  expand
our  international  operations.  Our sales in Canada are denominated in Canadian
dollars,  while our sales in Europe will be  denominated  principally  in Euros.
Sales in other international markets will be denominated principally in dollars,
but may also be denominated  in the local  currencies of the markets where we do
business.  As a result,  an increase in the relative value of the dollar against
the Canadian dollar or Euro would lead to less income from sales  denominated in
Canadian dollars or Euros, unless we increase prices,  which may not be possible
due to competitive  conditions in the applicable  markets.  In addition,  we may
experience  difficulties  associated  with managing our operations  remotely and
complying with foreign  regulatory and legal  requirements  for  maintaining our
manufacturing  operations in other countries. Any of these factors may adversely
affect  our  future  international  sales  and  operations  and,   consequently,
negatively  impact our business,  financial  condition  and  operating  results.
Despite these risks,  we believe the market for our products  outside the United
States justifies our effort to expand our international operations.

         WE DEPEND ON OUR COMPUTER AND COMMUNICATIONS SYSTEMS.

         As  a  multi-national   corporation,   we  rely  on  our  computer  and
communication  network to operate efficiently.  Any interruption of this service
from power loss,  telecommunications  failure, weather, natural disasters or any
similar  event  could  have  a  material  adverse  affect  on our  business  and
operations. Additionally, hackers and computer viruses have disrupted operations
at many major companies. We may be vulnerable to similar acts of sabotage, which
could have a material adverse effect on our business and operations.


                                       33



                                   PROPOSAL 1

                         THE STOCK AND ASSET ACQUISITION

OVERVIEW

         On December 6, 2006,  Tarrant and 4366883  Canada Inc., a  wholly-owned
Canadian  subsidiary of Tarrant to which we sometimes refer as TAG Canada or our
Canadian  subsidiary  throughout this proxy statement,  entered into a Stock and
Asset  Purchase  Agreement with The Buffalo Group that provides for the purchase
of (1) all  outstanding  capital stock of 3681441 Canada Inc.,  Buffalo Inc. and
3163946 Canada Inc., three Canadian operating subsidiaries of The Buffalo Group,
(2) all  outstanding  capital  stock of Buffalo  Corporation,  a U.S.  operating
subsidiary of The Buffalo Group,  and (3) certain  intellectual  property assets
from The  Buffalo  Trust,  which  are  used in the  business  operations  of the
operating subsidiaries. The Buffalo Group designs, manufactures and markets high
fashion denim and other apparel and  accessories  under the principal brand name
Buffalo.  The three Canadian  subsidiaries  referenced above operate The Buffalo
Group's wholesale and retail business in Canada. The U.S. subsidiary  referenced
above is the principal  subsidiary  through which The Buffalo Group operates its
U.S. wholesale  business,  which is a significant portion of The Buffalo Group's
overall  operations.  The assets we are acquiring from The Buffalo Trust consist
of trademark  licenses and other  intellectual  property rights that are used in
these businesses.  The Buffalo Group consists of a group of entities,  including
the above-referenced operating companies as well as The Buffalo Trust, which are
under the common ownership of entities controlled by Messrs.  Gabriel,  Charles,
David, Michel and Gilbert Bitton, and their affiliates.  Messrs. Charles, David,
Gabriel  and  Gilbert  Bitton  are  brothers  and we refer to them as the Bitton
brothers throughout this proxy statement.  We sometimes refer to the business of
The Buffalo Group we are acquiring under the purchase agreement as Buffalo,  the
Buffalo  business or the business of The Buffalo  Group for the purposes of this
proxy statement.

         The purchase  price for the stock and assets we are acquiring  consists
of $40 million in cash,  promissory  notes in the aggregate  principal amount of
$15 million and 13 million  exchangeable shares of TAG Canada,  which is a newly
formed  subsidiary of Tarrant that we formed in connection with the transactions
contemplated  by the stock and asset purchase  agreement.  The Buffalo Group has
$15 million of working capital  indebtedness  under its existing working capital
facility. We may use a portion of our expanded debt facilities to refinance this
working capital indebtedness. In addition, we agreed to make contingent payments
if the price of our stock does not equal or exceed  $3.076 within any 10 trading
days  during  the  five  year  period  following  the  closing  of the  purchase
transaction and earn-out payments of up to $12 million if specified  performance
benchmarks are satisfied.  The terms of these  contingent and earn-out  payments
are  described  below  under  the  summary  description  of the  Stock and Asset
Purchase Agreement.

         The  shares of the  Canadian  subsidiary  we agreed to issue  under the
purchase  agreement will be non-voting and will be exchangeable on a one for one
basis for shares of Tarrant  common stock.  As further  consideration  under the
purchase agreement,  we also agreed to issue 130,000 shares of our newly created
Series A preferred stock, which are intended to give the sellers effectively the
same  voting  rights that they would have had if they were to receive the shares
of Tarrant common stock underlying the exchangeable shares at the closing of the
acquisition.  Each of these  shares  will be  entitled  to 100 votes and will be
redeemed as exchangeable shares are exchanged for Tarrant common stock.

         The shares of Tarrant common stock underlying the  exchangeable  shares
of TAG  Canada  to be issued  under the  purchase  agreement  will  collectively
comprise  approximately  30% of the total  outstanding  capital stock of Tarrant


                                       34



immediately after the closing of the stock and asset purchase  transactions.  In
addition,  by virtue of the shares of Series A preferred stock, the sellers will
have the right to direct  the voting of a number of shares  constituting  30% of
the outstanding voting stock or combined voting power of Tarrant.

         We agreed to nominate  Messrs.  Gabriel  Bitton and Luis Padilla or, if
either one or both of Messrs. Bitton or Padilla are unwilling to serve or unable
to serve  due to death or  disability,  other  nominees  of  sellers  reasonably
acceptable to us, to serve on our Board of Directors. We also agreed to nominate
Messrs. Bitton and Padilla or such other nominees for reelection to our Board of
Directors for a period of five years after the closing of the transactions under
the purchase agreement. In addition,  following the acquisition, we will operate
the  business  and assets that we acquire  from The Buffalo  Group as a separate
division  through TAG Canada,  our Canadian  subsidiary,  and one or more of our
other subsidiaries.  Mr. Gabriel Bitton will be appointed as the Chief Executive
Officer of TAG Canada and President of Tarrant's Buffalo division for so long as
we may be required to make  earn-out  payments  under the terms of the  purchase
agreement.  In these capacities,  Mr. Bitton will, subject to the control of our
Board of  Directors,  have  general  supervision,  direction  and control of the
day-to-day  operations,  business and officers of our Buffalo division following
the acquisition.

         As a condition to the closing of the  transactions  contemplated by the
purchase  agreement,  we will enter into  employment  agreements with the Bitton
brothers  to  provide  services  to us  following  the  acquisition.  As further
inducement  to provide  services  to us and as a  condition  under the  purchase
agreement,  we will issue to the Bitton  brothers  options to purchase up to two
million shares of Tarrant's common stock in the aggregate.

         In  connection  with the  acquisition  of  Buffalo  under the  purchase
agreement,  our Board of  Directors  approved  amendments  to our  existing  $65
million credit  facility with  Guggenheim  Corporate  Funding LLC and our credit
facility with GMAC Commercial  Finance LLC to increase the amounts  available to
us under these facilities.  Pursuant to these amendments, up to $55 million will
be made available  under our expanded  facilities to finance the cash portion of
the purchase  price payable to the sellers  under the purchase  agreement and to
refinance The Buffalo Group's $15 million working  capital  facility.  Under the
terms  of our  expanded  Guggenheim  facility,  Tarrant  proposes  to  issue  to
Guggenheim  warrants  to  purchase  up to  _______________  shares of our common
stock.

         The Board of Directors has also approved  certain other  agreements and
transactions contemplated by the stock and asset purchase agreement.

REASON FOR PROPOSAL

         The  proposed  acquisition   transaction  and  the  other  transactions
contemplated  by  the  purchase  agreement,  including  without  limitation  the
issuance of Tarrant  common  stock and other  securities,  will not be completed
unless  they are  approved  by holders of a majority  of  Tarrant's  outstanding
common  stock.  Tarrant  seeks  shareholder  approval  of the  stock  and  asset
acquisition and related transactions to comply with California Corporations Code
and the  NASDAQ  Marketplace  Rules.  Under  the  applicable  provisions  of the
California  Corporations  Code, which we refer to as the California Rule, we are
required to obtain shareholder  approval of any reorganization  transaction that
results in our shareholders before the transaction owning less than 5/6th of the
outstanding capital stock of our company immediately after the transaction.  The
NASDAQ Marketplace Rules, which we refer to as the NASDAQ 20% Rule, prohibits us
from  issuing,   without  shareholder  approval,   common  stock  or  securities
exercisable  into  common  stock in an  acquisition  transaction  in  excess  or
potentially in excess of 20% of the  outstanding  shares of Tarrant common stock
before issuance.  Accordingly,  because the terms of the purchase  agreement and


                                       35



our proposed  acquisition of Buffalo will result in the issuance of shares in an
amount that  require  shareholder  approval  under the  California  Rule and the
NASDAQ 20% Rule, we are seeking  shareholder  approval of the purchase agreement
and the acquisition to comply with these rules and requirements.

REASONS FOR THE ACQUISITION

         In  approving  the  acquisition  and  in  recommending  that  Tarrant's
shareholders approve the stock and asset purchase agreement and the acquisition,
the Board of  Directors  considered  a number  of  factors,  including,  without
limitation,  the  following  factors  which the  company  believes  include  all
material factors:

         o        information  concerning  Tarrant's  and  Buffalo's  respective
                  businesses,  prospects,  business plans, financial performance
                  and   condition,   results  of   operations,   technology  and
                  competitive positions;

         o        the compatibility of Tarrant's business with that of Buffalo's
                  business;

         o        the  due  diligence   investigation   conducted  by  Tarrant's
                  management;

         o        the terms of the stock and asset purchase agreement, including
                  price and structure;

         o        the  fairness  of  the   transaction  to  Tarrant's   existing
                  shareholders;

         o        the  fairness  opinion  and  analysis  rendered  by Marshall &
                  Stevens,  Inc., in connection  with the proposed  acquisition,
                  including  matters  considered by Marshall & Stevens,  Inc. in
                  rendering its opinion and analysis; and

         o        the current  financial market  conditions and historical stock
                  market prices, volatility and trading information.

         Tarrant's Board of Directors also considered the following  potentially
negative  factors:

         o        the risk that the potential benefits sought in the acquisition
                  might not be fully realized;

         o        the dilution to the company's existing shareholders;

         o        the potential  negative  effect on the  company's  stock price
                  associated   with   public   announcement   of  the   proposed
                  acquisition;

         o        the potential  negative effect on the company's stock price if
                  revenue,  earnings and cash flow  expectations  of the company
                  following the acquisition are not met;

         o        the potential  dilutive  effect on the company's  common stock
                  price if revenue and  earnings  expectations  for the acquired
                  business operations are not met;

         o        the ability to successfully  manage the combined operations of
                  the company and The Buffalo Group; and

         o        the  other  risks  and  uncertainties  discussed  under  "Risk
                  Factors."

         In view of the variety of factors  considered  in  connection  with its
evaluation  of the  acquisition,  Tarrant's  Board of Directors  did not find it
practical  to, and did not quantify or  otherwise  attempt to,  assign  relative
weight  to  the  specific  factors   considered  in  reaching  its  conclusions.
Additionally,  the Board of  Directors  did not  undertake  to make any specific
determination  as to  whether  any  particular  factor,  or  any  aspect  of any
particular factor,  was favorable or unfavorable to its ultimate  determination,
but rather  conducted an overall  analysis of the factors  described  above.  In


                                       36



considering  the factors  described  above,  individual  members of the board of
directors may have given different weight to different factors.

         After  taking into  account all of the  factors  set forth  above,  the
members of the Board of Directors  concluded  that the stock and asset  purchase
agreement and the related  acquisition  were advisable and in the best interests
of the company and its shareholders and that the company should proceed with the
acquisition. Tarrant's Board believes the acquisition will:

         o        expand Tarrant's  operations by adding additional  proprietary
                  brands and products to compete more effectively;

         o        expand the scope,  scale and strength of Tarrant's  operations
                  by   expanding   its   marketing,   sales   and   distribution
                  capabilities;

         o        enhance  Tarrant's  capabilities  to compete  in  Canada,  the
                  United  States  and other  markets  and  utilize  The  Buffalo
                  Group's  existing  sales  and  marketing  infrastructure  as a
                  platform for expanding sales of Tarrant's apparel products;

         o        provide  potential  opportunities for Tarrant to penetrate new
                  markets and expand its share in existing markets;

         o        enhance sales  capabilities and  profitability by transforming
                  from primarily a wholesale  model to a combination  retail and
                  wholesale model;

         o        enhance operating  efficiencies  through vertical  integration
                  and consolidation activities;

         o        expand  Tarrant's  management  team and Board of  Directors by
                  adding  management   personnel  and  two  new  directors  with
                  significant experience in the apparel industry;

         o        reduce costs based on increased volume of sourced merchandise;

         o        improve  Tarrant's  ability  to  withstand  pricing  pressures
                  resulting in inexpensive apparel imports;

         o        enhance  Tarrant's  operations  by  improving  product  mix of
                  higher priced products; and

         o        enhance long-term shareholder value.

EFFECT ON EXISTING SHAREHOLDERS

         The following table illustrates the effect on existing  shareholders of
outstanding  common  stock held and book value per share,  on a pro forma basis,
after giving effect to each of the following as of September 30, 2006:

         o        the  consummation  of the  proposed  acquisition  of  Buffalo,
                  assuming  exchange of all exchangeable  shares to be issued by
                  TAG Canada for shares of Tarrant common stock, but assuming no
                  exercise of any warrants or options to be issued in connection
                  with the acquisition; and

         o        the  consummation  of the  proposed  acquisition  of  Buffalo,
                  assuming  exchange  of all  exchangeable  shares  for  Tarrant
                  common  stock and the  exercise  in full of all  warrants  and
                  options  to be  issued  in  connection  with  the  acquisition
                  transaction.


                                       37



--------------------------------------------------------------------------------
                                 Pre-Acquisition          Post-Acquisition
--------------------------------------------------------------------------------
                             Holdings%    Book Value   Holdings%   Book Value
                                          Per share                Per Share
--------------------------------------------------------------------------------
Existing shareholders (1)      100%         $0.53         70%        $0.72
Sellers (2)                     N/A          N/A          30%        $0.72

         (1)      Existing   shareholders   excluding  exercise  of  outstanding
                  warrants and options

         (2)      Sellers and new shareholders assuming exchange of exchangeable
                  shares and exercise of options issuable in acquisition


         In the fourth quarter of 2005,  Gerard Guez, our Chairman and currently
our interim  Chief  Executive  Officer,  engaged in  conversations  with Gabriel
Bitton in which Mr. Bitton discussed with Mr. Guez The Buffalo Group's desire to
seek additional capital to expand The Buffalo Group's retail business.  Mr. Guez
and Mr. Bitton had  previously  known each other,  and Mr. Bitton hoped that Mr.
Guez may be able to assist him in identifying a potential source of capital.  At
this time,  the parties did not discuss the  prospect of Tarrant  acquiring  The
Buffalo Group.

         In the first half January 2006,  Mr. Guez was  introduced to Guggenheim
Corporate Funding LLC by our advisor, Durham Capital. Mr. Guez began discussions
with  Guggenheim  regarding  a  potential  credit  facility  to  provide us with
additional working capital.

         In late February 2006, Mr. Guez and Todd Boehly of Guggenheim Corporate
Funding  traveled to  Montreal,  Canada and Mr. Guez  introduced  Mr.  Boehly to
Gabriel  Bitton.  At the time of and following  this  meeting,  Mr. Guez and Mr.
Gabriel Bitton first engaged in general conversations  regarding the possibility
of a  strategic  transaction  involving  Tarrant and The  Buffalo  Group.  These
discussions  occurred  at  approximately  three  in-person  meetings  and during
several telephone  conversations.  During these  discussions,  Mr. Guez received
some initial  information  regarding The Buffalo Group relating to its financial
performance  and business  and the parties  discussed  preliminarily  a purchase
price for The Buffalo Group. Following these initial discussions, Mr. Guez began
informal  discussions  with  members  of our  Board  of  Directors  regarding  a
potential acquisition of The Buffalo Group.

         At a board  meeting on March 7, 2006,  Mr. Guez  provided  our Board of
Directors with an update on his preliminary  discussions with The Buffalo Group.
In this  presentation,  Mr. Guez  described  The Buffalo Group and its financial
performance.  Mr. Guez and the other  directors  considered  the  potential  for
increased  shareholder value that could result from the combined companies.  The
directors further discussed the fact that, based on initial discussions with The
Buffalo Group,  a significant  portion of the price to acquire The Buffalo Group
would be required  to consist of cash and we would have to borrow  substantially
all of the  required  cash.  The board  resolved  that Mr. Guez should  continue
discussions for an acquisition of The Buffalo Group.

         During March 2006,  Mr. Guez and Mr.  Gabriel Bitton engaged in further
discussions,  and we began  exchanging  information  with The Buffalo  Group and
negotiating  the  material  economic  terms of a  potential  acquisition  of The
Buffalo  Group.  At this  time,  both  parties  involved  legal  counsel  in the
discussions and commenced negotiating a term sheet for the acquisition.

         During  April and May of 2006,  we continued  negotiating  a term sheet
with The Buffalo Group for the proposed acquisition. These negotiations occurred
by telephone and were primarily  between Mr. Guez and Mr. Gabriel  Bitton,  with
counsel participating primarily in drafting the term sheet. During the course of
these  negotiations,  the  parties  agreed  upon a purchase  price of up to $110
million,  consisting of: $40 million in cash,  $18 million in promissory  notes,
earn-out  payments  of up to $12  million  over a four year  period,  13 million


                                       38



shares of our common stock, and a contingent payment due after five years if the
volume weighted  average price of our common stock did not reach at least $3.076
for 10  consecutive  days (on which  there was an  unspecified  minimum  trading
volume)  during the 5 year period after  closing.  On May 17, 2006,  the parties
also agreed upon certain other material terms of the proposed acquisition, which
were set forth in a non-binding term sheet.

         On May 15, 2006,  we entered into a commitment  letter with  Guggenheim
Corporate  Funding  LLC with  respect  to a $65  million  credit  facility.  The
commitment  letter  contemplated  that the credit  facility  would consist of an
initial term loan of $30 million,  which would be used to repay certain existing
indebtedness and fund general operating and working capital needs, with a second
term loan of $35 million available to be used to finance acquisitions acceptable
to Guggenheim.  On June 16, 2006, we entered into a definitive  credit agreement
with Guggenheim,  as agent for the lenders. This credit facility consisted of an
initial term loan of up to $25 million,  of which we borrowed  $15.5  million at
the initial funding, to be used to repay certain existing  indebtedness and fund
general  operating and working  capital needs.  An additional term loan of up to
$40  million was made  available  under this  facility  to finance  acquisitions
acceptable to Guggenheim.

         On June 19, 2006,  at a telephonic  meeting of our Board of  Directors,
Mr.  Guez  presented  the board with the  proposed  terms of The  Buffalo  Group
acquisition as set forth in the non-binding  term sheet  previously  provided to
the board along with various other  background  materials.  Following a thorough
and  detailed  discussion,  and upon a motion duly made and  seconded,  the term
sheet was approved.  Following approval of the term sheet, management instructed
legal  counsel  and its  financial  advisors to begin a thorough  due  diligence
investigation of The Buffalo Group. At the request of the board, management also
began a search to identify an investment banking firm to render an opinion as to
the fairness from a financial point of view of the proposed acquisition.

         During the week of June 26, 2006,  Mr. Guez and David  Burke,  our Vice
President of Finance, visited The Buffalo Group's principal offices in Montreal.
During  this trip,  Messrs.  Guez and Burke met with  management  of The Buffalo
Group,  visited its offices and  facilities and  coordinated  with our financial
advisors and Canadian  legal counsel in connection  with the financial and legal
due diligence investigation of The Buffalo Group.

         During the week of July 16, 2006,  Mr. Burke traveled to Montreal again
along with a representative of our U.S.  corporate counsel,  Stubbs,  Alderton &
Markiles  LLP. Mr.  Burke met with our  financial  advisors  and Canadian  legal
counsel over  several  days to discuss the results to date of the due  diligence
investigation.  In addition,  Mr. Burke and our advisors met with  management of
The Buffalo  Group and their legal  counsel.  During this  meeting,  the parties
discussed  various  issues  relating to the  corporate  structure of The Buffalo
Group,  including  ownership  of  trademark  rights and  various  related  party
transactions.  The  parties  also  discussed  proposals  for the most  efficient
structure for the parties for the proposed acquisition from both a legal and tax
perspective.

         On August 7, 2006,  our Board of Directors  approved our  engagement of
Marshall  &  Stevens  Incorporated  to  render  an  opinion  to the board as the
fairness to Tarrant from a financial point of view of the proposed  acquisition.
In addition,  in August  2006,  we began  working  with our legal  counsel on an
initial draft of the definitive stock and asset purchase agreement.

         During the week of September 18, 2006,  Mr. Burke  returned to Montreal
and had  additional  meetings  with The Buffalo  Group  regarding  financial due


                                       39



diligence  and  related  matters.  At this time,  representatives  of Marshall &
Stevens were also in Montreal  conducting  on-site due  diligence in  connection
with their fairness opinion.

         On September  28, 2006,  Mr. Burke and our U.S.  legal counsel met with
Gabriel and Gilbert  Bitton and their legal counsel in Montreal.  These meetings
occurred over several days, and the parties continued  negotiations on the legal
structure for the proposed  acquisition  and the  provisions  of the  definitive
purchase  agreement.  Mr. Guez and Mr.  Gabriel Bitton  subsequently  met in New
York,  New York in early  October to discuss  some of the  remaining  unresolved
issues.  During  these  negotiations,  it was  agreed  that  the  amount  of the
promissory  notes to be issued as part of the purchase price would be reduced to
$15 million,  with the first  payment on the second  anniversary  of the closing
date.  It was also agreed that the cash portion of the  purchase  price would be
subject to  adjustment as of the closing date pursuant to a formula to be agreed
upon.

         During the week of November 6, 2006,  Mr. Burke traveled to Montreal to
further review the business and financial  condition of The Buffalo  Group.  Mr.
Burke  met with The  Buffalo  Group  management  and with  their  auditors,  RSM
Richter, to further review the historical  financial statements being audited by
RSM Richter.  At this time,  Todd Hearle and Matt Bloom of Guggenheim  Corporate
Funding were also in Montreal  conducting  their due diligence  investigation of
The Buffalo Group.

         During October and November, the parties and their counsel continued to
negotiate the terms and  provisions of the  definitive  stock and asset purchase
agreement.  On November 13, 2006, Messrs.  Guez and Burke, our legal counsel and
The Buffalo  Group's legal  counsel met in Los Angeles to further  negotiate the
provisions of the definitive  purchase agreement and ancillary  agreements.  Mr.
Gabriel Bitton  participated in portions of these meetings by teleconference and
participated  in person  in  meetings  on  November  15,  2006.  These  meetings
continued through the week, with the parties reaching agreement on substantially
all remaining issues on November 17, 2006.

         During the last week of November 2006, the parties  continued to engage
in negotiations to finalize the definitive purchase agreement. At this time, the
parties  agreed upon the  formula  for the cash  purchase  price  adjustment  at
closing.  We also completed our due diligence review of The Buffalo Group during
this week.

         On November 30, 2006, our Board of Directors held a special  meeting by
teleconference  to consider the proposed  acquisition  on the terms set forth in
the stock and asset purchase agreement.  Marshall & Stevens was in attendance at
the board  meeting  and made a  presentation  to the  board.  Marshall & Stevens
provided a detailed  summary of the  transaction,  including  what companies and
assets  were  being  acquired  and the  price  being  paid,  and  the  valuation
approaches  used by  Marshall  & Stevens in  reaching  their  conclusion  on the
fairness of the transaction.  Marshall & Stevens had concluded that the proposed
acquisition  is fair from a financial  point to view to Tarrant,  and  discussed
with the board their basis for the conclusion. Marshall & Stevens also responded
to questions  from the board  regarding  the  fairness  opinion.  Following  the
presentation by Marshall & Stevens, Messrs. Guez and Burke, with assistance from
legal  counsel,  reviewed  with the  board in  detail  the  material  terms  and
conditions  of  the  stock  and  asset  purchase  agreement  and  the  ancillary
agreements.  Mr. Burke and legal counsel discussed with the board the results of
the due diligence  investigation of The Buffalo Group.  Following a thorough and
detailed  discussion,  the board  unanimously  approved the  acquisition  of The
Buffalo Group pursuant to the stock and asset purchase agreement and other terms
and conditions of the transaction.  In approving the  transaction,  our Board of


                                       40



Directors determined that the acquisition was fair to, and in the best interests
of, Tarrant and our shareholders,  and recommended that the shareholders approve
the acquisition.

         On December 6, 2006,  we obtained the consent of  Guggenheim  Corporate
Funding  and  certain of our other  secured  lenders to enter into the stock and
asset purchase  agreement,  as required under our credit  facilities  with these
lenders.

         On  December  6,  2006,  we entered  into the stock and asset  purchase
agreement with The Buffalo Group.

FEDERAL OR STATE REGULATORY APPROVAL REQUIREMENTS

         No  federal  or  state  regulatory  approval  requirements  need  to be
satisfied  in  connection  with the  purchase of the stock and assets  under the
purchase agreement.

MANAGEMENT FOLLOWING THE ACQUISITION

         The business and operations of Buffalo that Tarrant proposes to acquire
will  be  managed  as a  separate  division  of  Tarrant  through  its  Canadian
subsidiary,  TAG Canada, and one or more of its other subsidiaries.  Mr. Gabriel
Bitton  will be  appointed  as the Chief  Executive  Officer  of TAG  Canada and
President of Tarrant's  Buffalo  division and will report  directly to Tarrant's
Board of Directors.  In these  capacities,  Mr.  Bitton will have  extensive and
comprehensive  rights to manage the business and operations of Tarrant's Buffalo
division  during the period in which we are required to make earn-out  payments.
In addition,  Messrs.  Gabriel Bitton and Luis Padilla, or other nominees of the
sellers reasonably  acceptable to Tarrant if either or both of Messrs. Bitton or
Padilla are  unwilling  to serve or unable to serve due to death or  disability,
will be nominated to Tarrant's Board of Directors and  re-nominated for election
to the Board during the five year period following the closing. Accordingly, Mr.
Gabriel  Bitton will  continue to exercise  management  control  over  Buffalo's
operations following the consummation of the acquisition transaction.

EMPLOYMENT MATTERS

         Tarrant will enter into  employment  agreements with each of the Bitton
brothers as a condition to consummating the Buffalo acquisition.

         Under the terms of his employment agreement with us, Mr. Gabriel Bitton
will  serve as the Chief  Executive  Officer of TAG  Canada,  with the title and
designation of President,  Buffalo Division. Mr. Gabriel Bitton will, subject to
the control of our Board of Directors,  have general supervision,  direction and
control of the  day-to-day  operations,  business  and  officers of the acquired
business.  Mr. Gabriel Bitton's agreement provides for a term of 5 years, unless
his employment is earlier  terminated as provided in the agreement.  Mr. Gabriel
Bitton's  agreement  may be  terminated by us or by Mr. Bitton for any reason by
advance written notice.

         Mr. Gabriel Bitton's employment agreement provides for a base salary of
$500,000 per annum. As further consideration under the employment agreement, Mr.
Bitton will receive  options to purchase  ______ shares of Tarrant common stock.
These options will be  exercisable  at an exercise  price per share equal to the
fair market  value of Tarrant's  common stock on the date of grant.  The options
will vest and become exercisable in four equal annual installments commencing on
the first anniversary of the closing of the acquisition. Mr. Bitton will also be
entitled to receive a performance bonus at such times and such amounts as may be
determined in the sole  discretion of Tarrant's  Board of Directors.  Mr. Bitton
will be entitled  to vacation  and certain  other  benefits  available  to other


                                       41



employees,  and will be  entitled  to  reimbursement  for  reasonable  costs and
expenses he incurs in connection  with the  performance  of his duties under his
employment agreement with Tarrant.

         If the  agreement is terminated by us without cause or if the agreement
is  terminated  by Mr.  Bitton  due to a  material  reduction  in his  title  or
responsibilities,  a reduction  in salaries or other good reason as specified in
the agreement,  Mr. Bitton will be entitled to receive a severance payment equal
to Mr. Bitton's base salary for the 12 months  following the date of termination
or the remainder of the five year term under the  agreement,  whichever is less.
The severance  will not be payable if we terminate  the agreement for cause,  as
defined  in the  agreement,  or if Mr.  Bitton  is  terminated  due to  death or
disability or if he terminates  the agreement  without good reason.  In general,
"cause" is defined in the agreement to include acts  undertaken  with the intent
of causing  damage to Tarrant or its  affiliates,  any act  involving a material
person profit to Mr. Bitton, his consistent failure to perform his normal duties
or  obligations  under  the  agreement,  conviction  of a crime or felony or his
breach of the employment  agreement.  Also, cause includes  situations where the
actual capital  expenditures  of TAG Canada in any fiscal quarter exceed by more
than ten percent  (10%) the budgeted  capital  expenditures  as set forth in the
budget approved by Tarrant's Board of Directors from time to time.

         In general,  the terms of our  employment  agreements  with each of the
other  Bitton  brothers  will be  substantially  the  same as the  terms  of our
employment  agreement  with Mr.  Gabriel  Bitton,  except that the other  Bitton
brothers  will be  charged  with  different  responsibilities  and  entitled  to
different  compensation and benefits. The term of employment under each of these
agreements  will also differ from the term provided under Mr.  Gabriel  Bitton's
employment agreement.

REGISTRATION RIGHTS

         As a condition to consummating the acquisition, we are required to sign
and  deliver to the  sellers  and the  Bitton  brothers  a  registration  rights
agreement  under which we agree to register  the shares of Tarrant  common stock
underlying  the  exchangeable  shares to be issued by TAG  Canada  and shares of
Tarrant common stock underlying  options that we grant to the Bitton brothers in
connection with the acquisition.  The registration  rights agreement that we are
required to deliver  provides that we will use our best efforts to file, as soon
as practicable  after the agreement,  a registration  statement  relating to the
resale of the shares we agreed to register and cause the registration  statement
to go  effective  as soon as  practicable  after its  filing.  The  registration
statement  also  provides  that we will include  these shares in any  subsequent
registration  statement we file to register for sale any of our common stock for
our own account or for the account of others, subject to certain limitations and
exceptions as specified in the registration rights agreement.

FINANCING

         The consummation of the proposed  acquisition of Buffalo is conditioned
on Tarrant  obtaining  financing to pay the cash  portion of the purchase  price
under  the  purchase  agreement  and  to  refinance  Buffalo's  working  capital
facility.  In connection  with the  acquisition,  Tarrant is amending its credit
facilities with Guggenheim Corporate Funding LLC and GMAC Commercial Finance LLC
to provide that Tarrant may borrow up to $55 million in additional funds,  which
will  be  available  to  Tarrant   under  these   facilities  to  pay  the  cash
consideration  under the purchase  agreement and to refinance  Buffalo's working
capital  facility.  Under the terms of the  amended  facility  with  Guggenheim,
Tarrant  will issue to  Guggenheim  new  warrants to  purchase up to  __________
shares of Tarrant common stock in the aggregate. The terms of the amendments and
the warrants we propose to issue are described in further  detail under Proposal
2 below.


                                       42



FAIRNESS OPINION

         In August 2006, Tarrant's management interviewed the firm of Marshall &
Stevens,  Inc. to render a fairness  opinion  with  respect to the  acquisition.
Tarrant  formally  engaged the  services of Marshall & Stevens on  September  6,
2006, to render an opinion as to the fairness,  from a financial  point of view,
of the acquisition  transaction to Tarrant.  Tarrant selected Marshall & Stevens
based upon its reputation  within the southwestern  region of the United States,
its proximity to Tarrant and cost considerations.

         The Board of Directors  received a valuation  analysis  report together
with the  fairness  opinion  dated  December  6, 2006,  from  Marshall & Stevens
related to the fairness of the acquisition transaction to Tarrant. The full text
of  Marshall & Stevens'  fairness  opinion,  a copy of which is  attached  as an
exhibit to this proxy statement, sets forth, among other things, the assumptions
made,  procedures  followed,  matters considered,  and limitations of the review
undertaken  by  Marshall  &  Stevens.  You are urged to,  and  should,  read the
fairness opinion carefully and in its entirety.

         You should note that the Marshall & Stevens opinion is addressed to the
Tarrant board of directors and addresses the fairness of the acquisition  from a
financial  point of view and does not address any other  aspect of the  proposed
acquisition or the stock and asset purchase agreement,  nor does it constitute a
recommendation  to any  Tarrant  shareholder  as to how to vote  at the  Tarrant
special  meeting.  Marshall & Stevens did not, and was not  requested by Tarrant
to, make any  recommendations as to the purchase price or to solicit third party
indications of interest in acquiring all or part of Tarrant.

         In arriving at its opinion, Marshall & Stevens, among other things:

         o        reviewed audited financial statements for The Buffalo Group;

         o        reviewed publicly available  financial data concerning certain
                  companies deemed comparable, by Marshall & Stevens;

         o        reviewed third party reports concerning the apparel retail and
                  manufacturing industries;

         o        reviewed  brochures  and  literature  related  to The  Buffalo
                  Group;

         o        considered the nature of Buffalo's business, history, earnings
                  before  interest  and  taxes,  depreciation  and  amortization
                  (EBITDA),  earnings before interest and taxes (EBIT), revenue,
                  book capital,  and total assets for the inclusive fiscal years
                  2002 through 2006 and the latest interim periods;

         o        considered    Buffalo's   future   EBITDA,    EBIT;   revenue;
                  dividend-paying capacity and overall financial health;

         o        analyzed  financial  statements,  prices  and other  materials
                  regarding  certain  comparable and publicly  traded  companies
                  involved in the apparel retail and manufacturing industries;

         o        analyzed  prevailing  rates  of  return  on  debt  and  equity
                  capital;

         o        analyzed   materials   discussing  the  general  and  industry
                  specific economic outlook;

         o        compared particular  statistical and financial  information of
                  Buffalo to particular statistical and financial information of
                  certain comparable and publicly traded companies;


                                       43



         o        reviewed the stock and asset  purchase  agreement  and various
                  other  agreements  contemplated  by the purchase  agreement in
                  connection with the acquisition; and

         o        reviewed  information  prepared or discussed  with  Marshall &
                  Stevens by members of senior management of Tarrant relating to
                  the  relative  contributions  of  Buffalo  and  Tarrant to the
                  merged company.

         Marshall & Stevens  also held  discussions  with  members of the senior
management of Tarrant regarding  Tarrant's  history,  financial  performance and
future prospects.  In addition,  Marshall & Stevens performed financial analysis
of the proposed  combined  company and conducted such other  studies,  analyses,
inquiries and investigations as it deemed appropriate.

         In preparing its opinion, Marshall & Stevens relied on the accuracy and
completeness  of all  information  that  was  publicly  available,  supplied  or
communicated  to  Marshall & Stevens  by or on behalf of Tarrant or The  Buffalo
Group.  The  opinion  does not  address  the  relative  merits  of the  proposed
acquisition  and any  other  transactions  or  strategies,  which  may have been
discussed as alternatives to the proposed acquisition. Tarrant did not place any
limitations  on Marshall & Stevens  with respect to the  procedures  followed or
factors considered in rendering the opinion. In addition, Marshall & Stevens did
not make an independent evaluation or appraisal of the assets and liabilities of
Tarrant or The Buffalo Group and was not furnished  with any such  evaluation or
appraisal.

         METHODOLOGIES

         The following is a summary of the material  financial  analyses used by
Marshall & Stevens in connection with providing its opinion to the Tarrant board
of  directors.  Marshall  &  Stevens  utilized  substantially  the same  type of
financial  analyses in connection with providing the written opinion attached as
Exhibit B.  Marshall  & Stevens  reviewed  the  historical  pricing of  Tarrant.
Marshall & Stevens also reviewed the historical financial statements for Tarrant
and The Buffalo Group to ascertain the financial position and performance of the
companies.  Marshall & Stevens also  reviewed the economic and industry  outlook
for the apparel industry. In addition,  Marshall & Stevens reviewed the proposed
impact on the  financial  position  of Tarrant  resulting  from the  acquisition
transaction with The Buffalo Group.

         Marshall & Stevens  considered  a number of factors in its analysis and
used several  methodologies  in reaching its conclusion.  Marshall & Stevens did
not ascribe a specific range of values to the shares and assets Tarrant proposes
to purchase under the purchase  agreement,  but rather made its determination as
to the  fairness,  from a  financial  point of view,  to Tarrant on the basis of
financial  and  comparative  analyses.  The  preparation  of a fairness  opinion
involves various  determinations as to the most appropriate and relevant methods
of financial and  comparative  analysis and the  application of those methods to
the particular circumstances. In arriving at its opinion, Marshall & Stevens did
not attribute any particular  weight to any analysis or factor considered by it,
but rather made  qualitative  judgments as to the  significance and relevance of
each  analysis and factor.  Accordingly,  Marshall & Stevens  believes  that its
analysis must be considered as a whole and that  considering any portion of such
analyses and factors,  without considering all analyses and factors, as a whole,
could create a  misleading  or  incomplete  view of the process  underlying  its
opinion.  In its  analyses,  Marshall & Stevens made numerous  assumptions  with
respect to industry  performance,  general business and economic  conditions and
other matters, many of which are beyond the control of Tarrant. Neither Tarrant,
nor Marshall & Stevens nor any other  person  assumes  responsibility  if future
results are materially different from those discussed.


                                       44



         In its analysis, Marshall & Stevens made numerous assumptions regarding
the performance of Tarrant and The Buffalo Group,  the industry and the economy,
many of which are beyond  the  control of Tarrant  and The  Buffalo  Group.  The
estimates used in the analysis are not  necessarily  indicative of actual values
or  predictive of future  values,  which may vary  significantly  from those set
forth herein and in the written opinion.  In addition,  analyses relating to the
value of the businesses do not purport to be appraisals or to reflect the prices
at which  businesses  may  actually  be sold.  Accordingly,  such  analyses  and
estimates are inherently subject to substantial uncertainty.

         The analyses were prepared solely for the purpose of Marshall & Stevens
providing  its opinion to the Tarrant  board of  directors as to the fairness of
the transactions  from a financial point of view.  Analyses based upon forecasts
of future results are not necessarily indicative of actual future results, which
may be  significantly  more or less  favorable  than suggested by such analyses.
Because such analyses are inherently  subject to  uncertainty,  being based upon
numerous factors or events beyond the control of the parties or their respective
advisors,  none of Tarrant,  The Buffalo Group,  Marshall & Stevens or any other
person assumes  responsibility  if future results are materially  different from
those in the forecast.  As described  above,  Marshall & Stevens' opinion to the
Tarrant board of directors was one of many factors taken into  consideration  by
the Tarrant board of directors in making its  determination to approve and adopt
the stock and asset purchase agreement.

         FEES PAYABLE TO MARSHALL & STEVENS

         Pursuant to letter  agreements  between Tarrant and Marshall & Stevens,
Tarrant  agreed  to pay  Marshall  & Stevens a fee for  rendering  its  opinion.
Tarrant  has also  agreed to  reimburse  Marshall & Stevens  for its  reasonable
out-of-pocket expenses. No portion of Marshall & Stevens' fee is contingent upon
the successful completion of the proposed transactions. In addition, Tarrant has
agreed to indemnify Marshall & Stevens and its employees,  directors,  officers,
control persons,  affiliates and agents against certain liabilities  incurred in
connection with its services,  including  liabilities  under federal  securities
laws]

         As  part  of  Marshall  &  Stevens'  financial  advisory  business,  it
regularly issues fairness  opinions and is continually  engaged in the valuation
of companies and their  securities in connection with business  reorganizations,
private  placements,  negotiated  underwritings,  mergers and  acquisitions  and
valuations  for  estate,  corporate  and other  purposes.  Marshall & Stevens is
familiar with Tarrant and regularly  provides valuation services to companies in
the apparel business and apparel industries.

         In  connection  with  the debt  financing  transaction  completed  with
Guggenheim  Corporate  Funding  LLC in June  2006,  Tarrant  engaged  Marshall &
Stevens on a limited  basis to assist with the  valuation of warrants  issued to
Guggenheim  in the financing  transaction.  As  consideration  for its services,
Tarrant paid to Marshall & Stevens a fee of $5,500.

COMPLETION OF THE ACQUISITION

         Tarrant and Buffalo are working toward  completing  the  acquisition as
quickly as  possible.  Tarrant and Buffalo  intend to complete  the  acquisition
promptly  after the  shareholders  of Tarrant  approve  the  acquisition  at the
special  meeting of  shareholders.  Tarrant and Buffalo  expect to complete  the
acquisition in the first quarter of 2007.

         The  obligations of Tarrant and Buffalo to complete the acquisition are
subject  to  customary  closing  conditions.   The  purchase  agreement  may  be
terminated  before the  acquisition  is completed  under  certain  circumstances
described elsewhere in this proxy statement.


                                       45



DISSENTERS' RIGHTS OF APPRAISAL

         The rights of  shareholders  of Tarrant to dissent from approval of the
stock and asset  acquisition and demand payment for their shares are governed by
Chapter 13 of the California  General  Corporation Law ("CGCL") the full text of
which is  reprinted as Exhibit C to this proxy  statement.  The summary of these
rights set forth below is not  intended to be complete  and is  qualified in its
entirety by reference to Exhibit C.

         Under the CGCL,  shareholders  of Tarrant will not have any dissenters'
rights with respect to the acquisition unless demands for payment are duly filed
with respect to five percent (5%) or more of the  outstanding  shares of Tarrant
common stock or shareholders of Tarrant shares which are subject to restrictions
upon transfer imposed by Tarrant. If the holders of five percent (5%) or more of
the  outstanding  shares of Tarrant common stock or holders of such  restrictive
shares duly file  demands for  payment and fully  comply with  Chapter 13 of the
CGCL, they will have the right to be paid in cash the fair market value of their
shares in accordance with Chapter 13 of the CGCL.

         Under the CGCL,  "fair market value" is determined as of the day before
the first announcement of the terms of the proposed  transaction,  excluding any
appreciation or depreciation as a consequence of the  transaction,  but adjusted
for any stock  split,  reverse  stock split,  or share  dividend  which  becomes
effective thereafter. If the parties are unable to agree on a fair market value,
the dissenting shareholder may request the Superior Court for Los Angeles County
to determine the fair market value of the shares.  The court's decision would be
subject to appellate review.

         Dissenters'  rights  cannot be validly  exercised by persons other than
shareholders  of record  regardless of the  beneficial  ownership of the shares.
Persons who are  beneficial  owners of shares held of record by another  person,
such as a broker,  a bank or a nominee,  should  instruct  the record  holder to
follow the procedures  outlined below if such beneficial  owners wish to dissent
from the approval of the acquisition.

         As described  more fully below,  in order to perfect their  dissenters'
rights, shareholders of record must: (1) make written demand for the purchase of
their  dissenting  shares to Tarrant or its transfer agent on or before the date
of the special meeting, (2) vote their dissenting shares against approval of the
acquisition, and (3) within 30 days after the mailing to shareholders by Tarrant
of notice of approval of the acquisition,  submit the certificates  representing
their  dissenting  shares to Tarrant or its transfer agent, for notation on such
certificates  that they represent  dissenting  shares.  Failure to follow any of
these procedures may result in the loss of statutory dissenters' rights.

         DEMAND FOR PURCHASE

         Dissenting  shareholders  of  Tarrant  must  submit to  Tarrant  at its
principal office, 3151 East Washington Blvd., Los Angeles,  CA 90023,  Attention
:Chief Financial Officer, or to its transfer agent, Computershare Trust Company,
a written  demand that  Tarrant  purchase  for cash those shares with respect to
which  they wish to act as  dissenting  shareholders.  Such  demand  will not be
effective  unless  it is  received  by not  later  than the date of the  special
meeting.

         The demand  must  state the  number and class of shares  held of record
which the  shareholder  demands to be purchased and the amount claimed to be the
"fair market value" of such shares as of the day before the  announcement of the
acquisition. That statement of fair market value will constitute an offer by the
dissenting shareholder to sell such shares at that price.


                                       46



         Dissenting  shareholders  may not  withdraw  their  demand for  payment
without the consent of the Tarrant Board of Directors.  The rights of dissenting
shareholders  to demand  payment  terminate (1) if the  acquisition is abandoned
(although   dissenting   shareholders   are  entitled  upon  demand  in  such  a
circumstance to reimbursement of expenses  incurred in a good faith assertion of
their dissenters'rights),  (2) if the shares are transferred prior to submission
for  endorsement  as  dissenting  shares,  or (3) if Tarrant and the  dissenting
shareholders do not agree upon the status of the shares as dissenting  shares or
upon the  purchase  price,  and neither  files a complaint  or  intervenes  in a
pending  action  within six months after the date on which notice of approval of
the reorganization merger was mailed to the shareholders.

         No  shareholder  who has a right to demand payment in cash of the "fair
market  value" for such  shareholder's  shares will have any right to attack the
validity of the  acquisition,  except in an action to test  whether  Tarrant has
received the  affirmative  vote of the number of shares  required to approve the
acquisition.

         VOTE AGAINST APPROVAL OF THE ACQUISITION

         Dissenting  shareholders  must vote  their  dissenting  shares  against
approval of the  acquisition.  Voting against the acquisition is required in the
public  situation  to inform  the  company of the  extent of  objections  to the
acquisition  and  consequently  exposure to  potential  demand for cash.  Record
shareholders may vote part of the shares that they are entitled to vote in favor
of the  acquisition  or  abstain  from  voting  a part  of such  shares  without
jeopardizing  their dissenters'  rights as to other share.  [However,  if record
shareholders  vote part of the shares they are  entitled to vote in favor of the
acquisition  and fail to specify the number of shares they are so voting,  it is
conclusively  presumed under  California  law that their  approving vote is with
respect  to all shares  that they are  entitled  to vote.]  Voting  against  the
acquisition will not of itself, absent compliance with the provisions of Chapter
13 of the  CGCL  summarized  herein,  satisfy  the  requirement  of the CGCL for
exercise and perfection of dissenters' rights. Also, under CGCL, a shareholder's
failure to vote  against a proposal  does not  constitute  a waiver of appraisal
rights.

         NOTICE OF APPROVAL

         If  shareholders  have a right to  require  Tarrant to  purchase  their
shares in cash for the "fair market value" thereof under the dissenters'  rights
provisions of the CGCL,  Tarrant will mail to each such  shareholder a notice of
approval  of the  acquisition  within  ten days  after  the date of  shareholder
approval,  stating the price  determined  by it to  represent  the "fair  market
value" of the dissenting shares. The statement of price will constitute an offer
to purchase any dissenting shares at that price.

         SUBMISSION OF STOCK CERTIFICATES

         Within 30 days  after the  mailing  of the  notice of  approval  of the
acquisition,  dissenting  shareholders  must  submit to Tarrant or its  transfer
agent, at the address set forth above,  certificates representing the dissenting
shares to be  purchased,  to be stamped or endorsed  with a  statement  that the
shares  are  dissenting  shares  or  are to be  exchanged  for  certificates  of
appropriate  denomination so stamped or endorsed.  The notice of approval of the
acquisition  will specify the date by which the submission of  certificates  for
endorsement  must be made and a  submission  made  after  that  date will not be
effective for any purpose.


                                       47



         PURCHASE OF DISSENTING SHARES

         If a  dissenting  shareholder  and  Tarrant  agree  that the shares are
dissenting  shares and agree upon the price of the shares,  Tarrant  will,  upon
surrender of the  certificates,  make payment of that amount,  plus  interest on
such  amount at the legal  rate on  judgments  from the date of such  agreement,
within 30 days after the agreement on price.  Any agreement  between  dissenting
shareholders and Tarrant fixing the "fair market value" of any dissenting shares
must be filed with the corporate secretary of Tarrant.

         If Tarrant denies that the shares are dissenting shares, or Tarrant and
a  dissenting  shareholder  fail to agree  upon the "fair  market  value" of the
shares,  the  dissenting  shareholder  may,  within six months after the date on
which notice of approval of the acquisition was mailed to the  shareholder,  but
not thereafter,  file a complaint,  or intervene in a pending action, if any, in
the Superior Court for Los Angeles County, State of California,  requesting that
the Superior Court  determine  whether the shares are dissenting  shares and the
"fair market value" of such dissenting shares. The Superior Court may determine,
or appoint one or more  impartial  appraisers  to  determine,  the "fair  market
value" per share of the dissenting  shares.  The costs of the action,  including
reasonable  compensation  to the  appraisers  to be fixed by the court,  will be
assessed or apportioned as the Superior Court  considers  equitable,  but if the
"fair market value" is determined to exceed the price offered to the shareholder
by Tarrant,  then Tarrant will be required to pay such costs (including,  in the
discretion of the Superior Court,  attorneys' fees, fees of expert witnesses and
interest  at the  legal  rate on  judgments,  if such  "fair  market  value"  is
determined  to exceed  125% of the  price  offered  by  Tarrant).  A  dissenting
shareholder  must bring this  action  within six months  after the date on which
notice of approval of the acquisition  was mailed to the shareholder  whether or
not the  corporation  responds  within  such time to the  shareholder's  written
demand that Tarrant  purchase in cash for "the fair market  value"  shares voted
against the approval of the acquisition.


                                       48



                       STOCK AND ASSET PURCHASE AGREEMENT

         THE  FOLLOWING IS A BRIEF  SUMMARY OF ALL OF THE MATERIAL  TERMS OF THE
STOCK AND ASSET PURCHASE AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE  TO THE TEXT OF THE  STOCK  AND  ASSET  PURCHASE  AGREEMENT,  WHICH IS
ATTACHED  AS EXHIBIT A TO THIS PROXY  STATEMENT.  THE  EXHIBITS TO THE STOCK AND
ASSET PURCHASE  AGREEMENT ARE NOT ATTACHED HERETO,  BUT ARE AVAILABLE FOR REVIEW
UPON REQUEST.

GENERAL

         Under the terms of the stock and asset purchase agreement, we agreed to
purchase  all of the  outstanding  capital  stock  of three  Canadian  companies
through  which The Buffalo Group  operates its wholesale and retail  business in
Canada,  and one U.S.  company  through  which The Buffalo  Group  operates  its
wholesale  business in the United  States.  The Canadian  companies  are Buffalo
Inc.,  3681441 Canada Inc., 3163946 Canada Inc., and the U.S. company is Buffalo
Corporation,  a  Delaware  corporation.  We  also  agreed  to  purchase  certain
trademark rights and certain other assets owned by The Buffalo Trust,  which are
used in the business of the above-referenced  companies in Canada and the United
States.

         As  consideration  for the stock we are purchasing under the agreement,
we agreed to pay the sellers $17 million in cash and to issue to them promissory
notes in the aggregate  principal amount of $11 million and 13 million shares of
a Canadian subsidiary we formed for the purpose of consummating the transactions
under the purchase agreement. The shares of the Canadian subsidiary we agreed to
issue under the purchase  agreement will be non-voting and will be  exchangeable
for shares of our common  stock on a one for one basis.  We agreed to make up to
$12  million  in  earnout  payments  if  specified  performance  conditions  are
satisfied,  and a contingent payment if the price of our stock does not equal to
exceed $3.076 per share within the five year period following the closing of the
purchase transaction.

         As  consideration  for the assets we are  purchasing  from The  Buffalo
Trust,  we  agreed  to pay $23  million  in cash  and a  promissory  note in the
principal amount of $4 million.  The cash amount payable to The Buffalo Trust is
subject  to  reduction  before  the  closing,  based on the  amount  of  revenue
generated  by The Buffalo  Trust.  We also agreed to assume  liabilities  of The
Buffalo  Trust under  certain  agreements  specified in the purchase  agreement,
subject  to  certain  adjustments  and  exceptions.   We  will  not  assume  any
liabilities  arising  from a  breach  of the  specified  agreements  or any  tax
liabilities  attributable  to the trust or its settler,  trustee or beneficiary.
The purchase  agreement  provides that the purchase price for the assets will be
decreased  by the  adjusted  net  revenue of the trust,  which is defined as all
revenue of The Buffalo Trust less certain expenses.

DEPOSIT

         Upon execution of the stock and asset purchase agreement,  we paid a $5
million deposit toward the purchase of the stock and assets under the agreement.
If we close the  transactions  contemplated  by the  stock  and  asset  purchase
agreement,  this  amount  will be  applied to the cash  portion of the  purchase
price. If the closing of the transactions contemplated by the agreement does not
occur on or before March 31, 2007,  and either we or the sellers  terminate this
agreement,  the $5 million  deposit  will be retained by the sellers and we will
not be returned to us. Similarly,  if the agreement is terminated by the sellers
due to our breach of our obligations under the purchase  agreement,  or due to a
change having a material adverse effect to us or our business of $1.5 million or
more, the sellers will be entitled to retain the entire $5 million  deposit.  To
the extent that the sellers  retain the $5 million  deposit,  this will be their
sole and  exclusive  remedy and will  constitute  liquidated  damages  under the


                                       49



purchase agreement.  If the agreement is terminated due to our failure to obtain
shareholder  approval  or if a change  occurs  resulting  in a material  adverse
effect  of $1.5  million  or more  with  respect  to The  Buffalo  Group  or its
business,  or if the sellers breach their  representations  or obligations under
the purchase agreement,  we will be entitled to a refund of the deposited amount
less a  termination  fee equal to the out of  pocket  expenses  incurred  by The
Buffalo Group in connection with the proposed acquisition transaction.

CONTINGENT PAYMENTS

         We agreed to make  contingent  payments  for shares of our common stock
issuable in exchange for the shares of our Canadian  subsidiary that we issue in
the  transaction.  The contingent  payments will be based on the market price of
our  common  stock  during the five year  period  following  the  closing of the
transactions  contemplated  by the  stock  and  asset  purchase  agreement.  The
contingent payments will be determined by comparing a minimum share price to the
weighted  average  price per share of our common stock over any ten  consecutive
trading  days during the five year period  following  the closing  date,  during
which the aggregate  trading volume is at least 500,000 shares.  With respect to
each share of our common  stock  issuable in exchange for shares of our Canadian
subsidiary  that we are  issuing  in the  transaction,  if during the five years
following the closing date this weighted  average price per share does not equal
or exceed the minimum  per share price of $3.076,  we will be required to make a
contingent  payment equal to the difference between this minimum per share price
and the  highest  weighted  average  price  per share  over any ten  consecutive
trading days during the five year period  following  the  closing.  Any right to
receive a contingent payment is transferable either together with, or separately
from, the shares of common stock to which the right relates.

EARN OUT PAYMENTS

         The stock and asset  purchase  agreement  provides  for  payment  of an
earn-out  amount  (payable in cash) for each of the fiscal years ending December
31, 2007  through  2010.  If the  applicable  earnings  target is achieved  with
respect to any fiscal year,  we will be required to make an earn-out  payment of
$3 million for that year. Accordingly, if the earn-out targets are satisfied for
each of these years, we will be required to make total earn-out  payments of $12
million. In general,  the term "adjusted earnings" is defined to include the net
income of these target companies increased by interest,  taxes and certain other
expenses   incurred  in  connection  with  the  financing  of  the  transactions
contemplated  by the  stock and  asset  purchase  agreement,  and  decreased  by
amounts,  charges, claims and monies paid by us or our affiliates in relation to
the business,  asset or operations of the target companies or the assets that we
purchase under the stock and asset purchase  agreement.  The purchase  agreement
provides that adjusted  earnings will be calculated  without taking into account
the effect of certain  items,  including  (among other things) gain or loss from
any sale of assets not in the ordinary course of business.

         Upon  occurrence of certain  acceleration  events  specified  under the
purchase  agreement,  we will be required to pay an accelerated  earn-out amount
calculated  based on the net present value of the aggregate  remaining  earn-out
amounts as if all such  remaining  earn-out  amounts  would have been  earned in
full. The purchase  agreement provides that a discount rate of 7.0% will be used
in determining the net present value of this earn-out amount.  Events that would
trigger  these  accelerated  payments  include the  consummation  of a change of
control  transaction,  the termination of Mr. Gabriel Bitton's  employment by us
without cause (as defined in the purchase agreement) or Mr. Bitton's resignation
for good  reason,  our failure to make any  required  earn-out  payments and our
breach of certain specified  obligations  relating to the ongoing  management of
Buffalo  following the acquisition.  Change of control  transactions  that would
qualify as a triggering  event for payment of the  accelerated  earn-out  amount
include  transactions in which we sell all or substantially all of the assets of
the Buffalo  business or  otherwise  transfer or sell  control  over the Buffalo
business through a sale or transfer of the shares of the target companies we are


                                       50



acquiring or a sale of the shares of TAG Canada.  Change of control transactions
triggering the payment of earn-out amounts also include any transaction in which
Tarrant or TAG Canada sells all or substantially  all of its assets or it enters
into a merger or other  reorganization as a result of which less than 50% of the
total voting power of the surviving company are held by persons who were holders
of voting securities immediately before the transaction.

MANAGEMENT OF THE ACQUIRED BUSINESSES

         Under the  agreement,  Mr.  Gabriel  Bitton  will be  appointed  as the
President of Tarrant's  Buffalo Division and the Chief Executive  Officer of our
Canadian  subsidiary  through which we will operate the Canadian business we are
acquiring from The Buffalo Group.  Mr. Bitton will be entitled to serve in these
capacities commencing promptly after closing of the transactions under the stock
and  asset  purchase  agreement  until  the end of the  final  period  for which
earn-out  payments  may  be  due or the  termination  of his  employment  by him
voluntarily or due to his death or permanent  disability,  or for cause.  During
this time  period,  subject to the control of our Board of  Directors of Parent,
Mr.  Bitton  will  have  general  supervision,  direction  and  control  of  the
day-to-day operations, the business and the officers of our Canadian subsidiary.
Our Board of Directors will be entitled to terminate Mr. Bitton's employment for
cause.

         The  purchase   agreement  further  provides  that  during  the  period
commencing  on the closing  and ending at the end of the final  period for which
earn-out  payments may be due,  subject to the powers of our Board of Directors,
the day-to-day  management of our Canadian  subsidiary  will be conducted by its
executive  officers,  in accordance with the budgets and business plans approved
by our Board of Directors. Also, the agreement provides that all officers of our
Canadian  subsidiary  will report to its Chief Executive  Officer.  The purchase
agreement  further  includes  procedures  for holding  meetings  and approval of
annual and quarterly budgets for the acquired  businesses,  and provides certain
restrictions with respect to the management of our Canadian subsidiary.

REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES

         The  sellers  of the  shares  and  assets we are  purchasing  under the
purchase agreement made representations to us relating to:

         o        Their status as entities duly organized,  validly existing and
                  in  good   standing   under  the  laws  of  their   respective
                  jurisdictions of formation or organization, and the absence of
                  any actions for dissolution or liquidation;

         o        Their power and  authority to execute and deliver the purchase
                  agreement and other transaction  documents,  and the taking of
                  all actions  necessary to authorize  the execution and deliver
                  of all such documents;

         o        The  authorization,  execution  and  delivery  of  each of the
                  purchase  agreement and the other transaction  documents,  and
                  the  enforceability  of each such document  against the seller
                  that is a party to such agreement or document;

         o        The execution and delivery of the purchase agreement and other
                  documents  not  resulting  in any  breach of law or a material
                  breach of any contract to which the  representing  seller is a
                  party or by which it is bound or requiring  any consent of any
                  governmental authorities;

         o        Residence  of the sellers as Canadian  residents  for Canadian
                  income tax purposes;

         o        Absence of any obligation to pay fees to brokers or finders;


                                       51



         o        Ownership  of the shares of the acquired  businesses  free and
                  clear of any liens or encumbrances; and

         o        Qualification  as  sophisticated  investors  and review of all
                  relevant information necessary to evaluate the risk and merits
                  of their  investment in our  securities  and  securities to be
                  issued by our Canadian subsidiary in the transaction.

         We received  similar  representations  from the four  target  companies
whose  shares  we  are   purchasing.   In  addition,   we  received   additional
representations from these companies relating to:

         o        Their capitalization and outstanding capital stock;

         o        Delivery to us of complete and accurate corporate records;

         o        List  of   subsidiaries   and   information   concerning   the
                  capitalization of such subsidiaries;

         o        Delivery of audited  annual and  unaudited  interim  financial
                  statements  prepared in  accordance  with  Canadian  generally
                  accepted accounting principles;

         o        Absence of specified  matters  outside the ordinary  course of
                  business  since  the  date of the  interim  balance  sheet  of
                  September 30, 2006;

         o        Absence  of  liabilities  required  to  be  disclosed  on  the
                  financial statements;

         o        Compliance with laws;

         o        Payment of all  required  taxes,  filing of all  required  tax
                  returns  and  the  absence  of  tax  related   liabilities  or
                  obligations;

         o        Good and valid title to assets and valid leasehold interest in
                  personal and real property;

         o        List of all  intellectual  property  rights  and  validity  of
                  intellectual  property rights,  including without  limitation,
                  rights to use  trademarks  owned by or licensed to The Buffalo
                  Trust or that relate to the operation of its business;

         o        Non-infringement of the intellectual  property rights of third
                  parties;

         o        The   condition  of  inventory   maintained  by  the  acquired
                  companies;

         o        List of contracts to which any acquired company or The Buffalo
                  Trust is a party and the  absence of  material  contracts  not
                  otherwise disclosed to us;

         o        Collectible  status of accounts  receivable and maintenance of
                  adequate insurance coverage;

         o        Absence  of  litigation  relating  to  enforceability  of  the
                  purchase  agreement or that could result in a material adverse
                  change in the business of the companies we propose to acquire;

         o        Absence of  warranties  beyond  standard  terms and absence of
                  liability  for injury  resulting  from use of products sold by
                  the companies we propose to acquire;

         o        Absence of employee  disputes and  compliance  of all employee
                  benefit plans with applicable laws;

         o        Compliance with  environmental  laws and standards and absence
                  of environmental liability;

         o        Status of relationships with major customers and suppliers;


                                       52



         o        Possession of all permits  required to operate  businesses and
                  operations of companies that we propose to acquire;

         o        Absence  of certain  business  relationships  with  affiliated
                  parties; and

         o        Accuracy  of  information   provided  by  seller  parties  for
                  inclusion in this proxy statement.

PRE-CLOSING AND POST-CLOSING COVENANTS

         Under the  purchase  agreement,  the seller  parties  agreed to various
customary pre-closing covenants relating to the operation of the businesses that
we propose to acquire under the purchase  agreement,  the  preservation  of this
business, and the repayment and discharge of certain liabilities and obligations
by the seller parties.

         The purchase agreement also includes customary  post-closing  covenants
relating to transition of the business,  confidentiality and other matters.  The
purchase  agreement  provides  that,  upon the  closing  of the  stock and asset
purchase transaction,  we will appoint Messrs.  Gabriel Bitton and Luis Padilla,
or if either or both of them are unwilling or unable to serve, other nominees of
the sellers  reasonably  acceptable  to us, to serve on our Board of  Directors.
Subject to certain  conditions  and  requirements,  we further agreed to use our
commercially  reasonable  efforts to nominate these  individuals,  or such other
nominees, for reelection as a director at each meeting at which shareholders are
voting  for this  seat on the Board of  Directors.  This  obligation  to use our
efforts to nominate  these  individuals  or such other  nominees for  reelection
after the closing date will expire five years after the closing date or the date
the sellers and their affiliates own less than five million shares of our common
stock, whichever is sooner.

         In addition, the purchase agreement provides that we will
enter into an agreement  pursuant to which we will receive an exclusive  royalty
free license to use the name "David Bitton" in connection with the wholesale and
retail sale in Canada and the United States of jeans and related sportswears.

CLOSING CONDITIONS

         The   obligations  of  the  parties  to  consummate  the   transactions
contemplated by the purchase  agreement are conditioned on the satisfaction of a
number customary closing conditions,  including without limitation,  accuracy of
representations  and warranties,  no change having a material  adverse effect of
$1.5 million or more in value in the  businesses  of the companies we propose to
acquire,  absence of adverse  litigation  seeking to restrain  or  prohibit  the
transaction,  receipt  of all  required  third  party  consents,  execution  and
delivery of various ancillary agreements, and approval of the transaction by our
shareholders.  In  addition,  our  obligation  to  consummate  the  transactions
contemplated  by the purchase  agreement is conditioned on the  satisfaction  or
release  of  certain  liabilities  owed  by the  target  companies  that  we are
purchasing  under  the  purchase  agreement  and the  trust  from  which  we are
acquiring assets under the agreement.

TERMINATION

         The agreement may be terminated by mutual written consent of us and the
sellers at any time before the closing.  The  agreement  may also be  terminated
either by us or the  sellers  upon  delivery  of notice if the  closing  has not
occurred  before March 31, 2007, so long as the party  delivering the notice has
not caused the  failure to close as a result of the  party's  default  under the
agreement.  In addition,  we may terminate the purchase  agreement  with 30 days
advance  written  notice to the  sellers  if there has been a  material  adverse
change on the  businesses or assets we agreed to purchase,  or if any seller has
breached any  representation  or covenant under the purchase  agreement.  We can


                                       53



also terminate the purchase agreement if we are unable to obtain approval of the
transactions  and the purchase  agreement at the special meeting of shareholders
to which this proxy  statement  relates.  The sellers may terminate the purchase
agreement  with 30 days  advance  written  notice to us at any time  before  the
closing  if there  has been a  material  adverse  change in our  company  or our
business.

         If we  terminate  the purchase  agreement  due to the  occurrence  of a
material adverse change in the businesses we are purchasing or due to the breach
by the sellers of their  representations  or covenants  under the agreement,  we
will be  entitled  to a refund of the $5  million  deposit  and we will have the
right to pursue all legal  remedies for  damages,  except that no seller will be
liable  for  damages  in excess of $5  million.  If we  terminate  the  purchase
agreement  due to our  inability  to  obtain  shareholder  approval,  we will be
entitled  to a refund of the $5 million  deposit  but we will be required to pay
the sellers a termination  fee equal to all actual and reasonable  out-of-pocket
expenses  incurred  in  connection  with the  transactions  contemplated  by the
purchase  agreement  and  other  agreements  to be  executed  and  delivered  in
connection with these  transactions.  In general,  if the sellers  terminate the
purchase  agreement under the terms specified above or the purchase agreement is
terminated for failure to close before the expiration  date, the sellers will be
entitled  to retain  the $5  million  deposit  amount we paid upon  signing  the
purchase  agreement as their sole and exclusive remedy and as liquidated damages
under the purchase agreement.


                                       54



              TERMS OF THE EXCHANGEABLE SHARES AND RELATED MATTERS

         Upon the  consummation  of the proposed  acquisition,  the  outstanding
capital stock of TAG Canada will consist of the exchangeable  shares held by the
sellers in the acquisition transaction and common shares held by Tarrant.

EXCHANGE RIGHTS

         Holders of the exchangeable shares are entitled to exchange them at any
time for shares of Tarrant  common stock on a one for one basis.  In  connection
with any exercise of the exchange rights, Tarrant has the right to redeem shares
of its Series A preferred stock held under the voting trust  agreement  executed
in connection with the acquisition transaction.

DIVIDENDS AND DISTRIBUTIONS

         The  exchangeable  shares are entitled to  preferential  dividends  and
distribution  of assets in the case of a liquidation,  dissolution or winding-up
of TAG Canada. In general, the exchangeable shares rank senior or equal to other
shares of TAG Canada. Holders of the exchangeable shares are entitled to receive
any cash or  non-cash  dividends  declared  on Tarrant  common  stock.  All such
dividends  payable on the exchangeable  shares must be paid before any dividends
are declared or paid on other shares.

PROTECTIVE PROVISIONS

         Under the terms of the  exchangeable  shares,  TAG Canada agreed not to
take certain  actions  without the  approval of the holders of the  exchangeable
shares. Actions that may not be taken without the approval of the holders of the
exchangeable shares include amending the governing  instruments of TAG Canada so
as  to  adversely  affect  the  holders  of  the  exchangeable  shares,  issuing
additional  exchangeable  shares  other than  shares to be issued as  dividends,
paying dividends on stock ranking junior to the exchangeable shares,  initiating
voluntary liquidation or dissolution  proceedings,  or redeeming other shares of
TAG Canada.  The  restrictions on redeeming other shares are inapplicable if all
dividends and distributions on the outstanding exchangeable shares corresponding
to the dividends  and  distributions  declared and paid on Tarrant  common stock
have been declared and paid in full.

LIQUIDATION RIGHTS

         In the event of a liquidation,  dissolution or winding-up of TAG Canada
or any  other  distribution  of its  assets  to its  shareholders,  a holder  of
exchangeable  shares will be entitled to receive,  subject to applicable  law, a
share of common stock of Tarrant, plus all declared and unpaid cash and non-cash
dividends or other  distributions  made by Tarrant on a share of Tarrant  common
stock,  unless  the  corresponding  equivalent  has  already  been  paid  to the
exchangeable  shareholders.  Upon the occurrence of this type of event,  Tarrant
will have an overriding  right to purchase all of the  outstanding  exchangeable
shares for a payment amount equal to the  above-specified  amount payable on the
exchangeable shares.

         Upon the  insolvency,  winding up,  liquidation  or  dissolution of TAG
Canada,  the holder of each exchangeable  share has the right to require Tarrant
to  purchase  the  exchangeable   share  for  a  purchase  price  equal  to  the
above-specified  consideration amount (consisting of one share of Tarrant common
stock,  plus all cash and  non-cash  dividends  or other  distributions  made by
Tarrant. In addition, in the event of liquidation  (voluntary or involuntary) or
dissolution of Tarrant or winding up proceeding  with respect to of its affairs,
each exchangeable share will be automatically  exchanged to an equivalent number
of Tarrant common stock.


                                       55



         Any share of Tarrant  common  stock issued  pursuant to an  insolvency,
winding  up,  liquidation  or  dissolution  or the  automatic  exchange  will be
entitled to registration  rights under the Registration  Rights Agreement by and
among Tarrant and the holders of the exchangeable shares.

RETRACTION RIGHTS

         The holder of the exchangeable  shares can require TAG Canada to redeem
either all of the exchangeable  shares or a minimum of 100  exchangeable  shares
registered in the name of such holder for the specified consideration consisting
of one share of Tarrant  common  stock plus all cash and  non-cash  dividends or
other  distributions  made by  Tarrant.  Upon the  exercise of this right by the
holders,  Tarrant has the right to purchase  all of the shares for the  purchase
price per share equal to this consideration amount.

REDEMPTION RIGHTS

         TAG Canada will redeem all of the outstanding  exchangeable shares on a
redemption  date as  determined  by its board but not earlier  than  December 1,
2016, except under specified circumstances.  The redemption price per share will
be equal to the same price  payable by Tarrant upon  exercise of its  overriding
right to purchase all of the shares. TAG Canada's  redemption rights are subject
to Tarrant's right to purchase the shares.

VOTING RIGHTS

         The holders of  exchangeable  shares  will not have any voting  rights,
except  as  required  by  applicable  law  and  provided  in  the  terms  of the
exchangeable shares. However, in tandem with the exchangeable shares, Tarrant is
issuing  130,000 shares of Series A preferred  stock with special voting rights,
as described elsewhere in this proxy statement.

AMENDMENT AND APPROVAL

         The  terms of the  exchangeable  shares  may be  amended  only with the
approval of the exchangeable shareholders.  Any such approval will be sufficient
if given in accordance with applicable law subject to a minimum requirement that
at  least  20% of the  outstanding  exchangeable  shareholders  are  present  or
represented by proxy at a meeting at which at least two-thirds  approve any such
change, subject to other restrictions.

RECIPROCAL CHANGES

         If Tarrant issues  dividends in the form of Tarrant common stock to its
shareholders or other  securities  allowing  existing  holders of Tarrant common
stock to  purchase  additional  shares of  Tarrant  common  stock,  or assets of
Tarrant, then TAG Canada will ensure that the economic equivalent on a per share
basis of these shares of Tarrant common stock (or securities exchangeable for or
convertible into or carrying rights to acquire Tarrant Shares), rights, options,
securities,  shares,  evidences  of  indebtedness  or other  assets is issued or
distributed  simultaneously to the exchangeable  shareholders.  The terms of the
exchangeable  shares also provide that the terms of the exchangeable shares will
be adjusted in the event of any stock split or  reclassification  of the Tarrant
common stock, so as to ensure that the  exchangeable  shares receive the same or
an economically equivalent change.

COMMON AND PREFERRED SHARES OF TAG CANADA

         TAG Canada's  common shares are held by Tarrant and will be entitled to
attend and vote at any meeting of the  shareholders  of TAG  Canada,  except for


                                       56



meetings of shareholders of other classes.  The board of directors of TAG Canada
may issue specified  preferred  shares,  from time to time,  under such terms as
determined by the board.

SUPPORT AGREEMENT

         Concurrently  with the  execution  and  delivery of the stock and asset
purchase  agreement,  Tarrant and TAG Canada entered into a Support Agreement in
relation to the exchangeable  shares.  The support agreement requires Tarrant to
comply  with  certain  affirmative  and  restrictive  covenants  so  long as any
exchangeable shares (not owned by Tarrant or its affiliates) remain outstanding.
Under the terms of the support  agreement,  Tarrant agreed not to declare or pay
any dividends on Tarrant common stock unless TAG Canada simultaneously  declared
or pays an equivalent dividend on the exchangeable shares, and not to permit TAG
Canada from  issuing any further  exchangeable  shares or any other  shares that
permit the holders of the shares to exchange or convert the shares into  Tarrant
common stock or the shares of any  affiliate of Tarrant.  Tarrant also agreed to
ensure that record date for declaring  dividends on Tarrant  common stock is not
less than 10 days after the  declaration  date of the dividend,  and to take all
additional  actions  necessary to enable TAG Canada to pay its obligations  with
respect to the exchangeable shares.

         In addition,  so long as exchangeable  shares remain outstanding (other
than  shares  held by Tarrant  or its  affiliates),  Tarrant  agreed not to take
action with respect to any of the  following  without the prior  approval of TAG
Canada  and  the  holders  of  the  exchangeable  shares,  unless  the  economic
equivalent  on a per share basis of such rights,  options,  securities,  shares,
evidences   of   indebtedness   or  other   assets  is  issued  or   distributed
simultaneously to holders of the exchangeable  shares or an equivalent change be
simultaneously made to, or in the rights of these holders:

         o        issue  Tarrant  common  stock  by way  of  dividend  or  other
                  distribution,  other than to holders of Tarrant  common  stock
                  exercising an option to receive dividends in lieu of receiving
                  cash dividends;

         o        issue  rights,  options  or  warrants  to the  holders  of the
                  outstanding  Tarrant  common stock  entitling them to purchase
                  Tarrant common stock;

         o        issue shares or  securities of Tarrant of any class other than
                  Tarrant common stock,  rights,  options or warrants other than
                  those referred in previous sentence, evidences of indebtedness
                  of  Tarrant  or  assets  of  Tarrant,   unless  the   economic
                  equivalent  is  issued  to the  holders  of  the  exchangeable
                  shares; or

         o        subdivide,  re-divide or change the then  outstanding  Tarrant
                  common stock into a greater number of Tarrant common stock; or
                  reduce,  combine,  consolidate or change the then  outstanding
                  Tarrant common stock into a lesser number of shares of Tarrant
                  common stock; or reclassify or otherwise change Tarrant common
                  stock or effect an  amalgamation,  merger,  reorganization  or
                  other transaction affecting Tarrant common stock.

         TAG Canada  agreed to take all actions  reasonably  necessary to enable
Tarrant or any of its  affiliates  to perform its  obligations  arising upon the
exercise  by  Tarrant  or such of its  affiliates  of the  overriding  right  to
purchase  all  of  the  exchanged  shares,  including  in  connection  with  the
liquidation,  the retraction or the redemption of the exchangeable  shares.  TAG
Canada also agreed to notify Tarrant of certain  significant  events,  including
determinations  regarding liquidation,  dissolution or winding up of TAG Canada,
receipt  or  notification  of  any  claim  or  proceeding  with  respect  to  an
involuntary liquidation or dissolution of TAG Canada, and certain other matters.


                                       57



         In addition,  Tarrant  agreed that in the event of any proposed  tender
offer,  share exchange offer or similar  transaction with respect to the Tarrant
common stock, Tarrant will take all actions necessary to enable the exchangeable
shareholders  to  participate  in such  transaction to the same extent and on an
economically equivalent basis as Tarrant's shareholders.  Under the terms of the
support agreement,  Tarrant further agreed to certain restrictions applicable to
any sale of all or  substantially  all of its  assets or  properties,  which are
designed to ensure that  appropriate  adjustments  are made to the  exchangeable
shares so they remain the economic equivalent of Tarrant common stock.


                                       58



                THE SERIES A PREFERRED STOCK AND THE VOTING TRUST

GENERAL

         Tarrant's   Certificate  of  Incorporation   authorizes  the  Board  of
Directors to designate one or more series  preferred  stock having such terms as
determined by the Board of Directors. Pursuant to a certificate of determination
filed with the California  Secretary of State, the Board of Directors designated
130,000 shares of Series A Special Voting Preferred Stock, no par value.

         The following  summary of the terms of the Series A preferred stock and
the  voting  trust are  qualified  in its  entirety  by the text of the Series A
preferred  stock  certificate  of  determination  and the related  voting  trust
agreement.

VOTING RIGHTS AND VOTING TRUST AGREEMENT

         Pursuant  to the terms of the  Series A  preferred  stock,  the  record
holder of the  Series A  preferred  stock on the  record  date for any action of
Tarrant's  shareholders  will have voting rights  identical to those held by the
holders of shares of  Tarrant  common  stock,  and will vote  together  with the
holders of the common stock. The Series A preferred stock is entitled to vote on
any  matters on which  Tarrant  shareholders  are  entitled  to vote.  Except as
required by law, the holders of Tarrant  common stock and the Series A preferred
stock will vote together as a single class.

         Pursuant to the terms of a Voting Trust Agreement to be entered into at
the  closing  of  the   acquisition  by  and  among  Tarrant,   TAG  Canada  and
Computershare  Trust Company of Canada,  each share of Series A preferred  stock
will be entitled to 100 voting shares. Computershare Trust Company of Canada, as
the trustee of the trust under the Voting Trust  Agreement,  will be required to
vote the Series A  preferred  stock in  accordance  with the terms of the Voting
Trust  Agreement.  The voting rights  accompanying  the Series A preferred stock
will terminate pursuant to the Voting Trust Agreement.

REDEMPTION

         Tarrant will be entitled to redeem  shares of Series A preferred  stock
at nominal  value as  exchangeable  shares are  exchanged  for shares of Tarrant
common stock. In connection with any exchange of the exchangeable  shares and as
a condition to the  exchange,  Tarrant will be entitled to redeem such number of
shares of Series A preferred stock so that the total number of votes represented
by shares of Series A  preferred  stock and  Tarrant  common  stock  issued upon
exercise of exchange  rights that remain  outstanding  after the  redemption and
exchange do not exceed the number of votes  represented by such shares of Series
A preferred stock and Tarrant common stock  outstanding  immediately  before the
redemption  and  exchange.  The terms of the Series A preferred  stock set forth
notice  requirements  and other  procedures in relation to the redemption of the
Series A preferred  stock. In connection with any redemption,  the holder of the
Series  A  preferred  stock  will  be  required  to  surrender  the  certificate
representing  the Series A  preferred  stock,  in  exchange  for  payment of the
nominal redemption price.

NO DIVIDENDS OR CONVERSION RIGHTS

         The Series A preferred  stock are not entitled to receive any dividends
and are not convertible into other securities of Tarrant.


                                       59



                    UNAUDITED PRO FORMA FINANCIAL INFORMATION

         The following  unaudited pro forma  consolidated  financial  statements
should be read in conjunction  with the historical  financial  statements of The
Buffalo Group  (attached to this proxy  statement as Exhibit D) as well as those
of Tarrant  (incorporated  by  reference  from the annual and  periodic  reports
attached as Exhibit E and Exhibit F to this proxy statement).  The unaudited pro
forma consolidated  financial  statements do not purport to be indicative of the
financial  position  or results of  operation  that  would  have  actually  been
obtained had such  transactions  been  completed as of the assumed dates and for
the periods  presented,  or which may be  obtained in the future.  The pro forma
adjustments are described in the accompanying notes and are based upon available
information and certain assumptions that our management believes are reasonable.

         A preliminary  allocation of the purchase price of the assets purchased
from The Buffalo Group has been made to intangible assets. The actual allocation
of the purchase price and the resulting  effect on income (loss) from operations
may differ  significantly  from the pro forma amounts  included  below.  The pro
forma adjustments represent our preliminary determination of purchase accounting
adjustments  and are based upon available  information  and certain  assumptions
that  our  management  believes  to be  reasonable.  Consequently,  the  amounts
reflected in the  unaudited  pro forma  consolidated  financial  statements  are
subject to change, and the final amounts may differ substantially.


                                       60




                              TARRANT APPAREL GROUP
            UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
                            AS OF SEPTEMBER 30, 2006


                                                                           PRO FORMA       PRO FORMA
                                              TAGS          BUFFALO        ADJUSTMENT       COMBINED
                                          ------------    ------------    ------------    ------------
                                                                                 
                ASSETS
Current assets:
  Cash and cash equivalents ...........        976,481       1,277,044      (1,200,000)a     1,053,525
  Accounts receivable, net ............     46,175,909      18,687,828            --        64,863,737
  Due from related parties ............      3,918,287            --              --         3,918,287
  Inventory ...........................     20,455,702      22,100,036            --        42,555,738
  Other current assets ................      1,356,570         887,204            --         2,243,774
                                          ------------    ------------    ------------    ------------
     Total current assets .............     72,882,949      42,952,112      (1,200,000)    114,635,061

Property and equipment ................      1,477,101       9,944,087            --        11,421,188
Notes receivable ......................     14,000,000            --              --        14,000,000
Due from related parties ..............      2,213,416       1,743,413        (400,000)b     3,556,829
Other long-term assets ................      5,210,036       1,306,000         838,000 a     7,354,036
Trademark .............................        126,675          89,469      15,910,531 a    16,126,675
Licenses ..............................           --        18,858,871      (7,858,871)b    11,000,000
Goodwill ..............................      8,582,845            --        42,977,111 a    51,559,956
                                          ------------    ------------    ------------    ------------
     Total assets .....................    104,493,022      74,893,952      50,266,771     229,653,745
                                          ============    ============    ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Short-term bank borrowings ..........     12,534,937      17,938,768            --        30,473,705
  Accounts payable and accrued expenses     27,972,376       9,110,584       1,338,000 a    38,420,960
  Income taxes ........................     17,035,409            --              --        17,035,409
  Current portion of long-term
     obligations and factoring
     arrangement ......................     19,769,030            --              --        19,769,030
                                          ------------    ------------    ------------    ------------
     Total current liabilities ........     77,311,752      27,049,352       1,338,000     105,699,104

Term loan, net ........................     10,941,948            --        40,000,000 a    50,941,948
Other long-term obligations ...........         65,405      33,313,090     (31,527,719)b     1,850,776
Notes payable .........................           --              --        15,000,000 a    15,000,000
Retractable preferred shares ..........           --         5,232,607      (5,232,607)b          --
Accrued consideration .................           --              --        22,698,000 a    22,698,000
                                          ------------    ------------    ------------    ------------
     Total liabilities ................     88,319,105      65,595,049      42,275,674     196,189,828

Minority interest in consolidated
   subsidiary .........................         57,469            --              --            57,469
Commitment and Contingencies

Shareholders' equity:
  Preferred stock, 2,000,000 shares
     authorized; no shares at
     September 30, 2006 issued and
     outstanding (see note m) .........           --              --              --              --
  Common stock, no par value,
     100,000,000 shares authorized;
     30,543,763 shares at September
     30, 2006 issued and outstanding ..    114,977,465       5,472,721      (5,472,721)b   114,977,465
  Warrants to purchase common stock ...      7,314,239            --              --         7,314,239
  Exchangeable shares .................           --              --        17,290,000 a    17,290,000
  Contributed capital .................     10,101,151            --              --        10,101,151
  Retained earnings (Accumulated
     deficit) .........................   (114,094,373)      8,163,840      (8,163,840)b  (114,094,373)
  Notes receivable from
     officer/shareholder ..............     (2,182,034)           --              --        (2,182,034)
  Cumulative translation adjustment ...           --        (4,337,658)      4,337,658 b          --
                                          ------------    ------------    ------------    ------------
     Total shareholders' equity .......     16,116,448       9,298,903       7,991,097      33,406,448
                                          ------------    ------------    ------------    ------------

     Total liabilities and
        shareholders' equity ..........    104,493,022      74,893,952      50,266,771     229,653,745
                                          ============    ============    ============    ============



                                       61




                              TARRANT APPAREL GROUP
       UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                             AND COMPREHENSIVE LOSS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006


                                                                              PRO FORMA          PRO FORMA
                                                 TAGS          BUFFALO        ADJUSTMENT          COMBINED
                                             ------------    ------------    ------------       ------------
                                                                                     
Net sales ................................    174,989,008      74,792,601            --          249,781,609
Cost of sales ............................    138,006,628      38,770,338            --          176,776,966
                                             ------------    ------------    ------------       ------------

Gross profit .............................     36,982,380      36,022,263            --           73,004,643
Selling and distribution expenses ........      8,295,815      19,375,759            --           27,671,574
General and administrative expenses
                                               19,914,629       9,897,998        (559,185)c,g     29,253,442
Royalty expenses .........................      2,099,392       2,099,392
Loss on notes receivable - related parties     27,137,297            --              --           27,137,297
                                             ------------    ------------    ------------       ------------

Income (loss) from operations ............    (20,464,753)      6,748,506         559,185        (13,157,062)

Interest expense .........................     (4,696,279)     (3,040,347)     (1,162,853)e,i     (8,899,479)
Interest income ..........................      1,131,601            --              --            1,131,601
Other income (expense), net ..............        (45,747)           --              --              (45,747)
Adjustment to fair value of derivative ...        511,087            --              --              511,087
                                             ------------    ------------    ------------       ------------

Income (loss) before provision for income
   taxes .................................    (23,564,091)      3,708,159        (603,668)       (20,459,600)
Provision for income taxes ...............        340,667       1,326,000        (241,467)k        1,425,200
                                             ------------    ------------    ------------       ------------

Net income (loss) ........................    (23,904,758)      2,382,159        (362,201)       (21,884,800)
                                             ============    ============    ============       ============

     Net income (loss) per share:
     Basic & Diluted .....................          (0.78)                                             (0.72)
                                             ============                                       ============

     Weighted average common and
     common equivalent shares:
     Basic and Diluted ...................     30,546,217                                         30,546,217
                                             ============                                       ============

Net income (loss) ........................    (23,904,758)      2,382,159        (362,201)       (21,884,800)
Foreign currency translation adjustment ..           --          (277,443)           --             (277,443)
                                             ------------    ------------    ------------       ------------
Total comprehensive income (loss) ........    (23,904,758)      2,104,716        (362,201)       (22,162,243)
                                             ============    ============    ============       ============



                                       62




                              TARRANT APPAREL GROUP
       UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                             AND COMPREHENSIVE LOSS
                      FOR THE YEAR ENDED DECEMBER 31, 2005


                                                                                   PRO FORMA           PRO FORMA
                                                      TAGS           BUFFALO       ADJUSTMENT          COMBINED
                                                  ------------    ------------    ------------       ------------
                                                                                          
Net sales .....................................    214,648,218     104,071,846            --          318,720,064
Cost of sales .................................    169,767,051      61,155,418            --          230,922,469
                                                  ------------    ------------    ------------       ------------

Gross profit ..................................     44,881,167      42,916,428            --           87,797,595
Selling and distribution expenses .............     10,726,425      23,071,741            --           33,798,166
General and administrative expenses ...........     26,864,789      11,760,890        (568,539)d,h     38,057,140
Royalty expenses ..............................      3,664,454            --              --            3,664,454
                                                  ------------    ------------    ------------       ------------

Income (loss) from operations .................      3,625,499       8,083,797         568,539         12,277,835

Interest expense ..............................     (4,624,590)     (3,794,899)     (1,723,526)f,j    (10,143,015)
Interest income ...............................      2,081,456            --              --            2,081,456
Other income (expense), net ...................        838,160            --              --              838,160
                                                  ------------    ------------    ------------       ------------

Income (loss) before provision for income taxes      1,920,525       4,288,898      (1,154,987)         5,054,436
Provision for income taxes ....................        927,181       1,855,000        (461,995)l        2,320,186
                                                  ------------    ------------    ------------       ------------

Net income ....................................        993,344       2,433,898        (692,992)         2,734,250
                                                  ============    ============    ============       ============

     Net income per share:
     Basic ....................................           0.03                                               0.09
                                                  ============                                       ============
     Diluted ..................................           0.03                                               0.06
                                                  ============                                       ============

     Weighted average common and
     common equivalent shares:
     Basic ....................................     29,728,997                                         29,728,997
                                                  ============                                       ============
     Diluted ..................................     29,734,291                                         42,734,291
                                                  ============                                       ============

Net income ....................................        993,344       2,433,898        (692,992)         2,734,250
Foreign currency translation adjustment .......           --          (221,049)           --             (221,049)
                                                  ------------    ------------    ------------       ------------
Total comprehensive income ....................        993,344       2,212,849        (692,992)         2,513,201
                                                  ============    ============    ============       ============



                                       63



                   NOTES TO THE UNAUDITED PRO FORMA CONDENSED
                   CONSOLIDATED COMBINED FINANCIAL STATEMENTS

a        Reflects the acquisition of The Buffalo Group by Tarrant for a purchase
         price of $40 million in cash,  $15 million in  promissory  notes and 13
         million  exchangeable  shares of Tarrant's Canadian  subsidiary,  which
         will be  exchangeable  into 13 million  shares of Tarrant common stock.
         The sellers  also will be entitled to receive a  contingent  payment if
         the highest volume  weighted  average market price of Tarrant's  common
         stock over the 10 day trading  period with a trading volume of at least
         500,000  shares  during the five years  following  the closing does not
         equal or exceed $3.076 per share.

b        Reflects the  elimination  of assets not acquired and  liabilities  not
         assumed as part of the acquisition.

c        Reflects the  elimination of  amortization  of trademark and license in
         the amounts of $2.0  million for the nine months  ended  September  30,
         2006.

d        Reflects the  elimination of  amortization  of trademark and license in
         the  amounts of $2.5  million for the fiscal  year ended  December  31,
         2005.

e        Reflects the elimination of interest paid on a loan that is not assumed
         as part of  acquisition  in the  amounts of $2.0  million  for the nine
         months ended September 30, 2006.

f        Reflects the elimination of interest paid on a loan that is not assumed
         as part of  acquisition  in the amounts of $2.5  million for the fiscal
         year ended December 31, 2005.

g        Reflects the  amortization  of trademark  and license in the amounts of
         $1.4 million for the nine months ended  September 30, 2006 assuming the
         life of trademark is twenty years and license is ten years.

h        Reflects the  amortization  of trademark  and license in the amounts of
         $1.9 million for the fiscal year ended  December 31, 2005  assuming the
         life of trademark is twenty years and license is ten years.

i        Reflects the interest  paid on the new financing in the amounts of $3.2
         million for the nine months ended September 30, 2006.

j        Reflects the interest  paid on the new financing in the amounts of $4.2
         million for fiscal year ended December 31, 2005.

k        Reflects  the  change of tax  provision  of  $241,000  on the pro forma
         adjustment for the nine months ended September 30, 2006.

l        Reflects  the  change of tax  provision  of  $462,000  on the pro forma
         adjustment for the fiscal year ended December 31, 2005.

m        In combination with the exchangeable shares, Tarrant will issue 130,000
         shares of a special  series of preferred  stock of Tarrant to a trustee
         of a voting  trust,  under  which  the  sellers  will have the right to
         direct the  trustee  to vote a number of shares  equal to the number of
         exchangeable   shares   Tarrant's   Canadian   subsidiary  that  remain
         outstanding at any time.


                                       64



                              TARRANT APPAREL GROUP

GENERAL

         Tarrant  Apparel  Group is a design and  sourcing  company  for private
label and private brand casual apparel  serving mass  merchandisers,  department
stores, branded wholesalers and specialty chains located primarily in the United
States.  Our  major  customers  include  retailers,   such  as  Chico's,  Macy's
Merchandising  Group, the Avenue,  Lane Bryant,  Lerner New York,  Mothers Work,
J.C. Penney, Kohl's, Sears, Mervyn's and Wal-Mart. Our products are manufactured
in a variety of woven and knit  fabrications  and  include  jeans  wear,  casual
pants, t-shirts, shorts, blouses, shirts and other tops, dresses and jackets.

         In 2003 and 2004,  our net sales were $320  million  and $155  million,
respectively.  In 2005,  our net sales  increased by 38.1% to $215  million.  In
2003,  we  experienced  a net loss of $35.9  million,  which  included  non-cash
charges of inventory write-down of $11 million and an impairment of asset charge
of $22.3 million.  In 2004, we experienced a net loss of $104.7  million,  which
included non-cash charges of $22.8 million of foreign currency  translation loss
and $78.0 million of asset  impairments.  In 2005, we experienced  net income of
$1.0  million.  Our net sales  increased by $10.1 million to $175 million in the
first nine months of 2006 from $164.9 million in the first nine months of 2005.

         See Tarrant's  Annual  Report on Form 10-K for the year ended  December
31, 2005, and its Quarterly  Report on Form 10-Q for the period ended  September
30, 2006,  for further  information  concerning  Tarrant's  business,  products,
properties and legal  proceedings.  Copies of these reports are attached to this
proxy statement as Exhibits E and F.

CONTACT US

                  Tarrant maintains its principal office at 3151 East Washington
Boulevard, Los Angeles, California 90023. You can reach us by telephone at (323)
780-8250.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF TARRANT

         The  following  table  sets  forth  as of  December  15,  2006,  unless
otherwise indicated, certain information relating to the ownership of our common
stock  by (i)  each of  Tarrant's  directors,  (ii)  each of its  current  named
executive  officers,  and (iii) all of its current named executive  officers and
directors as a group.  Except as listed below,  there are no other persons known
to us to the  beneficial  owner of more than  five  percent  of the  outstanding
shares of our common  stock.  Except as may be indicated in the footnotes to the
table and subject to applicable  community  property laws,  each such person has
the sole  voting and  investment  power with  respect to the shares  owned.  The
address of each person  listed is in care of the Company,  3151 East  Washington
Blvd.,  Los Angeles,  CA 90023,  unless  otherwise set forth below such person's
name.


                                       65





                                                   NUMBER OF SHARES
                                                   OF COMMON STOCK
NAME AND ADDRESS                                  BENEFICIALLY OWNED (1)      PERCENT (1)

                                                                           
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Gerard Guez......................................       12,883,084  (2)          38.7%
Todd Kay.........................................        4,995,999  (3)          15.1%
Corazon Reyes....................................          284,888  (4)          *
Charles Ghailian.................................          322,000  (5)          *
Stephane Farouze.................................          100,000  (6)          *
Henry Chu .......................................          100,000  (5)          *
Milton Koffman...................................           34,000  (7)          *
Joseph Mizrachi..................................           28,000  (5)          *
Mitchell Simbal..................................           24,000  (5)          *
Simon Mani.......................................           20,000  (5)          *
DIRECTORS AND OFFICERS AS A GROUP (11 PERSONS)...       18,791,971  (8)          51.7%

OTHER 5% OWNERS:
Guggenheim Capital, LLC..........................        3,500,000  (9)          10.3%
   227 West Monroe Street, Suite 4900
   Chicago, IL 60606


*      Less than one percent.

(1)    Under Rule 13d-3,  certain shares may be deemed to be beneficially  owned
       by more than one person (if, for example, persons share the power to vote
       or the power to dispose of the shares). In addition, shares are deemed to
       be beneficially  owned by a person if the person has the right to acquire
       the shares (for example,  upon  exercise of an option)  within 60 days of
       the date as of which  the  information  is  provided.  In  computing  the
       percentage  ownership of any person,  the amount of shares outstanding is
       deemed to include the amount of shares  beneficially owned by such person
       (and  only such  person)  by reason  of these  acquisition  rights.  As a
       result,  the percentage of  outstanding  shares of any person as shown in
       this table does not necessarily  reflect the person's actual ownership or
       voting  power  with  respect  to the  number of  shares  of common  stock
       actually outstanding at December 15, 2006.  Percentage ownership is based
       upon  30,543,763  shares of common  stock  issued and  outstanding  as of
       December 15, 2006.
(2)    Includes 461,518 shares held by GKT Investments,  LLC, a Delaware limited
       liability  company owned 100% by Mr. Guez and 2,766,668  shares of common
       stock  issuable  upon  exercise of stock options which are or will become
       exercisable on or prior to February 13, 2007.
(3)    Includes 2,433,332 shares of common stock issuable upon exercise of stock
       options which are or will become  exercisable on or prior to February 13,
       2007.
(4)    Includes  52,000  shares of common stock  issuable upon exercise of stock
       options which are or will become  exercisable on or prior to February 13,
       2007.
(5)    Consists  of shares of  common  stock  issuable  upon  exercise  of stock
       options which are or will become  exercisable on or prior to February 13,
       2007.
(6)    Includes  20,000  shares of common stock  issuable upon exercise of stock
       options which are or will become  exercisable on or prior to February 13,
       2007.
(7)    Includes  24,000  shares of common stock  issuable upon exercise of stock
       options which are or will become  exercisable on or prior to February 13,
       2007.
(8)    Includes 5,665,000 shares of common stock issuable upon exercise of stock
       options which are or will become  exercisable on or prior to February 13,
       2007.
(9)    Consists of shares of common stock  issuable  upon  exercise of warrants.
       Voting and dispositive  power over 1,892,857 shares is exercised  through
       Guggenheim  Investment   Management,   LLC,  which  is  a  subsidiary  of
       Guggenheim  Capital,  LLC.  Voting and  dispositive  power over 1,607,143
       shares  is  exercised  through  Midland  Advisors  Company,  which  is  a
       subsidiary  of Guggenheim  Capital,  LLC.  Information  is taken from the
       Schedule 13D as filed with the Securities and Exchange Commission on June
       27, 2006.


                                       66



         The information as to shares  beneficially  owned has been individually
furnished by the  respective  directors,  named  executive  officers,  and other
shareholders of Tarrant, or taken from documents filed with the SEC.

MARKET PRICE OF COMMON STOCK

         Tarrant's  common  stock has been quoted on The NASDAQ  Stock  Market's
National Market System under the symbol "TAGS" since 1995.

         The following table sets forth, for the periods indicated, the range of
high and low sale prices for our common stock as reported by NASDAQ.

                                                           Low          High
                                                         ---------    ---------
2004
First Quarter.....................................         1.68         3.73
Second Quarter....................................         1.45         2.53
Third Quarter.....................................         0.79         1.57
Fourth Quarter....................................         0.78         2.44

2005
First Quarter.....................................         1.50         2.62
Second Quarter....................................         1.35         3.88
Third Quarter.....................................         2.76         4.12
Fourth Quarter....................................         1.02         3.15

2006
First Quarter.....................................         1.06         1.44
Second Quarter....................................         1.25         2.11
Third Quarter.....................................         1.29         2.00

         On December 15, 2006,  the last reported sale price of our common stock
as reported by NASDAQ was $1.35. As of December 15, 2006, we had 25 shareholders
of record.

SELECTED FINANCIAL DATA

         The following  selected financial data is qualified in its entirety by,
and should be read in  conjunction  with,  the other  information  and financial
statements, including the notes thereto, appearing in Tarrant's annual report on
Form 10-K for the year ended  December  31, 2005, a copy of which is attached as
Exhibit E to this proxy statement.


                                       67





                                                             YEAR ENDED DECEMBER 31,
                                         -------------------------------------------------------------
                                            2001         2002         2003         2004         2005
                                         ---------    ---------    ---------    ---------    ---------
                                                     (in thousands, except per share data)
                                                                              
INCOME STATEMENT DATA:
Net sales ............................   $ 330,253    $ 347,391    $ 320,423    $ 155,453    $ 214,648
Cost of sales ........................     277,525      302,082      288,445      134,492      169,767
                                         ---------    ---------    ---------    ---------    ---------
   Gross profit ......................      52,728       45,309       31,978       20,961       44,881
Selling and distribution
   expenses ..........................      14,345       10,757       11,329        9,291       10,726
General and administrative
   expenses ..........................      33,136       30,082       31,767       32,084       26,865
Royalty expense ......................         500          656          242          605        3,665
Amortization of intangibles (2) ......       3,317         --           --           --           --
Impairment charges (3) ...............        --           --         22,277       77,982         --
Cumulative translation loss (4) ......        --           --           --         22,786         --
                                         ---------    ---------    ---------    ---------    ---------
Income (loss) from operations ........   $   1,430        3,814      (33,637)    (121,787)       3,625
Interest expense .....................      (7,808)      (5,444)      (5,603)      (2,857)      (4,625)
Interest income ......................       3,256        4,748          425          377        2,081
Minority interest ....................        (412)      (4,581)       3,461       15,331          (75)
Interest in income of equity
   method investee ...................        --           --           --            770          560
Other income (1) .....................       1,853        2,648        4,784        6,366          354
Other expense (1) ....................        (356)      (1,348)      (1,183)        (529)        --
                                         ---------    ---------    ---------    ---------    ---------
Income (loss) before provision
   for income taxes and cumulative
   effect of accounting change .......      (2,037)        (163)     (31,753)    (102,329)       1,920
Provision for income taxes ...........        (852)      (1,051)      (4,132)      (2,348)        (927)
                                         ---------    ---------    ---------    ---------    ---------
Income (loss) before cumulative
   effect of accounting change .......   $  (2,889)   $  (1,214)   $ (35,885)   $(104,677)   $     993
Cumulative effect of accounting
   change (2) ........................        --         (4,871)        --           --           --
                                         ---------    ---------    ---------    ---------    ---------
Net income (loss) ....................   $  (2,889)   $  (6,085)   $ (35,885)   $(104,677)   $     993
Dividend to preferred stockholders ...        --           --         (7,494)        --           --
                                         ---------    ---------    ---------    ---------    ---------
Net income (loss) available to
   common stockholders (as restated) .   $  (2,889)   $  (6,085)   $ (43,379)   $(104,677)   $     993
                                         =========    =========    =========    =========    =========

Net income (loss) per share - Basic:
   Before cumulative effect of
     accounting change (as
       restated) .....................   $   (0.18)   $   (0.08)   $   (2.38)   $   (3.64)   $    0.03
   Cumulative effect of
     accounting change ...............        --          (0.30)        --           --           --
   After cumulative effect of
     accounting change (as
       restated) .....................   $   (0.18)   $   (0.38)   $   (2.38)   $   (3.64)   $    0.03
Net income (loss) per share - Diluted:
   Before cumulative effect of
     accounting change (as
       restated) .....................   $   (0.18)   $   (0.08)   $   (2.38)   $   (3.64)   $    0.03
   Cumulative effect of
     accounting change ...............        --          (0.30)        --           --           --

   After cumulative effect of
     accounting change (as
       restated) .....................   $   (0.18)   $   (0.38)   $   (2.38)   $   (3.64)   $    0.03

Weighted average shares
   outstanding (000)
   Basic .............................      15,825       15,834       18,215       28,733       29,729
   Diluted ...........................      15,825       15,834       18,215       28,733       29,734



                                       68





                                                                AS OF DECEMBER 31,
                                         -------------------------------------------------------------
                                            2001         2002         2003         2004         2005
                                         ---------    ---------    ---------    ---------    ---------
                                                                 (in thousands)
                                                                              
BALANCE SHEET DATA:

Working capital ......................   $  25,109   $  11,731   $ (18,018)   $ (12,295)   $ (11,004)
Total assets .........................     288,467     316,444     253,105      131,811      151,242
Bank borrowings, convertible
   debenture and long-term
   obligations .......................     111,336     106,937      68,587       48,455       56,148
Shareholders' equity .................     125,164     121,161     107,709       30,678       35,360


----------
(1)      Major components of other income (expense) (as presented above) include
         rental and lease  income,  and foreign  currency  gains or losses.  See
         "Item 7.  Management's  Discussion and Analysis of Financial  Condition
         and Results of Operations."

(2)      Effective January 1, 2002, we adopted Statement of Financial Accounting
         Standards No. 142, "Goodwill and Other Intangible Assets." According to
         this statement,  goodwill and other  intangible  assets with indefinite
         lives are no  longer  subject  to  amortization,  but  rather an annual
         assessment of impairment applied on a fair-value-based test. We adopted
         SFAS No. 142 in fiscal 2002 and performed  our first annual  assessment
         of impairment, which resulted in an impairment loss of $4.9 million.

(3)      The  expense in 2004 was the  impairment  of  long-lived  assets of our
         Mexico  operations  due to  our  decision  to  sell  the  manufacturing
         operations  in Mexico.  The expense in 2003 was the  impairment  of our
         goodwill and intangible assets and write-off of prepaid expenses due to
         our decision to cease directly operating a substantial  majority of our
         equipment and fixed assets in Mexico commencing in the third quarter of
         2003.  See Note 5 and Note 7 of the  "Notes to  Consolidated  Financial
         Statements."

(4)      Cumulative   translation   loss   attributable  to  liquidated   Mexico
         operations  in  2004  was  due to our  decision  to  cease  our  Mexico
         operations.

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

         See Tarrant's  annual  report on Form 10-K for the year ended  December
31,  2005,  which was filed with the SEC on April 3,  2006,  a copy of which are
attached hereto as Exhibit E. See also Tarrant's  quarterly  report on Form 10-Q
for the quarterly  period ended  September 30, 2006, a copy of which is attached
hereto as Exhibit F.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Tarrant's financial  statements for the nine months ended September 30,
2006 are  incorporated  by reference from its quarterly  report on Form 10-Q for
the nine  months  then  ended,  which is  attached  as  Exhibit F to this  proxy
statement. Tarrant's financial statements for the years ended December 31, 2005,
2004 and 2003 are  incorporated by reference from its annual report on Form 10-K
for the year ended  December  31,  2005,  which is attached as Exhibit E to this
proxy statement.

         The  following  table sets forth,  for the periods  indicated,  certain
items in our  consolidated  statements of income in millions of dollars and as a
percentage of net sales:


                                       69



                                  QUARTER ENDED

                                             SEP. 31       JUN. 30      MAR. 31
                                               2006          2006         2006
                                             -------       -------      -------

Net Sales ...........................        $  54.6       $  59.1      $  61.3

Gross profit ........................           11.8          12.7         12.5

Operating income  (loss) ............          (24.7)          2.6          1.6

Net income (loss) ...................          (25.3)          0.6          0.8



                                  QUARTER ENDED

                                            SEP. 31        JUN. 30       MAR. 31
                                              2006           2006          2006
                                             -----          -----         -----

Net Sales .........................          100.0%         100.0%        100.0%

Gross profit ......................           21.6           21.4          20.4

Operating income (loss) ...........          (45.3)           4.4           2.7

Net income (loss) .................          (46.4)           1.0           1.4


                                       70



                          BUSINESS OF THE BUFFALO GROUP

OVERVIEW

         Buffalo  designs,  imports and  markets  high  fashion  denim and other
apparel products and accessories  under the principal brand name Buffalo.  These
products  include jeans,  jackets,  dresses,  belts and T-shirts.  Buffalo sells
apparel products and accessories  through a chain of 45 retail stores in Canada.
Buffalo's  products  are also sold in upscale  department  stores and  boutiques
across North America,  including Bloomingdale's,  Nordstrom's,  Fred Segal's and
Macy's East and West. Buffalo also maintains  approximately 200 "shop in shops,"
which are Buffalo environments,  within retail stores. Buffalo sells products to
its wholesale  customers  directly as well as licensees.  Buffalo also sells its
products in overseas  markets such as the United Kingdom and South East Asia, as
well as Mexico, other countries in Central and South America,  through wholesale
accounts and licensees.

         Buffalo's goal is to build a broad and diversified  portfolio of brands
selling high fashion denim and other apparel  products and accessories  across a
range of retail price points through wholesale and retail distribution channels,
to expand the U.S.  distribution  of the  BUFFALO  brand  through the opening of
retail stores and to expand its licensing portfolio.

COMPETITIVE STRENGTHS

         Buffalo's   management   believes  its  portfolio  of  casual   brands,
international  distribution  relationships  with  retailers and its retail chain
positions  Buffalo for sustained  growth and  profitability.  Buffalo intends to
capitalize on the following competitive strengths to achieve these goals:

         STRONG DOMESTIC AND INTERNATIONAL PRESENCE.  Buffalo sells its products
to  retailers  and to  wholesalers  in North  America.  Buffalo  also  sells its
products through licensees in other countries abroad. Buffalo's key retailers in
the United States include department stores such as Bloomingdale's, Nordstrom's,
Lord & Taylor and  Macy's  East and West,  and  upscale  boutiques  such as Fred
Segal's.  Buffalo's  products have been distributed across North America in over
3,000  department  stores and  fashion  boutiques,  including  Buffalo's  retail
stores.  Internationally,  Buffalo  lines are  offered  in five  countries  with
additional countries being added shortly.

         HIGH  QUALITY  DESIGN AND  MANUFACTURING.  Buffalo's  success  has been
largely due to the design of its collection and the high quality of its product.
Buffalo has design offices in both Canada and the United States.  Also,  Buffalo
has teams of buyers  constantly  reviewing  the  international  markets  for new
design  influences.  Buffalo prides itself on its ability to quickly turn in the
moment trends into product and bring to market.

         RESPONSIVENESS  TO EMERGING  TRENDS.  Buffalo has  established a strong
international  network of raw material sourcing and manufacturing.  Establishing
relationships  with  agents  around the world has  enabled  Buffalo to deal with
quality manufacturers at competitive prices.

         EXPERIENCED  MANAGEMENT  TEAM.  Mr. Gabriel Bitton and the other Bitton
brothers  each have over 25 years of  experience  in the apparel  industry.  The
Buffalo  Group of  companies is a leading  North  American  company  founded and
controlled  by the  Bitton  family.  The  Bitton  family  is  comprised  of five
brothers,  each  taking an active  role in the  business.  The  management  team
develops the strategic focus of The Buffalo Group and makes top-level  decisions


                                       71



affecting its future orientation.  During the past several years, management has
developed and  implemented  successful  strategies for growth through new market
penetration, licensing and diversification.

         The management team consists of:

         Gilbert  Bitton (age:  60) was one of the founders of The Buffalo Group
in 1985.  Mr.  Bitton has served as  president  of The  Buffalo  Group since its
inception.  Mr.  Gilbert  Bitton has also  served as the  director of buying and
production since the inception of The Buffalo Group. Before founding The Buffalo
Group,  Mr.  Bitton  was a  production  manager  of a leading  Canadian  apparel
company.

         David  Bitton  (age:  52) David  Bitton was one of the  founders of The
Buffalo Group in 1985.  Mr. Bitton has been the director of marketing and ladies
denim  development since the inception of The Buffalo Group. Mr. Bitton was also
a driving force behind the expansion  into the U.S.  market in 1993.  Mr. Bitton
has been serving as the chief  executive  officer of the retail  division  since
2005.

         Gabriel  Bitton (age:  49) was one of the founders of The Buffalo Group
in 1985.  Mr.  Bitton has served as director of business  development  and sales
from  inception  of The Buffalo  Group in 1985.  He was also the  driving  force
behind the  diversification  into retail in 1996.  Mr. Bitton has also served as
the director of licensing since the acquisition of the licenses in 2003.

         Michel Bitton (age: 56) was one of the founders of The Buffalo Group in
1985. Mr. Bitton has served as director of ladies  sportswear  development since
its inception. Mr. Bitton has extensive in production, manufacturing and product
quality control.

         Charles  Bitton  (age:  46) has  been  the  director  of  mens  product
development  since the  inception of The Buffalo  Group.  Mr.  Bitton was also a
driving force behind the expansion into the U.S. market.

         DIVERSIFICATION  OF PRODUCT LINES.  Buffalo develops extensive lines of
denim and other  apparel  products  and  accessories  for women and men across a
range of retail price points.  Buffalo's  products range in price at retail from
$88 to $128.

         RETAIL  STRATEGY.  Retail  distribution  affords  Buffalo  several  key
advantages over its  competitors.  Buffalo  competes against such brands as Miss
Sixty,  Diesel,  Lucky and Guess.  By selling  directly to  consumers  at retail
prices, Buffalo achieves higher gross margins and profitability than the margins
and profitability it would generate solely through wholesale distribution.  With
the acquisition of Buffalo,  Tarrant is transforming from a wholesale model to a
combination  retail and wholesale  model.  The acquisition  will give Tarrant an
immediate  retail presence in Canada,  eliminating the costly and time consuming
process of developing an equivalent retail operation over a number of years. The
retail stores will also provide a platform for Tarrant and the combined  company
to expand the retail  operations to the United  States and other  jurisdictions,
thereby  increasing  consumer  exposure  to,  and  awareness  of,  the  combined
company's  brands,  and reducing the risk  associated  with cyclical or seasonal
downturns in sales of any one or more brands.

GROWTH STRATEGY

         Buffalo's goal is to build a broad and diversified  portfolio of brands
and become a leading seller of casual apparel products and accessories  across a
range of retail  price  points  through our  wholesale  and retail  distribution
channels by focusing on the following key elements of our growth strategy:


                                       72



         EXPAND RETAIL BUSINESS. Buffalo plans to expand its retail business. In
order to take full advantage of its retail  management team and  infrastructure,
and fully leverage its ability to increase gross margins through sale of its own
products in its retail stores,  Buffalo plans to  significantly  grow its retail
business  by adding  new  stores in  attractive  markets  and new  locations  in
existing markets.

         EXPAND  WHOLESALE  DISTRIBUTION.  Buffalo  currently sells its products
directly to major  department  stores and  boutiques in Canada,  United  States,
Mexico and other Latin American countries, and through distribution arrangements
in a  number  of  countries  abroad.  Buffalo  plans  to  expand  its  wholesale
distribution  in several ways. In Canada and the United States,  it plans to add
retailers of high-end  denim  products  that do not already  sell its  products.
Buffalo also plans to expand the floor space and  diversify the product lines of
retailers  who  currently  sell  its  products.  Internationally,  Buffalo  will
negotiate distribution agreements for territories where Buffalo does not already
have a strong  presence.  Also,  Buffalo plans to rollout over 150 shop in shops
concepts with its present  retailers.  This will enhance the presentation of the
brand and will  emphasize  the  Buffalo  image and  concept.  This will  further
strengthen the image of the BUFFALO brand on an international scale.

         CONTINUE  TO  DIVERSIFY  PRODUCT  LINES.  Buffalo has  diversified  its
product  lines,  both by increasing the price point range for denim products and
adding  complementary  non-denim  products.  Buffalo  will  continue to sensibly
diversify its product lines, particularly with new denim products.  Buffalo will
also continue to evaluate licensing  arrangements with quality manufacturers for
ancillary products that it wishes to add.

         Buffalo  currently  markets  the  majority  of its  products  under the
BUFFALO brand.  Buffalo  intends to continue to use its extensive  experience in
the apparel industry to identify and evaluate strategic opportunities to acquire
other businesses and to develop, license or acquire new brands. Buffalo seeks to
acquire or license additional  businesses and brands that will contribute to its
growth  through  additional  sales  revenue,  name and  brand  recognition,  and
synergies with its existing brands.

PRODUCTS AND BRANDS

         Buffalo offers denim and non-denim apparel products under the principal
brand name  BUFFALO.  Buffalo  currently  sells  apparel  products  in men's and
women's  styles,  and in children's  styles  developed by a licensee.  Buffalo's
product  line has grown to  encompass  a diverse  range of  products,  including
belts,  footwear,  lingerie and sleepwear,  watches and home furnishings through
licensing  arrangements.  Buffalo  products are made from high  quality  fabrics
milled in Italy and Spain and are processed  with  cutting-edge  treatments  and
finishes.  Buffalo's concepts and designs,  including BUFFALO'S distinct western
flair,  embellishments,  unique finishes,  hand stitching and other attention to
detail and quality give its products a competitive  advantage in the markets and
sectors in which Buffalo competes.

         Buffalo's  jeans are  available  in  multiple  combinations  of washes,
fabrics  and  finishes.  In  addition to the  introduction  of new styles  every
season,  Buffalo  typically  introduces  new  versions of its major  styles on a
regular  basis in  different  colors,  washes and  finishes.  Although its denim
products have accounted for the  substantial  majority of Buffalo's total sales,
Buffalo anticipates sales of its non-denim products will continue to increase as
a percentage of its overall sales in future periods.


                                       73



RETAIL OPERATIONS

         Buffalo operates 45 stores in Canada.  New stores are under negotiation
and scheduled to open before the end of 2007.

         The retail  stores  possess the unique  ability to market  emerging and
establishing styles with consumer impulse in mind in both high traffic and local
neighborhood environments.

DESIGN AND DEVELOPMENT

         The Buffalo brand has a design team striving to develop a distinct look
and feel to the products based on an overall design philosophy. Buffalo is known
for being a leader in denim fabrications,  washes, fits and a complete lifestyle
brand made & fashion tops, sportswear & outer wear for men and women.  Buffalo's
design team has  extensive  know-how and apparel  experience.  Through  constant
review of the European  and U.S.  shows and year round  market  visits,  Buffalo
design  team  keeps  abreast  of any  tendencies  and  `in the  moment'  trends.
Benefiting from Buffalo's  developed and long lasting  relationship  with agents
and  factories  around the world,  the products can be developed in a relatively
short  period  of time and  introduced  immediately  into the  corporate  retail
stores.  This  allows  the design  team the  ability  to get quick  feedback  on
products before the style is launched in all Buffalo areas of distribution.

SOURCING

         Buffalo  purchases  its  fabric,  thread and other raw  materials  from
various industry suppliers.  The fabric,  thread and other raw materials used by
Buffalo are available  from a large number of suppliers  worldwide.  Buffalo has
the  ability  to  replace  its  suppliers  of raw  materials  as needed  without
significantly affecting its business or operations.

         Buffalo presently relies on the services of several buying agencies for
its  manufacturing  needs. It does not rely on any one  manufacturer and Buffalo
management believes additional  manufacturing  capacity is available to meet our
current and planned needs.  Buffalo  maintains  rigorous quality control systems
for both raw and finished goods.  Buffalo's  management  believes it can realize
significant  cost  savings  in  product  manufacturing  because  of  its  strong
relationships with a diverse group of international buying agents established by
Buffalo's management team through their experience in the apparel industry.

MARKETING, DISTRIBUTION AND SALES

         Buffalo  markets,  distributes  and sells its  products in Canada,  the
United States and internationally in a number of other countries and territories
such  as  the  United  Kingdom,  Mexico,  other  Latin  American  countries  and
Australia.

         Buffalo  distributes its products in North America  through  department
stores,  retail  stores and fashion  boutiques.  Buffalo's  products are sold in
Canada in department  stores and  boutiques  such as The Bay and chain stores as
well as through  Buffalo's  retail  stores in 45  locations  throughout  Canada.
Buffalo's  products  are sold in the  United  States in  department  stores  and
boutiques.  Internationally,  Buffalo  products  are  also  distributed  through
licensing and distribution arrangements in countries such as the United Kingdom,
Mexico, other Latin American countries and Australia.

         Buffalo  markets  and  distributes  its  products by  participating  in
industry  trade shows,  as well as through its own retail stores and show rooms.
Buffalo currently has no exclusive or long term distribution agreements with any


                                       74



party covering any territory,  and does not depend on any single  distributor to
distribute its products.

         Buffalo  has and will  continue  to expand its  distribution  worldwide
through licensing agreements.

         Buffalo's  management  feels that this method of expansion is two-fold.
First, it allows  penetration  into new territories on the  international  scale
through  the  issuance  of  licensing  agreements.  Secondly,  it allows for the
diversification  into  complementary  product lines by licensing  with companies
specialized in the manufacturing and distribution of these complementary product
lines.

COMPETITION

         Apparel production in Asia and the Far East, and other regions in which
labor is relatively  inexpensive,  has led to increased  imports and  heightened
competition  in  the  domestic  marketplace.  As  a  result  of  increased  cost
pressures,  the apparel industry has experienced  significant  restructuring and
consolidation,  and achieving economies of scale through vertical integration is
necessary to remain competitive.

         Buffalo's current competitors are companies that sell denim and apparel
brands.  Many of these competitors have greater financial  resources,  operating
capacity,  name  recognition  and  market  penetration  than  Buffalo.  Sales of
Buffalo's products are affected by style, price,  quality,  brand reputation and
general fashion trends.

TRADEMARKS AND OTHER INTELLECTUAL PROPERTY

         Buffalo is the holder of  trademarks  for the  BUFFALO  brand.  It also
licenses its brands for  distribution  of products in several  countries such as
Mexico and other Latin American  countries.  It diversifies its product lines by
adding complementary non-denim products such as linens and watches in Canada and
USA. The duration of a license is usually  three years with the  possibility  of
renewal.

         Buffalo has made and will continue to make efforts to minimize domestic
and international  counterfeiting of our brands and design,  and infringement of
our  other  intellectual  property  rights,   including  through  litigation  if
necessary.  Buffalo has a team responsible for its portfolio brands that oversee
international trademarks watch.

         The trademarks  owned by Buffalo are registered for the period provided
by the law applicable in the countries  where the  registrations  are completed.
The  duration of a  registration  is usually  ten years.  At  expiration  of the
duration, the trademarks can be renewed. Buffalo currently owns approximately 70
registrations  in relation with the brand Buffalo  diversified into 30 different
countries including Australia,  Barbados,  Bolivia, Canada, Costa Rica, Denmark,
Dominican Republic,  Ecuador,  Japan,  Lebanon,  Mexico,  Netherlands  Antilles,
Panama, Philippines,  Puerto Rico, Russia, Saudi Arabia, Singapore,  Taiwan, USA
and Venezuela.

GOVERNMENT REGULATION AND SUPERVISION

         Buffalo benefits from certain  international  treaties and regulations,
such as the North American Free Trade  Agreement  (NAFTA),  which allows for the
duty and quota free  entry  into the  Canada  and the  United  States of certain
qualifying merchandise. International trade agreements and embargoes by entities
such as the  World  Trade  Organization  also  can  affect  Buffalo's  business,
although their impact has historically been favorable.


                                       75



EMPLOYEES

         As of December,  2006,  Buffalo had  approximately 250 employees in its
wholesale  group and over 600  employees  in the  retail  group  including  part
timers.  Buffalo's  employees are not unionized except for part of the employees
of the  Canadian  warehouse  which  represent  less than 30  employees.  Several
employees are subject to existing employment agreements with Buffalo.

         As a  condition  to the  consummation  of the  acquisition  of Buffalo,
Tarrant will enter into employments  agreements with Mr. Gabriel Bitton and each
of the  other  four  Bitton  brothers,  as  described  elsewhere  in this  proxy
statement.

FACILITIES

         PRINCIPAL EXECUTIVE OFFICES

         Buffalo's  principal  executive  offices are located at 400 Sauve West,
Montreal, Quebec, H3L 1Z8 CANADA. Its telephone number is (514) 388-3551.

         DESCRIPTION OF PROPERTY

         The Buffalo Group occupies  approximately 160,000 square feet of office
and warehouse space in Canada. It also has  approximately  72,000 square feet of
office and  warehouse  space in the U.S. The sales  offices are located in major
cities across North America with the U.S. sales offices located in New York.

LEGAL PROCEEDINGS

         Except for the matters described below,  Buffalo is not involved in any
material legal proceedings. A former employee of 3163946 Canada Inc., one of the
operating  subsidiaries  of The Buffalo Group,  has initiated a lawsuit  against
this  company  claiming  involuntary  resignation.  The case was filed  with the
Superior  Court of Quebec  and the  plaintiff  seeks  damages  of  approximately
$400,000.  It is not  possible  at this time to  determine  the  outcome of this
matter and  accordingly,  no  provision  has been made in the  accounts for this
claim.  Another  former  employee  of The  Buffalo  Group  has made a claim  for
reinstatement and compensation for salary loses pending  reinstatement,  as well
as damages due to  psychological  distress.  It is difficult  to  determine  the
outcome of this case.


                                       76



                        BUFFALO'S SELECTED FINANCIAL DATA

         The following  selected financial data is qualified in its entirety by,
and should be read in  conjunction  with,  the other  information  and financial
statements,  including the notes  thereto,  attached to this proxy  statement as
Exhibit D.



                                                                YEAR ENDED DECEMBER 31,
                                       --------------------------------------------------------------------------
                                           2005           2004           2003            2002            2001
INCOME STATEMENT DATA:                     $USD           $USD           $USD            $USD            $USD
                                       ------------   ------------   ------------    ------------    ------------
                                                                                      
Net sales ..........................   $104,071,846   $ 87,788,920   $ 75,248,392    $ 68,554,476    $ 60,282,863
Cost of sales ......................     61,155,418     50,222,074     44,746,624      45,718,525      40,393,375
                                       ------------   ------------   ------------    ------------    ------------
Gross profit .......................   $ 42,916,428   $ 37,566,846   $ 30,501,768    $ 22,835,951    $ 19,889,488
Store expenses .....................     12,256,741     11,471,058      9,366,474       7,445,221       7,506,000
Selling and distribution expenses ..      9,761,281      8,136,118      8,490,919       8,086,511       6,514,738
General and administrative expenses       8,523,525      7,854,156      6,506,071       5,400,037       3,794,183
Amortization expense ...............      4,291,084      3,713,405      1,638,130         788,849         696,812
                                       ------------   ------------   ------------    ------------    ------------
Income from operations .............   $  8,083,797   $  6,392,109   $  4,500,174    $  1,115,333    $  1,377,755
Interest expense ...................      3,794,899      3,323,438      1,788,015         885,443       1,083,524
Interest income ....................           --             --             --            17,097          34,854
                                       ------------   ------------   ------------    ------------    ------------
Income before provision for
    income taxes ...................   $  4,288,898   $  3,068,671   $  2,712,159    $    246,987    $    329,085
Provision (benefit) for income taxes      1,855,000      1,551,000        (51,000)        328,509         438,901
                                       ------------   ------------   ------------    ------------    ------------
Income (loss) ......................   $  2,433,898   $  1,517,671   $  2,763,159    $    (81,522)   $   (109,816)
                                       ============   ============   ============    ============    ============




                                                                  AS OF DECEMBER 31,
                                           2005           2004           2003            2002            2001
                                       ------------   ------------   ------------    ------------    ------------
                                                                                       
BALANCE SHEET DATA:
Working capital ....................   $ 10,202,577   $  5,128,814    $  3,086,823    $  3,781,579    $  2,142,175
Total assets .......................     67,706,180     64,840,793      57,346,023      33,404,891      27,748,629
Bank borrowings ....................     10,519,592     12,396,905       9,428,636      12,440,852       9,283,430
Shareholders' equity ...............      7,398,261       (123,778)       (605,421)     (1,059,313)       (977,790)



                                       77



            BUFFALO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

         THE  FOLLOWING  DISCUSSION  SHOULD  BE  READ  TOGETHER  WITH  BUFFALO'S
FINANCIAL  STATEMENTS  AND  RELATED  NOTES  ATTACHED  AS EXHIBIT D TO THIS PROXY
STATEMENT, AS WELL AS THE SECTION ENTITLED "RISK FACTORS," THAT APPEAR ELSEWHERE
IN THIS PROXY STATEMENT.

OVERVIEW

         The Buffalo Group designs,  develops,  markets and distributes high-end
fashion denim and other apparel products under the principal brand name BUFFALO.
Buffalo's products currently include belts, shoes, lingerie and sleepwear,  kids
wear, watches and home decor under license. In addition, products in development
include  sunglasses,   swimwear  and  fragrances.  Buffalo  operates  45  retail
locations in Canada.  It also distributes its clothing through upscale retailers
such as  Bloomingdale's,  Nordstrom's,  Fred  Segal's  and Macy's East and West.
Buffalo currently has  approximately 200 shop in shops.  These are Buffalo shops
in retail stores. Due to its success and rapid growth in North America,  Buffalo
has  expanded  overseas  through  its global  licensing  agreements.  Presently,
Buffalo has strong brand  presence in the UK, Latin America,  Mexico,  Southeast
Asia and the Middle East, with growing  presence in Italy,  Greece,  Ireland and
other locations across Europe.

         Buffalo  operates in the high-end  fashion denim and apparel  industry.
Its  competitors  are companies  that market such brands as Miss Sixty,  Diesel,
Lucky and Guess.

         The  Buffalo  Group  consists  of a large  number of related  companies
ultimately  owned,  controlled  and  managed  by the Bitton  brothers  and their
affiliates.  By virtue of Tarrant's  acquisition of all the outstanding  capital
stock of 3681441  Canada Inc.,  Buffalo Inc. and 3163946  Canada Inc., the three
Canadian  operating  subsidiaries of The Buffalo Group, all outstanding  capital
stock of Buffalo  Corporation,  a U.S.  operating  subsidiary  through which The
Buffalo  Group  operates  its U.S.  wholesale  business,  and the  assets of The
Buffalo  Trust,  Tarrant  is  effectively  acquiring  the  entire  business  and
operations  of  The  Buffalo  Group.  Tarrant  will  operate  the  business  and
operations it acquires in this  transaction as a separate  division  through its
wholly-owned  Canadian  subsidiary,  TAG  Canada,  and one or more of its  other
subsidiaries.

         The principal  components of Buffalo's  operations include its Canadian
wholesale  operations,  its  wholesale  operations  in the United States and its
Canadian retail operations. Buffalo Inc. represents Buffalo's Canadian wholesale
operations.  The wholesale operations consist of Buffalo, private labels for men
and women and Request  apparel.  Buffalo Inc.'s main customers  include  Zellers
Inc., Winners Apparel Ltd., Costco Wholesale Canada,  Sears  Merchandising,  and
Wal-Mart  Canada.  Buffalo  distributes  in  exclusivity  for Zellers  Inc.  the
collection Request,  for Costco Wholesale Canada the collection Gasoline and for
Athletes World the collection Vibe.  These brands are owned by Buffalo.  Buffalo
also produces private label for Wal-Mart.

         Buffalo Corporation represents Buffalo's U.S. wholesale operations. The
wholesale  operations  consist of Buffalo,  private labels for men and women and
American  Exchange  apparel.  The main U.S.  wholesale  customers  include Sears
Roebuck,   Federated  Stores,  Lord  &  Taylor,  Dillard's,   Bloomingdales  and
Nordstrom.

         3163946 Canada Inc represents Buffalo's Canadian retail operations. The
retail  operations  consist  of  Buffalo  stores  in  Quebec,  Ontario,  British


                                       78



Columbia,  Alberta and Manitoba.  Buffalo's  retail  operations sell a different
line of clothing  with the  exception  of denim in order to  differentiate  from
their wholesale operations.

         Buffalo's customer mix consists of both wholesale  customers and retail
customers.  For 2005, Canada wholesale  accounted for 46% of wholesale sales and
U.S. wholesale accounted for 54% of wholesale sales.  Buffalo's retail operation
in Canada revenue for 2005 accounted for 100% of retail sales.

CORPORATE BACKGROUND

         Buffalo  was  founded  by the Bitton  brothers  in 1985.  The  business
originally  began as a wholesale and distribution of BUFFALO branded products in
Canada.  The Bitton brothers  obtained the rights to the brand through  licenses
giving them the exclusive rights to distribute the BUFFALO brand in Canada. Over
the years, the business  expanded through the addition of product  categories to
what was  predominately a denim line.  Also, the company has acquired the rights
to other  brands and  currently  markets  and sells  products  under other brand
names.

         In  1993,  The  Buffalo  Group   expanded  into  the  U.S.   market  by
establishing  a showroom in New York and  establishing  a network of independent
sales agents across the U.S. to distribute the BUFFALO brand.

         In 2000,  The Buffalo Group began  developing a private label  business
for major department stores in Canada.

         In 1996, The Buffalo Group opened its first retail stores which grew to
a chain of 45 stores today.

         In 2003,  The Buffalo Group  acquired the  international  rights to the
BUFFALO and REQUEST brands.  Effective  January 1, 2004, The Buffalo Group began
receiving  licensing  royalties  from third  party  domestic  and  international
licenses as well as from their related companies for the brands.

CRITICAL ACCOUNTING POLICIES

         The  preparation of financial  statements in conformity with accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses.  On an ongoing basis,  Buffalo  evaluates  estimates,  including those
related to returns, discounts, bad debts, inventories, intangible assets, income
taxes, contingencies and litigations.  Buffalo bases its estimates on historical
experience and on various  assumptions  that are believed to be reasonable under
the  circumstances,  the  results of which  form the basis for making  judgments
about the  carrying  values  of  assets  and  liabilities  that are not  readily
apparent  from other  sources.  Actual  results may differ from these  estimates
under different assumptions or conditions.

         REVENUE

         Revenue is  recognized  when  merchandise  has been  shipped  against a
customer's  written  purchase order,  the risk of ownership has passed,  selling
price has been fixed and determined and collection is reasonably  assured either
through payment received,  or fulfillment of all the terms and conditions of the


                                       79



particular purchase order. Revenue is recorded net of estimated returns,  charge
backs and markdowns based on management's estimates and historical experience.

         ACCOUNTS RECEIVABLES

         Trade  accounts  receivable  are  recorded  at invoiced  amounts,  less
amounts accrued for returns,  discounts and allowances. An allowance is provided
for specific  customer  accounts  where  collection is doubtful and for inherent
risk in our ability to ultimate  collect.  There is no off-balance  sheet credit
exposure related to customer receivables.

         INVENTORIES

         Inventory is stated at the lower of cost (first-in,  first-out  method)
and net  realizable  value.  The valuation of retail  inventory in the stores is
determined by the retail inventory  method which  approximates the lower of cost
(first-in,  first-out  method)  and  net  realizable  value.  Under  the  retail
inventory method,  inventory is converted to a cost basis by applying an average
cost to selling  ratio.  Inventory  includes items that have been marked down to
management's best estimate of their net realizable value.

         INCOME TAXES:

         The Buffalo Group provides for income taxes using the liability  method
of tax allocation.  Under this method,  future income tax assets and liabilities
are  determined  based on deductible or taxable  temporary  differences  between
financial  statements  values  and tax values of assets  and  liabilities  using
substantively  enacted income tax rates expected to be in effect for the year in
which the differences are expected to reverse.

         The Buffalo Group  established  a valuation  allowance  against  future
income tax assets if, based upon available  information,  it is more likely than
not that some or all of the future income tax assets will not be realized.

         The  net  earnings  of the  Buffalo  Trust,  if  any,  for  the  period
constitute income of the trust's  beneficiaries and are subject to income tax in
their hands and accordingly,  no provision for income taxes on the income of the
Trust has been made.

RESULTS OF OPERATIONS

         The  following  table sets forth,  for the periods  indicated,  certain
items  in the  consolidated  statements  of  income  of The  Buffalo  Group as a
percentage of net sales:



                                                 SEP-06   SEP-05     2005     2004     2003
                                                  -----    -----    -----    -----    -----
                                                                       
Net Sales .....................................   100.0%   100.0%   100.0%   100.0%   100.0%
Cost of Sales .................................    51.8%    53.7%    58.8%    57.2%    59.5%
                                                  -----    -----    -----    -----    -----
Gross Profit ..................................    48.2%    46.3%    41.2%    42.8%    40.5%

Store expenses ................................    12.0%    10.8%    11.8%    13.1%    12.4%
Selling and distribution expenses .............    12.8%    10.0%     9.4%     9.3%    11.3%
General and administration expenses ...........     9.7%     6.7%     8.2%     8.9%     8.6%
Amortization expense ..........................     4.6%     3.8%     4.1%     4.2%     2.2%
                                                  -----    -----    -----    -----    -----

Income loss from operations ...................     9.1%    15.0%     7.7%     7.3%     6.0%
Interest expense ..............................     4.1%     3.6%     3.6%     3.8%     2.4%
Other income (expense) ........................     0.0%     0.0%     0.0%     0.0%     0.0%
                                                  -----    -----    -----    -----    -----

Income (loss) before provision for income taxes     5.0%    11.4%     4.1%     3.5%     3.6%
Provision for income taxes ....................     1.8%     4.1%     1.8%     1.8%   -0.1%
                                                  -----    -----    -----    -----    -----

Net Income (loss) .............................     3.2%     7.3%     2.3%     1.7%     3.7%
                                                  =====    =====    =====    =====    =====



                                       80



         COMPARISON OF NINE MONTH PERIODS ENDED SEPTEMBER 30, 2006 AND 2005

         Net sales increased by $678,000, or 0.9%, to $74.8 million in the first
nine  months of 2006 as  compared  with net sales of $74.1  million in the first
nine  months of 2005.  The  increase  in net sales the  first  nine  months  was
primarily  due to  increased  sales of Buffalo  brand as offset by a decrease in
sales of private label.

         Gross profit  consists of net sales less product  costs,  duty,  quota,
freight in and brokerage  charges.  Gross profit  increased by $1.7 million,  or
4.9%, to $36.0  million,  or 48.2% of net sales in the first nine months of 2006
as compared with $34.3 million or 46.3% of net sales in the first nine months of
2005.  The  increase in gross  profit was  primarily  due to the higher  margins
generated  by the Buffalo  brand and an increase  in the  relative  value of the
Canadian dollar to the value of the U.S. dollar.

         Store  expenses  consist  of store  labor  costs,  occupancy  costs and
general direct store operating costs.  Store expenses increased by $1.0 million,
or 12.8%,  to $9.0  million in the first nine months of 2006 as compared to $8.0
million in the first nine months of 2005. The increase in store expenses was due
to an increase in the store  occupancy  costs, in store labor costs and in other
various  direct store  expenses.  As a percentage of net sales,  these  expenses
increased from 10.8% in the first nine months of 2005 to 12.0% in the first nine
months of 2006.

         Selling and distribution expenses consist of sales commission, showroom
occupancy,  advertising costs, and distribution costs.  Selling and distribution
expenses increased by $2.1 million,  or 29.0%, to $9.5 million in the first nine
months of 2006 as compared to $7.4 million in the first nine months of 2005. The
increase in selling and distribution  expenses was primarily due to the increase
in advertising,  commission expense and other selling expenses based on increase
in sales. As a percentage of net sales,  these expenses  increased from 10.0% in
the first nine months of 2005 to 12.8% in the first nine months of 2006.

         General and  administrative  expenses  increased by approximately  $2.3
million,  or 45.9% to $7.2 million in the first nine months of 2006, as compared
with $5.0  million  in the first  nine  months of 2005.  The  increase  in these
expenses was due to increase in overhead  because of the expansion on the retail
division.  As a percentage of net sales,  these expenses  increased from 6.7% in
the first nine months of 2005 to 9.7% in the first nine months of 2006.

         Amortization  expense  consists  of  amortization  of  store  leasehold
improvements,  office  fixed assets and  amortization  of an  intangible  asset.
Amortization  expense  increased  by $641,000,  or 22.7%,  to 3.5 million in the
first  nine  months of 2006,  as  compared  with $2.8  million in the first nine
months of 2005. As a percentage of net sales, these expenses increased from 3.8%
in the first nine months of 2005 to 4.6% in the first nine months of 2006.

         Interest expense increased by approximately $392,000, or 14.8%, to $3.0
million in the first nine months of 2006,  as compared  with $2.6 million in the
first  nine  months  of 2005.  As a  percentage  of net  sales,  these  expenses
increased  from 3.6% in the first nine  months of 2005 to 4.1% in the first nine
months of 2006.


                                       81



         Provision for income taxes was $1.3 million in the first nine months of
2006, as compared  with  provision for income taxes of $3.0 million in the first
nine months of 2005. As a percentage of net sales, these expenses decreased from
4.1% in the first nine months of 2005 to 1.8% in the first nine months of 2006.

         FISCAL YEAR ENDED DECEMBER 31, 2005 COMPARED WITH DECEMBER 31, 2004

         Net sales  increased by $16.3 million,  or 18.5%,  to $104.1 million in
2005 as compared  with net sales of $87.8  million in 2004.  The increase in net
sales was  primarily  due to  increased  sales of a new  exclusive  brand  named
AMERICAN  EXCHANGE,  which accounted for $13.4 million of net sales in 2005. Net
sales also  increased  by  approximately  $6.4 million due to an increase in the
relative  value of the Canadian  dollar to the value of the U.S.  dollar.  These
increases  were  partially  offset by a $3.9  million  reduction in net sales of
private label brands sold in Canada.

         Gross profit  consists of net sales less product  costs,  duty,  quota,
freight in and brokerage  charges.  Gross profit  increased by $5.3 million,  or
14.2%,  to $42.9  million,  or 41.2% of net sales in 2005 as compared with $37.6
million  or  42.8% of net  sales  in 2004.  The  increase  in gross  profit  was
primarily due to the higher margins  generated by the sales of American Exchange
line of products.

         Store  expenses  consist  of store  labor  costs,  occupancy  costs and
general direct store operating costs. Store expenses  increased by $786,000,  or
6.8%,  to $12.3  million  in 2005 as  compared  to $11.5  million  in 2004.  The
increase in store  expenses was due to an increase in the relative  value of the
Canadian dollar to the value of the U.S.  dollar.  As a percentage of net sales,
these expenses decreased from 13.1% in 2004 to 11.8% in 2005.

         Selling and distribution expenses consist of sales commission, showroom
occupancy,  advertising costs, and distribution costs.  Selling and distribution
expenses  increased  by $1.6  million,  or  20.0%,  to $9.8  million  in 2005 as
compared to $8.1  million in 2004.  The  increase  in selling  and  distribution
expenses was primarily due to the increase in  advertising,  commission  expense
and other selling  expenses  based on increase in sales.  As a percentage of net
sales, these expenses increased from 9.3% in 2004 to 9.4% in 2005.

         General  and   administrative   expenses   increased  by  approximately
$669,000,  or 8.5% to $8.5 million in 2005, as compared with $7.9 million in the
2004. As a percentage of net sales,  these expenses  decreased from 8.9% in 2004
to 8.2% in 2005.

         Amortization  expense  consists  of  amortization  of  store  leasehold
improvements,  office  fixed assets and  amortization  of an  intangible  asset.
Amortization expense increased by $578,000, or 15.6%, to 4.3 million in 2005, as
compared with $3.7 million in 2004.  The increase in  amortization  was due to a
change in accounting policy in Canada in the accounting for shop in shops, which
required us to capitalize the expenses associated with building shop in shops in
2005.  These costs were  previously  expensed in 2004.  As a  percentage  of net
sales, these expenses decreased from 4.2% in 2004 to 4.1% in 2005.

         Interest expense increased by approximately $471,000, or 14.2%, to $3.8
million in 2005, as compared with $3.3 million in 2004. The increase in interest
expense  was  primarily  due  to a  $217,000  loss  on  foreign  exchange.  As a
percentage of net sales,  these expenses  decreased from 3.8% in 2004 to 3.6% in
2005.


                                       82



         Provision  for income taxes was $1.9 million in 2005,  as compared with
provision  for income  taxes of $1.6 million in 2004,  representing  1.8% of net
sales in both 2004 and 2005.

         FISCAL YEAR ENDED DECEMBER 31, 2004 COMPARED WITH DECEMBER 31, 2003

         Net sales increased by $12.5 million, or 16.7% to $87.8 million in 2004
as compared  with net sale of $75.2  million in 2003.  The increase in net sales
was due to  increased  sales of  BUFFALO  and  REQUEST  products  following  the
completion of a licensing arrangement that generated  approximately $3.3 million
in royalties;  an increase in retail sales generated from four additional  store
locations in 2004 and an increase in sales in the wholesale division.  Net sales
also increased by approximately  $5.6 million due to an increase in the relative
value of the Canadian dollar relative to the value of the U.S. dollar.

         Gross profit increased by $7.1 million,  or 23.2%, to $37.6 million, or
42.8% of net sales in 2004 as compared with $30.5 million, or 40.5% of net sales
in 2003. The increase in gross profit was primarily due to the increase in sales
generated  by  the  completion  of  the  licensing  arrangement  that  generated
approximately  $3.3 million in  royalties  and the increase of sales in both the
retail and wholesale divisions.

         Store expenses increased by $2.1 million, or 22.5%, to $11.5 million in
2004 as compared to $9.4 million in 2003. The increase was due to an increase in
store labor costs of approximately $1 million and an increase in store occupancy
costs of  approximately  $1  million  because of the  increase  in sales and the
addition of four store  locations in 2004. As a percentage  of net sales,  these
expenses increased from 12.4% in 2003 to 13.1% in 2004.

         Selling and distribution  expenses  decreased by $355,000,  or 4.2%, to
8.1 million in 2004,  as compared  with $8.5 million in 2003. As a percentage of
net sales, these expenses decreased from 11.3% in 2003 to 9.3% in 2004.

         General and  administrative  expenses  increased  by $1.3  million,  or
20.7%,  to $7.9  million in 2004,  as compared  with $6.5  million in 2003.  The
increase was primarily due to the purchase of the BUFFALO and REQUEST  licenses,
additional  expenses of $0.5 million for  professional  fees associated with the
purchase of the  licenses.  The  increase  was also due to a  provision  of $0.7
million  associated with the  forgiveness of indebtedness  owed to an affiliated
third party outside of The Buffalo  Group.  As a percentage of net sales,  these
expenses increased from 8.6% in 2003 to 8.9% in 2004.

         Amortization  expense  increased  by $2.1  million,  or 126.7%,  to 3.7
million in 2004,  as  compared  with $1.6  million  in 2003.  The  increase  was
primarily  due to the purchase of the BUFFALO and REQUEST  licenses,  causing an
increase of $1.8 million in amortization of the licenses. As a percentage of net
sales, these expenses increased from 2.2% in 2003 to 4.2% in 2004.

         Interest expense  increased by $1.5 million,  or 85.9%, to $3.3 million
in 2004, as compared  with $1.8 million in 2003.  The increase was primarily due
to the debt  service  obligation  arising  from the  completion  of a  licensing
arrangement  and offset by a decrease  in the  Canadian  prime rate from 4.5% in
2003 to 4.25% in 2004 and a decrease in average bank borrowing.  As a percentage
of net sales, these expenses increased from 2.4% in 2003 to 3.8% in 2004.


                                       83



         Provision for income taxes increased by approximately $1.6 million,  to
$1.6 million in 2004,  as compared with a benefit for income taxes of $51,000 in
2003. The increase is primarily  attributable to an income tax  reassessment for
prior years of approximately $1 million in 2004.

LIQUIDITY AND CAPITAL RESOURCES

         Similar to Tarrant,  the  liquidity  requirements  of The Buffalo Group
arise from the  funding of its working  capital  needs,  principally  inventory,
finished goods  shipments-in-transit,  work-in-process and accounts  receivable.
Buffalo's primary sources for working capital and capital  expenditures are cash
flow from  operations,  borrowings under its working capital credit facility and
other credit  facilities,  issuance of long-term debt,  sales of equity and debt
securities,  and vendor  financing.  In the near term, The Buffalo Group expects
that its operations and borrowings  under bank and other credit  facilities will
provide  sufficient  cash  to  fund  Buffalo's   operating   expenses,   capital
expenditures and interest payments on debt. In the long-term,  The Buffalo Group
expects to use internally  generated funds and external  sources to satisfy debt
and other long-term liabilities.

         Liquidity  is  dependent,  in part,  on customers  paying on time.  Any
abnormal chargebacks or returns may affect short-term liquidity.  Any changes in
credit  terms  given  to  major  customers  may  have an  impact  on cash  flow.
Suppliers'  credit is  another  major  source of  short-term  financing  and any
adverse changes in their terms will have negative impact on Buffalo's cash flow.

         Other  principal   factors  that  could  affect  the   availability  of
internally generated funds include:

         o        deterioration of sales due to weakness in the markets in which
                  Buffalo products are sold;

         o        decreases in market prices for products;

         o        increases in costs of raw materials; and

         o        changes in our working capital requirements.

         Principal  factors that could affect  Buffalo's  ability to obtain cash
from external sources include:

         o        financial  covenants  contained in Buffalo's current or future
                  bank and debt facilities; and

         o        volatility in the market price of Tarrant's common stock or in
                  the stock markets in general.

 CASH FLOWS:

         Cash flows for the years ended  December 31, 2003,  2004 and 2005,  and
for the nine months ended September 30, 2006, were as follows:




                                                         SEP-06          DEC-05          DEC-04          DEC-03
                                                      ------------    ------------    ------------    ------------
                                                                                          
Net cash provided by (used in) operating activities   $ (7,164,878)   $  3,608,730    $  1,159,605    $  6,742,756
Net cash provided by (used in) investing activities   $ (3,020,909)   $ (1,723,869)   $ (2,239,254)   $(26,145,859)
Net cash provided by (used in) financing activities   $ 11,606,711    $ (1,779,986)   $  2,529,421    $ 21,326,666



                                       84



         NINE MONTH PERIOD ENDED SEPTEMBER 30, 2006

         During  the  first  nine  months of 2006,  net cash  used in  operating
activities  was $7.2  million.  Net cash used by operating  activities  resulted
primarily  from the  following:  net income of $2.4  million,  depreciation  and
amortization of $3.3 million,  a decrease in accounts  receivables and royalties
receivable of $1.3 million;  offset by an increase in inventory of $5.4 million,
a decrease of $1.3 million in accounts payable; in income taxes of $2.2 million;
and in interest payable of $4.5 million.

         During  the  first  nine  months of 2006,  net cash  used in  investing
activities  was $3.0  million.  Net cash used in investing  activities  resulted
primarily from the addition of property and equipment of $3.7 million  partially
offset by the collection of $685,000 of loans receivable.

         During the first nine months of 2006,  net cash  provided by  financing
activities was $11.6 million. Net cash provided by financing activities resulted
primarily from $7.4 million borrowing from our banking facility and $4.2 million
of proceeds from related third parties.

         DECEMBER 31, 2005 AND 2004

         During the year ended December 31, 2005, net cash provided by operating
activities  was $3.6  million,  as compared  with net cash provided by operating
activities  of $1.2  million  for the year ended  December  31,  2004.  Net cash
provided by operating  activities  resulted  primarily from a net income of $2.4
million,  depreciation  and  amortization  of $4.1  million  and a  decrease  of
$838,000 in income taxes, $2.7 million in interest payable offset by an increase
of $ 4.7 million in accounts receivables and royalties receivable and a decrease
of $1.6 million of royalties payable.

         During the year ended  December  31,  2005,  net cash used in investing
activities  was  $1.7  million  as  compared  with net  cash  used in  investing
activities of $2.2 million for the year ended  December 31, 2004.  Net cash used
in investing  activities  resulted  primarily  from the addition of property and
equipment  of  $2.7million  offset  by  the  collection  of  $938,000  of  loans
receivable.

         During the year ended  December  31,  2005,  net cash used in financing
activities  was $1.8  million as compared  with net cash  provided by  financing
activities of $2.5 million for the year ended  December 31, 2004.  Net cash used
in financing  activities resulted primarily from a $1.9 million repayment of our
operating line of credit.

CONTRACTUAL OBLIGATIONS

         Operating Leases

         As at September 30, 2006, there were contractual obligations for leases
amounting to approximately  $33,186,000.  The leases extend over various periods
up to the year 2017 and is expected that in the normal course of operations most
will be renewed under option clauses or will be renegotiated.

         The aggregate minimum rentals, exclusive of other occupancy charges and
additional  rental based on a percentage of sales, for the five succeeding years
and the total  lease  payments  for the  duration  of the leases for The Buffalo
Group's premises area approximately as follows:


                                       85



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

2007                                            $ 5,280,000
2008                                              4,695,000
2009                                              4,419,000
2010                                              4,092,000
2011                                              3,699,000
Thereafter                                       11,001,000

     The rent  for  store,  warehouse  showroom,  design  office  and  corporate
headquarters'  operating leases included in the accompanying combined statements
of earnings are as follows:

                         Nine Month
                        Period Ended           YEARS ENDED DECEMBER 31,
                        September 30,   ----------------------------------------
                            2006           2005           2004           2003
                        (Unaudited)
                         ----------     ----------     ----------     ----------

Basic rent .........     $5,582,525     $7,705,816     $7,025,651     $5,608,530


OFF BALANCE SHEET ARRANGEMENTS

         None.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         FOREIGN  CURRENCY  RISK. The earnings of The Buffalo Group are affected
by  fluctuations  in the value of the Canadian  dollar as compared  with foreign
currencies as a result of doing business in foreign jurisdictions.  As a result,
The  Buffalo  Group  bears the risk of  exchange  rate gains and losses that may
result in the future.

         INTEREST RATE RISK. The Buffalo  Group's  obligations  under its credit
facility bear interest at floating rates.  Accordingly,  Buffalo is sensitive to
changes in prevailing interest rates.

         Interest  expense is sensitive to changes in the general  level of U.S.
interest rates. In this regard,  changes in U.S.  interest rates affect interest
paid on our debt. The Buffalo  Group's  working  capital  credit  facility is at
variable rates.  The Buffalo Group is exposed to interest rate risk in the event
of  fluctuations  in the bank's prime rate as the  interest  rate on the line of
credit is dependent on the bank's prime rate.


                                       86



                                   PROPOSAL 2

  ISSUANCE OF TARRANT COMMON STOCK AND WARRANTS IN THE ACQUISITION TRANSACTION

ISSUANCE OF TARRANT COMMON STOCK AND WARRANTS

         We are seeking  shareholder  approval to reserve for  issuance,  and to
issue, up to 13,000,000 shares of our common stock upon exchange of exchangeable
shares  to be issued by TAG  Canada in the  acquisition.  The terms on which the
exchangeable  shares may be exchanged  are  described  under  Proposal 1 of this
proxy statement. In general, the holders of the exchangeable shares may exchange
them for  Tarrant  common  stock at any time (and  from time to time)  after the
closing of the acquisition transaction.

         In addition,  we seek shareholder  approval for issuance of warrants to
Guggenheim  Corporate  Funding  LLC  under  our  amended  credit  facility  with
Guggenheim. The terms of the amended credit facilities and the warrants issuable
to Guggenheim are described below.

AMENDED GUGGENHEIM FACILITY

         In June  2006,  we  entered  into a Credit  Agreement  with  Guggenheim
Corporate  Funding LLC, as  administrative  agent and  collateral  agent for the
lenders under the agreement, with respect to a $65 million credit facility. This
facility  consists of an initial term loan of up to $25 million.  An  additional
term loan of up to $40  million  is  available  under this  facility  to finance
acquisitions  acceptable to Guggenheim.  We borrowed approximately $15.5 million
at the initial funding to repay certain  existing  indebtedness and fund general
operating and working  capital  needs.  We also amended the terms of this credit
facility  to  provide  that we may borrow an  additional  $7 million at any time
within 180 days after the credit  agreement upon  compliance  with the borrowing
procedures  under  the  facility,  and not just  for  repayment  of  convertible
debentures.  In  connection  with  proposed  acquisition  of  Buffalo  and  as a
condition to its  consummation,  we entered  into an amendment to this  facility
which  provides that $40 million under the facility will be available to finance
the cash portion of the purchase price payable under the purchase agreement.

         All  amounts  under the term loans  become due and  payable in December
2010. Interest under this facility is payable quarterly,  with the interest rate
equal to the [LIBOR rate plus an  applicable  margin based on our debt  leverage
ratio  (as  defined  in  the  credit  agreement)].  Our  obligations  under  the
Guggenheim  credit  facility are secured by a lien on  substantially  all of our
assets  and the  assets  of our  subsidiaries.  This  credit  facility  contains
customary  financial  covenants,  including  covenants that we maintain  minimum
levels of EBITDA and  interest  coverage  ratio and  limitations  on  additional
indebtedness.  This facility  includes  customary  default  provisions,  and all
outstanding obligations may become immediately due and payable in the event of a
default.

         Concurrently  with the completion of our financing with Guggenheim,  we
expanded our credit  facility with GMAC  Commercial  Financial LLC by increasing
our borrowing limit to a maximum of $55 million, including a letter of credit of
$4 million.  We entered into these facilities with Guggenheim and GMAC-CF partly
in anticipation of a possible  acquisition  transaction  with The Buffalo Group,
and to  provide  the  funds  necessary  to  finance  the  cost  of our  expanded
operations.


                                       87



WARRANTS TO GUGGENHEIM

         Under the terms of our amended credit facility with Guggenheim,  we are
required to issue to  Guggenheim  warrants to  purchase  up to an  aggregate  of
_____________  shares of our  common  stock.  These  warrants  have a term of __
years. These warrants are exercisable at a price of $____ per share with respect
to ___% of the shares, $___ per share with respect to ___% of the shares, $_____
per share with respect to ____% of the shares,  $_____ per share with respect to
_____% of the shares and $____ per share  with  respect to ____% of the  shares.
The exercise  prices are subject to adjustment  for certain  dilutive  issuances
pursuant to the terms of the warrants. A portion of the warrants will not become
exercisable  unless and until a specified  portion of the  initial  term loan is
actually funded by the lenders.

EFFECT OF ISSUANCE OF COMMON STOCK AND WARRANTS

         The issuance of the shares of Tarrant  common  stock and warrants  will
have the effect of diluting the ownership of stock of our existing  shareholders
and the net book value of shares  held by them.  The effect of the  issuance  of
shares of Tarrant common stock and warrants in connection  with the  acquisition
is described in detail under Proposal 1.

REASONS FOR PROPOSAL

         As described  elsewhere in this proxy statement,  Tarrant is subject to
the NASDAQ  Marketplace  Rules,  which  prohibit  Tarrant from issuing,  without
shareholder approval,  common stock or securities  exercisable into common stock
in an  acquisition  transaction in excess or potentially in excess of 20% of the
outstanding  shares of Tarrant common stock before  issuance.  We refer to these
requirements and rules as the NASDAQ 20% Rule. The issuance of shares of Tarrant
common stock and  warrants to purchase  common stock will result in the issuance
of  securities  in excess or  potentially  in excess of the amounts that require
shareholder  approval  under the NASDAQ 20% Rule.  Accordingly,  we are  seeking
shareholder  approval for the issuance of the shares of Tarrant  common stock in
exchange  for  the  exchangeable  shares  to be  issued  by  TAG  Canada  in the
acquisition,  and the issuance to Guggenheim  of warrants to purchase  shares of
Tarrant common stock on the terms described in this proxy statement.

EFFECT OF PROPOSAL

         If our  shareholders  approve this Proposal 2, provided  Proposal 1 and
Proposal 3 are also approved,  we will be able to issue shares of Tarrant common
stock, together with securities exchangeable or exercisable for common stock, in
compliance   with   the   NASDAQ   20%   Rule,   and   any   other    applicable
shareholder-approval requirements under the NASDAQ Marketplace Rules.

         As a result, we would expect to accomplish the following:

         (1)      consummate  the   acquisition   and  the  other   transactions
                  contemplated  by  the  stock  and  asset  purchase  agreement,
                  specifically  including  the issuance of the shares of Tarrant
                  common stock upon exchange of the exchangeable  shares and the
                  issuance   of   the   warrants    collectively    representing
                  approximately  30% of our outstanding  common stock on a fully
                  diluted basis (assuming exercise in full of the warrants), and

         (2)      maintain  compliance  with all applicable  NASDAQ  Marketplace
                  Rules requiring shareholder approval.


                                       88



VOTE REQUIRED

         Assuming a quorum is present, the affirmative vote of a majority of the
shares represented and voting,  either present in person or represented by proxy
at the special  meeting are required  for approval of Proposal 2. A  shareholder
who  abstains  with  respect to this  proposal is  considered  to be present and
entitled to vote on the proposal at the special meeting, and in effect casting a
negative vote. If a proxy is signed and returned  without  indicating any voting
instructions,  the  shares  represented  by the  proxy  will be  voted  FOR this
proposal.

         THE BOARD OF DIRECTORS  RECOMMENDS  A VOTE "FOR"  APPROVAL OF TARRANT'S
ISSUANCE OF COMMON STOCK AND SECURITIES  EXCHANGEABLE  OR EXERCISABLE FOR COMMON
STOCK IN THE ACQUISITION IN EXCESS OF 20% OF THE  OUTSTANDING  SHARES OF TARRANT
COMMON STOCK OUTSTANDING IMMEDIATELY BEFORE THE ACQUISITION.


                                       89



                                   PROPOSAL 3

                      ISSUANCE OF SERIES A PREFERRED STOCK

INTRODUCTION

         At  the  special  meeting,  in  addition  to  seeking  approval  of our
acquisition  of  Buffalo  and the  issuance  of Tarrant  common  stock and other
securities to be issued in  connection  with the  transaction,  we will seek our
shareholders'  express  approval  of our  issuance  of  shares  of our  Series A
preferred stock in the acquisition.  In the  acquisition,  we will issue 130,000
shares of the Series A  preferred  stock,  which will be  deposited  in a voting
trust  pursuant to a Voting  Trust  Agreement.  The shares of Series A preferred
stock  will be  entitled  to vote a number of shares  equal to the  exchangeable
shares that remain  outstanding  from time to time. As  exchangeable  shares are
exchange  for  Tarrant  common  stock,  Tarrant  will have the right to redeem a
corresponding  number of shares of Series A  preferred  stock.  The terms of the
Series A preferred  stock and the Voting Trust Agreement are described in detail
under Proposal 1 in this proxy statement.

REASONS FOR ISSUING PREFERRED STOCK

         The Series A preferred stock is intended to give the sellers of Buffalo
the same voting  rights  that they would have if they were to receive  shares of
Tarrant  common  stock as  opposed to  exchangeable  shares of TAG Canada in the
acquisition  transaction.  The exchangeable shares of TAG Canada to be issued in
the acquisition will not be entitled to voting rights,  but will be exchangeable
for shares of voting Tarrant common stock. The exchangeable  shares are designed
to allow the sellers to take  advantage of certain tax benefits  under  Canadian
law, and are intended to be the economic  equivalent  of Tarrant  common  stock.
Accordingly, Tarrant is issuing the shares of Series A preferred stock in tandem
with the  exchangeable  shares of TAG Canada to give the  sellers of Buffalo the
right to direct the  voting of the same  number of shares to which they would be
entitled if they were to receive  shares of Tarrant common stock upon closing of
the acquisition transaction.

REASONS FOR PROPOSAL

         As described  elsewhere in this proxy statement,  Tarrant is subject to
the NASDAQ 20% Rule. In addition to the restrictions  described under Proposal 1
and  Proposal 2, this rule  prohibits  Tarrant  from  issuing  securities  in an
acquisition  transaction  in  excess  or  potentially  in  excess  of 20% of the
outstanding  voting  stock or voting  power of  Tarrant.  Although  the Series A
preferred  stock is not  convertible  into Tarrant  common  stock,  the Series A
preferred  stock entitles its holder to vote a number of shares in excess of 20%
of Tarrant's  shares of voting capital stock.  Accordingly,  the issuance of the
Series A preferred stock without shareholder approval may violate the NASDAQ 20%
Rule.  Accordingly,  we are seeking our  shareholders to approve the issuance of
the special voting Series A preferred stock in the acquisition transaction.

EFFECT OF PROPOSAL

         If our  shareholders  approve this Proposal 3, provided  Proposal 1 and
Proposal 2 are also  approved,  we will be able to issue  shares of our Series A
preferred stock in compliance with the NASDAQ 20% Rule and any other  applicable
shareholder-approval requirements under the NASDAQ Marketplace Rules.

         As a result, we would expect to accomplish the following:


                                       90



         (1)      consummate  the   acquisition   and  the  other   transactions
                  contemplated  by  the  stock  and  asset  purchase  agreement,
                  specifically  including  the issuance of the shares of Tarrant
                  Series A preferred stock, and

         (2)      maintain   compliance   with  the  California   Rule  and  all
                  applicable  NASDAQ  Marketplace  Rules  requiring  shareholder
                  approval.

VOTE REQUIRED

         Assuming a quorum is present, the affirmative vote of a majority of the
shares represented and voting,  either present in person or represented by proxy
at the special  meeting are required  for approval of Proposal 3. A  shareholder
who  abstains  with  respect to this  proposal is  considered  to be present and
entitled to vote on the proposal at the special meeting, and in effect casting a
negative vote. If a proxy is signed and returned  without  indicating any voting
instructions,  the  shares  represented  by the  proxy  will be  voted  FOR this
proposal.

         THE BOARD OF DIRECTORS  RECOMMENDS  A VOTE "FOR"  APPROVAL OF TARRANT'S
ISSUANCE OF SERIES A PREFERRED STOCK  REPRESENTING VOTES IN EXCESS OF 20% OF THE
OUTSTANDING  VOTING  CAPITAL  STOCK OF TARRANT AND IN EXCESS OF 20% OF TARRANT'S
COMBINED VOTING POWER.


                                       91



                                  OTHER MATTERS

         As of the date of this proxy  statement,  the Tarrant Board knows of no
matters that will be presented for  consideration  at the special  meeting other
than as described in this proxy  statement.  If any other matters shall properly
come before the special meeting or any adjournment or postponement  and be voted
upon, the enclosed proxies will be deemed to confer  discretionary  authority on
the individuals  named as proxies to vote the shares  represented by the proxies
as to any other  matters.  The persons named as proxies intend to vote or not to
vote in accordance with the recommendation of the management of Tarrant.

                       WHERE YOU CAN FIND MORE INFORMATION

         Tarrant files annual,  quarterly and special reports,  proxy statements
and other information with the Securities and Exchange  Commission (or SEC). You
may read and copy any reports,  statements or other  information  we file in the
SEC's public reference facilities at 100 F Street, N.E., Washington, D.C. 20549.
Copies of all or any portion of these  documents may be obtained from the SEC at
prescribed rates. Information on the public reference facilities may be obtained
by calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains a web site
that contains  reports,  proxy and information  statements and other information
that is filed  through the SEC's EDGAR  System.  The web site can be accessed at
http://www.sec.gov.

         The SEC allows us to  incorporate  by reference  information  into this
proxy statement,  which means that we can disclose important  information to you
by  referring  you to  another  document  filed  separately  with the  SEC.  The
information  incorporated  by  reference  is deemed  to be a part of this  proxy
statement,  except for any  information  superseded by information in this proxy
statement.   This  proxy  statement  incorporates  by  reference  the  following
documents that we have previously filed with the SEC.

         (1)      Annual  Report on Form 10-K for the year  ended  December  31,
                  2005; and

         (2)      Quarterly  Report on Form 10-Q for the quarter ended September
                  30, 2006.

         If you are a  shareholder,  we may have sent you some of the  documents
incorporated  by  reference,  but you can  obtain  any of them  without  charge,
excluding all exhibits unless we have specifically  incorporated by reference an
exhibit in this proxy statement.  Shareholders may obtain documents incorporated
by  reference  in this  proxy  statement  by  requesting  them in  writing or by
telephone  from  Tarrant  at  3151  East  Washington  Boulevard,   Los  Angeles,
California  90023,  Telephone:  (323)  780-8250.  If you would  like to  request
documents from us, please do so by  ______________,  2006 to receive them before
the special meeting.

         You should rely only on the  information  contained or  incorporated by
reference in this proxy statement.  We have not authorized anyone to provide you
with  information  that is  different  from  what  is  contained  in this  proxy
statement. This proxy statement is dated _________________, 2006. You should not
assume that the information  contained in this proxy statement is accurate as of
any  date  other  than  ______________,  2006,  and the  mailing  of this  proxy
statement to stockholders shall not create any implication to the contrary.


                                       92



                              TARRANT APPAREL GROUP
                    PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The   undersigned,   a  shareholder  of  TARRANT  APPAREL  GROUP,  a  California
corporation (the "Company"),  hereby nominates,  constitutes and appoints Gerard
Guez and Corazon Reyes, or either one of them, as proxy of the undersigned, each
with full power of substitution,  to attend, vote and act for the undersigned at
the Special Meeting of Shareholders of the Company,  to be held on ____________,
2006,  and  any  postponements  or  adjournments   thereof,  and  in  connection
therewith,  to vote and  represent  all of the shares of the  Company  which the
undersigned would be entitled to vote with the same effect as if the undersigned
were present, as follows:

A VOTE FOR ALL PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS:

Proposal 1.       To adopt the Stock and Asset Purchase Agreement dated December
                  6, 2006, by and among Tarrant  Apparel  Group,  4366883 Canada
                  Inc., a  wholly-owned  subsidiary of Tarrant,  3681441  Canada
                  Inc., Buffalo Inc., 3163946 Canada Inc., Buffalo  Corporation,
                  BFL Management  Inc., as sole trustee of The Buffalo Trust and
                  the shareholders of the target  entities,  the stock and asset
                  purchase transactions and the other transactions  contemplated
                  by the purchase agreement.

                  |_| FOR             |_| AGAINST           |_| ABSTAIN

Proposal 2.       To approve the issuance of shares of Tarrant common stock, and
                  securities  exercisable  for  common  stock,  in an  amount to
                  exceed  20% of the  outstanding  shares  of  Tarrant's  common
                  stock.

                  |_| FOR             |_| AGAINST           |_| ABSTAIN

Proposal 3.       To approve the issuance of 130,000 shares of Tarrant's  Series
                  A Special Voting  preferred  stock,  no par value,  which have
                  rights  to  vote  a  number  of  shares  exceeding  20% of the
                  outstanding voting stock of Tarrant.

                  |_| FOR             |_| AGAINST           |_| ABSTAIN

The undersigned  hereby revokes any other proxy to vote at the Special  Meeting,
and hereby  ratifies and confirms all that said attorneys and proxies,  and each
of them, may lawfully do by virtue hereof.  With respect to matters not known at
the time of the  solicitation  hereof,  said proxies are  authorized  to vote in
accordance with their best judgment.

THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH ABOVE OR,
TO THE EXTENT NO CONTRARY DIRECTION IS INDICATED,  WILL BE TREATED AS A GRANT OF
AUTHORITY TO VOTE FOR ALL  PROPOSALS.  IF ANY OTHER BUSINESS IS PRESENTED AT THE
SPECIAL  MEETING,  THIS  PROXY  CONFERS  AUTHORITY  TO AND  SHALL  BE  VOTED  IN
ACCORDANCE WITH THE RECOMMENDATIONS OF THE PROXIES.

The undersigned  acknowledges receipt of a copy of the Notice of Special Meeting
and  accompanying  Proxy Statement dated  _____________,  2007,  relating to the
Special Meeting.

                                    Dated:___________________________, 2007

                                    Signature:_____________________________

                                    Signature:_____________________________
                                    Signature(s) of Shareholder(s)
                                    (See Instructions Below)

                                    The  Signature(s)  hereon should  correspond
                                    exactly    with   the    name(s)    of   the
                                    Shareholder(s)   appearing   on  the   Share
                                    Certificate.  If stock is held jointly,  all
                                    joint owners  should  sign.  When signing as
                                    attorney, executor,  administrator,  trustee
                                    or guardian, please give full title as such.
                                    If signer is a corporation,  please sign the
                                    full  corporation  name,  and give  title of
                                    signing officer.

         |_|      Please  indicate  by  checking  this  box  if  you  anticipate
                  attending the Special Meeting.

         PLEASE MARK,  SIGN,  DATE AND RETURN THE PROXY CARD PROMPTLY  USING THE
ENCLOSED ENVELOPE





                                    EXHIBIT A

                                                                  EXECUTION COPY


                                 STOCK AND ASSET
                               PURCHASE AGREEMENT

                                       BY

                                       AND

                                      AMONG

                              TARRANT APPAREL GROUP
                              4366883 CANADA INC.,

                               3681441 CANADA INC.
                                  BUFFALO INC.
                               3163946 CANADA INC.
                              BUFFALO CORPORATION,

                                       AND

                           BUFFALO INTERNATIONAL INC.
                               4183517 CANADA INC.
                               3979512 CANADA INC.
                                THE BUFFALO TRUST


                             DATED: DECEMBER 6, 2006





                                TABLE OF CONTENTS


                                                                                                       
ARTICLE 1. DEFINITIONS ....................................................................................1

ARTICLE 2. DEPOSIT  ......................................................................................17
           2.1      Deposit...............................................................................17

ARTICLE 3. PURCHASE AND SALE OF SHARES................................................................... 17
           3.1      Purchase and Sale of Shares...........................................................17
           3.2      Purchase Price for Shares.............................................................18
           3.3      The Closing...........................................................................18
           3.4      Delivery of Purchase Price for Shares at the Closing..................................18
           3.5      Other Deliveries at the Closing.......................................................19
           3.6      Tax Election..........................................................................20
           3.7      Allocation of the Buffalo Inc. Purchase Price.........................................20
           3.8      Contingent Payment....................................................................20

ARTICLE 4. PURCHASE AND SALE OF ASSETS....................................................................22
           4.1      Purchase and Sale of Purchased Assets.................................................22
           4.2      Assumed Liabilities...................................................................22
           4.3      Purchase Price for Purchased Assets...................................................22
           4.4      Asset Purchase Price Allocation.......................................................24
           4.5      The Closing...........................................................................24
           4.6      Delivery of Asset Purchase Price at the Closing.......................................24
           4.7      Other Deliveries at the Closing.......................................................24
           4.8      Certain Tax Treatment.................................................................25

ARTICLE 5. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION......................................26
           5.1      Representations and Warranties of Sellers.............................................26
           5.2      Representations and Warranties of Buyer Parties.......................................28
           5.3      Representations and Warranties of Trust...............................................32

ARTICLE 6. REPRESENTATIONS AND WARRANTIES CONCERNING ACQUIRED ENTITIES AND PURCHASED ASSETS...............33
           6.1      Entity Status.........................................................................33
           6.2      Power and Authority; Enforceability...................................................33
           6.3      No Violation..........................................................................33
           6.4      Brokers' Fees.........................................................................34
           6.5      Capitalization........................................................................34
           6.6      Records...............................................................................34
           6.7      Acquired Subsidiaries.................................................................34
           6.8      Financial Statements..................................................................35
           6.9      Subsequent Events.....................................................................35
           6.10     Liabilities...........................................................................37
           6.11     Legal Compliance......................................................................38


                                        i



           6.12     Tax Matters...........................................................................38
           6.13     Title to and Condition of Assets; Retail Stores.......................................41
           6.14     Real Property.........................................................................41
           6.15     Intellectual Property.................................................................42
           6.16     Inventory.............................................................................44
           6.17     Acquired Entity Contracts.............................................................45
           6.18     Trust Contracts.......................................................................46
           6.19     Receivables...........................................................................47
           6.20     Powers of Attorney....................................................................47
           6.21     Insurance.............................................................................48
           6.22     Litigation............................................................................49
           6.23     Product Warranty......................................................................49
           6.24     Product Liability.....................................................................49
           6.25     Labor and Employees...................................................................49
           6.26     Employee Benefits.....................................................................50
           6.27     Environmental, Health, and Safety Matters.............................................52
           6.28     Customers and Suppliers...............................................................52
           6.29     Permits...............................................................................53
           6.30     Certain Business Relationships with Acquired Entities.................................53
           6.31     Proxy Statement.......................................................................53

ARTICLE 7. PRE-CLOSING COVENANTS..........................................................................53
           7.1      General...............................................................................54
           7.2      Notices and Consents..................................................................54
           7.3      Operation of Business.................................................................54
           7.4      Preservation of Business..............................................................56
           7.5      Access to Business Information........................................................56
           7.6      Notice of Developments................................................................56
           7.7      Exclusivity...........................................................................56
           7.8      Affiliated Transactions...............................................................57
           7.9      Repayment of Certain Liabilities of Sellers and Trust.................................57
           7.10     Discharge of Certain Liabilities Payable to Sellers and Trust.........................57
           7.11     Shareholders Meeting; Proxy Statement.................................................57
           7.12     Publicity.............................................................................58
           7.13     Trademark Purchase....................................................................59
           7.14     Rights to Name........................................................................59
           7.15     Security Agreement and Intercreditor Agreement........................................59
           7.16     Discharge of Certain Security Interests of Acquired Entities..........................61
           7.17     Ancillary Agreements..................................................................61
           7.18     Tax Returns; Affidavit................................................................61

ARTICLE 8. POST-CLOSING COVENANTS.........................................................................62
           8.1      General...............................................................................62
           8.2      Litigation Support....................................................................62
           8.3      Transition............................................................................62
           8.4      Confidentiality.......................................................................62
           8.5      Release...............................................................................63


                                       ii



           8.6      Stock Certificates....................................................................64
           8.7      Board Representation..................................................................65
           8.8      Treatment of Certain Tax Matters Post-Closing.........................................65
           8.9      Restrictive Covenant..................................................................68
           8.10     Option Awards.........................................................................69

ARTICLE 9. CLOSING CONDITIONS.............................................................................69
           9.1      Conditions Precedent to Obligation of Buyer Parties...................................69
           9.2      Conditions Precedent to Obligation of Sellers and Trust...............................71

ARTICLE 10. TERMINATION...................................................................................73
           10.1     Termination of Agreement..............................................................73
           10.2     Effect of Termination.................................................................74

ARTICLE 11. INDEMNIFICATION...............................................................................75
           11.1     Survival of Representations and Warranties............................................75
           11.2     Indemnification Provisions for Parent's Benefit.......................................76
           11.3     Indemnification Provisions for Trust's and Sellers' Benefit...........................76
           11.4     Indemnification Claim Procedures......................................................77
           11.5     Limitations on Indemnification Liability..............................................78
           11.6     Set-Off Rights; Limitation on Cash Recovery; Other Matters............................79

ARTICLE 12. EARN-OUT......................................................................................80
           12.1     Earn-Out..............................................................................80
           12.2     Retirement of Earn Out................................................................81
           12.3     Certain Definitions...................................................................82
           12.4     Accounting and Other General Principles...............................................84
           12.5     Resolution of Conflicts...............................................................85
           12.6     Management of Acquired Business.......................................................86
           12.7     Contributions to Buyer................................................................88

ARTICLE 13. MISCELLANEOUS.................................................................................88
           13.1     Schedules.............................................................................88
           13.2     Entire Agreement......................................................................89
           13.3     Successors............................................................................89
           13.4     Assignments...........................................................................89
           13.5     Notices...............................................................................90
           13.6     Specific Performance..................................................................91
           13.7     Submission to Jurisdiction; Service of Process........................................91
           13.8     Time..................................................................................92
           13.9     Counterparts..........................................................................92
           13.10    Headings..............................................................................92
           13.11    Governing Law.........................................................................92
           13.12    Amendments and Waivers................................................................92
           13.13    Severability..........................................................................92
           13.14    Expenses..............................................................................93


                                       iii



           13.15    Construction..........................................................................93
           13.16    Incorporation of Exhibits, Annexes, and Schedules.....................................93
           13.17    Joint and Several Obligations.........................................................93
           13.18    Remedies..............................................................................94
           13.19    Electronic Signatures.................................................................94


NOTE REGARDING ATTACHMENTS:  ALL OF THE FOLLOWING SCHEDULES,  EXHIBITS AND OTHER
ATTACHMENTS  HAVE BEEN OMITTED PURSUANT TO ITEM 601(b)(2) OF REGULATION S-K. THE
REGISTRANT  HEREBY  AGREES  TO  FURNISH  SUPPLEMENTALLY  A COPY  OF ANY  OMITTED
ATTACHMENT TO THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST.


                                   ATTACHMENTS

                                    EXHIBITS

Exhibit A         --       Stockholders of each Target Companies

Exhibit B         --       Assignment and Assumption Agreement

Exhibit C         --       Bill of Sale and Assignment of Contract Rights

Exhibit D         --       Rights,   Privileges,   Restrictions  and  Conditions
                           related to the Non-Voting Exchangeable Shares

Exhibit E         --       Non-Negotiable Secured Promissory Note

Exhibit F-1       --       Employment Agreement for Gabriel Bitton

Exhibit F-2       --       Form  of   Employment   Agreement  for  other  Bitton
                           Brothers

Exhibit G         --       Term of Employment Agreements

Exhibit H         --       Exchange Right Agreement

Exhibit I         --       Form of Non-Competition Agreement

Exhibit J         --       Registration Rights Agreement

Exhibit K         --       Standstill Agreement

Exhibit L         --       Support Agreement

Exhibit M         --       Form of Trademark Purchase Agreement

Exhibit N         --       Voting Trust Agreement


                                    SCHEDULES

Schedule 4.3(b)   --       Trust Adjusted Net Revenue

Schedule 4.4      --       Asset Purchase Price Allocation

Schedule 5.1(c)   --       Notices and Consents (of Seller)

Schedule 5.1(i)   --       Assets and Liabilities

Schedule 5.2(c)   --       Notices and Consents (of Buyer)

Schedule 5.2(e)   --       Commitment with respect to Parent Common Stock

Schedule 5.2(l)   --       Litigation

Schedule 5.3 (c)  --       Notices and Consents (of Trust)

Schedule 6.1      --       Acquired Entities' Directors and Officers

Schedule 6.3      --       Notices and Consents (of Acquired Entities)

Schedule 6.5      --       Capitalization of Target Companies

Schedule 6.7      --       Acquired Subsidiaries

Schedule 6.8      --       Financial Statements

Schedule 6.9      --       Events  Out  of  the  Ordinary   Course  of  Business
                           (threshold $15,000)


                                       iv



                                    SCHEDULES

Schedule 6.10     --       Liabilities

Schedule 6.12(a)  --       No Waiver of Limitation for Collection of Tax

Schedule 6.12(b)  --       Tax Returns Reassessment

Schedule 6.12(e)  --       Tax Returns outside Canada

Schedule 6.12(f)  --       Tax Returns and Audits

Schedule 6.13(a)  --       Security Interest (of Acquired Entities)

Schedule 6.13(b)  --       Security Interest (of Trust)

Schedule 6.13(c)  --       Capital Expenditure since December 31, 2005)

Schedule 6.14(b)  --       Real Property (List of lease or sublease contracts
                                 of each Acquired Entity)
Schedule 6.15(b)  --       Acquired Entities' Listed Marks & Jurisdictions

Schedule 6.15(c)  --       Trust Trade Marks (Owned or Licensed)

Schedule  6.15(e) --       Acquired Entities Intellectual Property

Schedule 6.15(f)  --       Marks Restriction of Use & Infringement

Schedule 6.17     --       Acquired Entities' Contracts

Schedule 6.18     --       Assumed Liabilities of Trust

Schedule 6.20     --       Powers of Attorney

Schedule 6.21     --       Insurance

Schedule 6.22     --       Litigation

Schedule 6.23     --       Product Warranty

Schedule 6.25(a)  --       Employees

Schedule 6.25(e)  --       Bargaining Certificate

Schedule 6.26     --       Employee Benefits

Schedule 6.27     --       Environmental, Health & Safety

Schedule 6.28     --       Customers and Suppliers

Schedule 6.29     --       Permits

Schedule 6.30     --       Business Relationship

Schedule 7.8      --       Affiliated Transactions

Schedule 7.9      --       Liabilities (of Sellers and Trust)

Schedule 7.10     --       Liabilities  (payable by Acquired Entities to Sellers
                           or Trust)

Schedule 7.16     --       Securities  Interests  of  Acquired  Entities  to  be
                           Discharged


                                       v



                       STOCK AND ASSET PURCHASE AGREEMENT

         This  Stock and Asset  Purchase  Agreement  (this  "AGREEMENT"),  dated
December  6, 2006,  is by and among (i)  Tarrant  Apparel  Group,  a  California
corporation  ("PARENT"),  (ii) 4366883  Canada Inc., a corporation  incorporated
under the CANADA BUSINESS  CORPORATIONS ACT ("CBCA") ("BUYER" and, together with
Parent,  each a "BUYER  PARTY"  and  collectively  the "BUYER  PARTIES"),  (iii)
3681441 Canada Inc., a corporation  incorporated  under the CBCA ("368 CANADA"),
(iv) Buffalo Inc., a corporation  incorporated  under the CBCA ("BUFFALO INC."),
(v)  3163946  Canada  Inc.,  a  corporation  incorporated  under the CBCA  ("316
CANADA"),  (vi) Buffalo Corporation,  a Delaware corporation  ("BUFFALO US" and,
together with 368 Canada,  Buffalo Inc., and 316 Canada, each a "TARGET COMPANY"
and  collectively  the "TARGET  COMPANIES"),  (vii) BFL  Management  Inc. in its
capacity as the sole  trustee of The Buffalo  Trust  ("TRUST"),  and (viii) each
stockholder of Target Companies set forth in EXHIBIT A  (individually,  "SELLER"
and, collectively, "SELLERS" and, together with Target Companies and Trust, each
a "SELLER PARTY" and collectively the "SELLER PARTIES").

                                    RECITALS:

         A.       Sellers own all of the outstanding shares in the share capital
of Target  Companies,  and Trust  owns  certain  assets  that are used by Target
Companies in the operation of their respective businesses.

         B.       Buyer  Parties  desire to  purchase  from  Sellers  all of the
outstanding shares in the share capital of Target Companies,  and Sellers desire
to sell to Buyer Parties all of the  outstanding  shares in the share capital of
Target Companies, in accordance with this Agreement's terms and conditions.

         C.       Buyer Parties desire to purchase from Trust, and Trust desires
to sell to Buyer  Parties,  certain of Trust's  assets in  accordance  with this
Agreement's terms and conditions.

                                   AGREEMENT:

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
promises herein made, and in consideration of the  representations,  warranties,
and covenants  contained herein, each Buyer Party and each Seller Party agree as
follows:

                                    ARTICLE 1.
                                   DEFINITIONS

         "316 CANADA" is defined in the preamble to this Agreement.

         "316  CANADA  SHARES"  means the issued and  outstanding  100 Class "A"
shares in the share capital of 316 Canada.

         "316 PURCHASE PRICE" is defined in SECTION 3.2(C).

         "368 CANADA" is defined in the preamble to this Agreement.





         "368  CANADA  SHARES"  means the issued and  outstanding  100 Class "A"
shares in the share capital of 368 Canada.

         "368 PURCHASE PRICE" is defined in SECTION 3.2(A).

         "397 CANADA"  means  3979512  Canada Inc., a  corporation  incorporated
under the CBCA and the sole  stockholder  of Buffalo US, and a Seller under this
Agreement.

         "418 CANADA"  means  4183517  Canada Inc., a  corporation  incorporated
under the CBCA and the sole stockholder of 368 Canada and Buffalo International,
and a Seller under this Agreement.

         "ACCELERATED EARN-OUT AMOUNT" is defined in SECTION 12.3.

         "ACCELERATION EVENT" is defined in SECTION 12.3.

         "ACQUIRED BUSINESS" is defined in SECTION 12.3.

         "ACQUIRED ENTITIES" means, collectively,  Target Companies and Acquired
Subsidiaries.

         "ACQUIRED SUBSIDIARY" means any Subsidiary listed on SCHEDULE 6.7.

         "ACTION" means any action, appeal, petition,  plea, charge,  complaint,
claim,  suit,  audit,  request,  demand,  litigation,   arbitration,  mediation,
hearing, inquiry, investigation or similar event, occurrence, or proceeding.

         "ADJUSTED EARNINGS" is defined in SECTION 12.3.

         "AFFILIATE" or "AFFILIATED" with respect to any specified Person, means
a Person  that,  directly or  indirectly,  through  one or more  intermediaries,
controls or is controlled  by, or is under common  control with,  such specified
Person.  For  this  definition,   "control"  (and  its  derivatives)  means  the
possession,  directly or indirectly,  or as trustee or executor, of the power to
direct  or cause the  direction  of the  management  and  policies  of a Person,
whether through ownership of voting Equity Interests, as trustee or executor, by
contract  or  credit  arrangements  or  otherwise.  In  furtherance,  and not in
limitation,  of the foregoing, each of the Bitton Brothers shall be deemed to be
an Affiliate of Seller Parties and Acquired Entities.

         "AFFILIATED  GROUP"  means any  affiliated  group  under  Code  Section
1504(a) or any similar group defined under provisions of applicable Law.

         "AGREEMENT" is defined in the preamble to this Agreement.

         "ANCILLARY  AGREEMENTS"  means the  Buyer  Notes,  Security  Agreement,
Intercreditor Agreement, Exchange Right Agreement, Support Agreement, Standstill
Agreement,  Employment Agreements,  Non-Competition Agreements, and Registration
Rights Agreement.

         "ASSET PURCHASE PRICE" is defined in SECTION 4.3.

         "ASSET PURCHASE PRICE ADJUSTMENT" is defined in SECTION 4.3(B)(I).


                                       2



         "ASSIGNMENT  AND  ASSUMPTION   AGREEMENT"   means  the  Assignment  and
Assumption Agreement in the form of EXHIBIT B.

         "ASSUMED LIABILITIES" means all unperformed or unfulfilled  Liabilities
of Trust under those Contracts set forth on SCHEDULE 6.18,  excluding,  however,
any  Liabilities  of Trust  under any such  Contract  arising or  accruing on or
before the Closing Date and, for greater certainty,  excluding all and any past,
present and future Tax Liability that is or may be  attributable  to Trust,  its
settlor, trustee or beneficiary.

         "BALANCE SHEET DATE" is defined in SECTION 6.8.

         "BEST EFFORTS" means the efforts, time, and costs that a prudent Person
desirous  of  achieving  a  result  would  use,  expend,  or  incur  in  similar
circumstances  to  ensure  that such  result is  achieved  as  expeditiously  as
possible;  PROVIDED,  HOWEVER, that no such use, expenditure, or incurrence will
be required if it would be manifestly unreasonable from a commercial perspective
to incur them.

         "BILL OF SALE" means the Bill of Sale and Assignment of Contract Rights
in the form of EXHIBIT C.

         "BITTON BROTHERS" means Charles Bitton,  David Bitton,  Gabriel Bitton,
Gilbert Bitton and Michael Bitton.

         "BREACH" means any breach,  inaccuracy,  failure to perform, failure to
comply,  failure to notify,  default,  or  violation  which would (i) permit any
Person to accelerate any obligation or terminate, cancel, or modify any right or
obligation, or (ii) require the payment of money or other consideration.

         "BUDGETS" is defined in SECTION 12.6(D).

         "BUFFALO INC." is defined in the preamble to this Agreement.

         "BUFFALO INC. PURCHASE PRICE" is defined in SECTION 3.2(B).

         "BUFFALO INC. SHARES" means,  collectively,  the issued and outstanding
100 Class "A" Common shares in the share capital of Buffalo Inc., the issued and
outstanding 4,731,301 Class "E" preferred shares in the share capital of Buffalo
Inc., and the issued and outstanding 1,117,184 Class "F" preferred shares in the
share capital of Buffalo Inc.

         "BUFFALO INTERNATIONAL" means Buffalo International Inc., a corporation
incorporated  under  the CBCA and the sole  stockholder  of  Buffalo  Inc.,  316
Canada, and 397 Canada, and a Seller under this Agreement.

         "BUFFALO US" is defined in the preamble to this Agreement.

         "BUFFALO US PURCHASE PRICE" is defined in SECTION 3.2(D).


                                       3



         "BUFFALO US SHARES" means the issued and  outstanding 120 Common shares
in the share capital of Buffalo US.

         "BUYER" is defined in the preamble to this Agreement.

         "BUYER  COMMON  SHARES" means the common shares in the share capital of
Buyer.

         "BUYER EXCHANGEABLE SHARES" means the non-voting exchangeable shares in
the share  capital  of  Buyer,  having  substantially  the  rights,  privileges,
restrictions and conditions set forth in EXHIBIT D.

         "BUYER NOTES" means the promissory notes of Buyer in substantially  the
form of EXHIBIT E.

         "BUYER PARTIES" is defined in the preamble to this Agreement.

         "CALCULATION PERIOD" is defined in SECTION 12.3.

         "CANADIAN  GAAP"  means,  at any time,  generally  accepted  accounting
principles  in  Canada,   approved  by  the  Canadian   Institute  of  Chartered
Accountants and in force at such time.

         "CANADIAN  PENSION  PLAN" means any  agreement  other than a registered
retirement  savings plan,  whether  written or oral,  providing  for  retirement
benefits to any current or former employer,  consultant,  independent contractor
or any other  individual  residing  or located  in Canada  and  having  provided
services  to any  Acquired  Entity  whether or not such  agreement  is formal or
informal, funded or unfunded, and registered or not.

         "CBCA" is defined in the preamble to this Agreement.

         "CHANGE OF CONTROL"  means any of the  following:  (a) Parent and Buyer
(or any of their  Affiliates) shall sell or transfer to any Person who is not an
Affiliate  of Parent  all or  substantially  all of the  assets of the  Acquired
Business;  (b) Buyer  shall sell or  transfer  all or  substantially  all of the
voting securities of the Acquired Entities to any Person who is not an Affiliate
of Parent;  (c) Parent (or any of its Affiliates)  shall sell or transfer all or
substantially  all of the voting securities of Buyer to any Person who is not an
Affiliate  of  Parent;  (d)  Parent  shall  sell or  otherwise  transfer  all or
substantially all of its assets (on a consolidated basis) or merge,  consolidate
or reorganize  with any other  corporation or entity,  as a result of which less
than 50% of the total voting  power  represented  by the capital  stock or other
equity  interests of the corporation or entity to which Parent's assets are sold
or transferred or surviving such merger,  consolidation or reorganization  shall
be held  by the  Persons  who  were  holders  of  voting  securities  of  Parent
immediately  prior  to such  transaction;  (e)  Buyer  shall  sell or  otherwise
transfer all or  substantially  all of its assets (on a  consolidated  basis) or
merge,  consolidate or reorganize  with any other  corporation  or entity,  as a
result of which  less  than 50% of the total  voting  power  represented  by the
capital stock or other equity  interests of the  corporation  or entity to which
Buyer's assets are sold or  transferred or surviving such merger,  consolidation
or  reorganization  shall be held by the  Persons  who were  holders  of  voting
securities  of  Buyer  immediately  prior  to such  transaction;  or (f) (i) any
"person" or "group"  (as such terms are used in Sections  13(d) and 14(d) of the
Exchange Act), excluding the Bitton Brothers and any of their Affiliates and any


                                       4



Affiliate  of Parent as of the Closing  Date,  shall  become,  or obtain  rights
(whether by means of warrants,  options or otherwise) to become, the "beneficial
owner" (as defined in Rules  13(d)-3 and 13(d)-5 under the Exchange Act) of more
than  35% of the  total  voting  power  of the  capital  stock  of  Parent  then
outstanding  and (ii) such  "person"  or  "group"  become,  or obtain  rights to
become,  the beneficial owners of a greater percentage of the total voting power
of all the  outstanding  capital stock of Parent than any other person or group,
including the Bitton Brothers and their Affiliates or any Affiliate of Parent as
of the Closing Date.

         "CGCL" means the California  General  Corporation  Law, as amended from
time to time.

         "CLOSING" is defined in SECTION 3.3.

         "CLOSING DATE" is defined in SECTION 3.3.

         "CLOSING  DATE  ADJUSTED  ASSET  PURCHASE  PRICE" is defined in SECTION
4.3(B)(II).

         "CLOSING DATE ADJUSTMENT AMOUNT" is defined in SECTION 4.3(B)(II).

         "CLOSING  TAX  RETURNS"  shall  have the  meaning  set forth in SECTION
8.8(B).

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

         "COLLATERAL" is defined in SECTION 7.15.

         "COMMERCIALLY  REASONABLE  EFFORTS"  means efforts that are designed to
enable a Party, directly or indirectly,  to satisfy a condition to, or otherwise
assist in the  consummation  of, the  Transactions  and that do not  require the
performing  Party  to  expend  any  funds  or  assume   Liabilities  other  than
expenditures  and  Liabilities  that are customary and  reasonable in nature and
amount in the context of the Transactions.

         "COMMITMENT"  means  (a)  options,  warrants,  convertible  securities,
exchangeable  securities,   subscription  rights,  conversion  rights,  exchange
rights,  or other  Contracts  that  require a Person to issue any of its  Equity
Interests;   (b)  any  other  securities   convertible  into,   exchangeable  or
exercisable  for, or representing the right to subscribe for any Equity Interest
of a Person;  (c) statutory  pre-emptive  rights or  pre-emptive  rights granted
under a Person's  Organizational  Documents;  and (d) stock appreciation rights,
phantom stock, profit  participation,  or other similar rights with respect to a
Person.

         "CONCLUSIVE ADJUSTMENT AMOUNT" is defined in SECTION 4.3(B)(III)(B).

         "CONFIDENTIAL   INFORMATION"  means  any  information   concerning  the
businesses and affairs of any Buyer Party or any Acquired Entity.

         "CONSENT" means any consent, approval,  notification,  waiver, or other
similar action.

         "CONSOLIDATED BUDGET" as defined in SECTION 12.6(D).

         "CONTINGENT PAYMENT" is defined in SECTION 3.8(A).


                                       5



         "CONTINGENT RIGHTHOLDER" is defined in SECTION 3.8(D).

         "CONTRACT" means any contract, agreement or commitment, whether written
or oral.

         "COPYRIGHTS" means all copyrights,  whether registered or unregistered,
in both published  works and  unpublished  works,  and pending  applications  to
register the same.

         "DAMAGES" means all damages,  losses (including any diminution in value
but  excluding  incidental  consequential  lost  profits,  indirect  punitive or
exemplary damages),  Liabilities,  payments,  Taxes, amounts paid in settlement,
obligations,   fines,  penalties,  interest,  expenses,  costs  associated  with
obtaining  injunctive  relief,  and other costs,  including  reasonable fees and
expenses of  attorneys,  accountants  and other  professional  advisors,  and of
expert witnesses and other costs of investigation,  preparation,  and litigation
in connection with any Action or threatened Action.

         "DEFERRED INTERCOMPANY  TRANSACTIONS" is defined in Treas. Reg. Section
1.1502-13.

         "DEPOSIT" is defined in SECTION 2.1.

         "DISPUTED AMOUNT" as defined in SECTION 12.5.

         "DRAFT LEGISLATION" as defined in SECTION 8.9.

         "EARN-OUT AMOUNT" is defined in SECTION 12.3.

         "EARN-OUT SHARE" is defined in SECTION 12.3.

         "EMPLOYEE  AGREEMENT"  means each  management,  employment,  severance,
change of control,  consulting,  or similar Contract between any Acquired Entity
and any  employee,  consultant,  independent  contractor,  or other  individuals
providing services thereto pursuant to which any Acquired Entity has or may have
any Liability.

         "EMPLOYEE  BENEFIT  PLAN"  means each plan,  program,  policy,  payroll
practice,   contract,   agreement  (including  Employee  Agreements),  or  other
arrangement  providing for  compensation,  notice,  severance,  termination pay,
change of control  awards,  performance  awards,  stock or stock related awards,
insurance  coverage,  fringe benefits,  registered  retirement  savings plan, or
other  employee  benefits of any kind,  whether  formal or  informal,  funded or
unfunded,  written or oral and whether or not legally  binding,  including  each
"employee  benefit  plan,"  within the meaning of Section 3(3) of ERISA and each
"Multiemployer  Plan"  within the meaning of  Sections  3(37) or  4001(a)(3)  of
ERISA.

         "EMPLOYEE PENSION BENEFIT PLAN" is defined in ERISA Section 3(2).

         "EMPLOYEE WELFARE BENEFIT PLAN" is defined in ERISA Section 3(1).

         "EMPLOYMENT  AGREEMENTS" means the employment  agreements together with
non-qualified  stock option agreements to be entered into as of the Closing Date
between Buyer,  on the one hand, and each of the Bitton  Brothers,  on the other
hand,  substantially  in the form of


                                       6



EXHIBIT F-1 with respect to Gabriel  Bitton and EXHIBIT F-2 with respect to each
other Bitton Brother, and completed for each other Bitton Brother with the terms
on EXHIBIT G,  setting  forth the terms of  employment  of such  Person by Buyer
following the Closing.

         "ENCUMBRANCE" means any Order, Security Interest, easement,  servitude,
right of first  refusal,  or  restriction  on  voting,  transfer,  or receipt of
income,  other than  restrictions  under federal and state  securities  laws and
regulations.

         "ENFORCEABLE" - a Contract is "Enforceable" if it is the legal,  valid,
and binding obligation of the applicable Person enforceable  against such Person
in accordance with its terms,  except as such  enforceability  may be subject to
(i)  the   effects   of   bankruptcy,   winding-up,   insolvency,   arrangement,
reorganization, moratorium, or other Laws relating to or affecting the rights of
creditors,  (ii) the  discretion  that a court may  exercise in the  granting of
extraordinary  remedies  such as  specific  performance  and  injunction,  (iii)
general  principles  of equity,  (iv) general  principles  of public policy with
respect to specific  provisions  that  violate such public  policy,  and (v) the
legal capacity of natural persons or the corporate or other power of each Person
not a natural person, or lack thereof,  other than the parties to this Agreement
and their respective Affiliates.

         "ENVIRONMENTAL,  HEALTH, AND SAFETY  REQUIREMENTS" means all Orders and
Laws  concerning  or relating to public  health and safety,  worker/occupational
health and safety,  and pollution or protection  of the  environment,  including
those  relating  to the  presence,  use,  manufacturing,  refining,  production,
generation, handling,  transportation,  treatment, recycling, transfer, storage,
disposal,  distribution,  importing,  labeling, testing, processing,  discharge,
release,  threatened  release,  control,  or  other  action  or  failure  to act
involving  cleanup of any hazardous  materials,  substances or wastes,  chemical
substances, or mixtures, pesticides, pollutants,  contaminants, toxic chemicals,
petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise, or
radiation,  each as amended and as now or  hereafter  in effect and in effect at
Closing.

         "EQUITY INTEREST" means (a) with respect to a corporation,  any and all
shares of capital  stock and any  Commitments  with  respect  thereto,  (b) with
respect to a partnership,  limited liability company,  trust, or similar Person,
any and all units,  interests,  or other  partnership/limited  liability company
interests, and any Commitments with respect thereto, and (c) any other direct or
indirect equity ownership or participation in a Person.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended.

         "ERISA  AFFILIATE" means each business or entity which is a member of a
"controlled  group of  corporations,"  under "common  control" or an "affiliated
service group" with any Acquired  Entity within the meaning of Sections  414(b),
(c) or (m) of the Code,  or required to be aggregated  with any Acquired  Entity
under Section 414(o) of the Code, or is under "common control" with any Acquired
Entity, within the meaning of Section 4001(a)(14) of ERISA.

         "EXCESS LOSS ACCOUNT" is defined in Treas. Reg. Section 1.1502-19.

         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.


                                       7



         "EXCHANGE  RATE"  means,  for the  purpose  of  translating  an  amount
denominated  in a currency  other than United States  Dollars into United States
Dollars as of a specified date, the closing mid-range rate for exchanges between
the relevant  currency and United  States  Dollars on the Business Day for which
that rate is so  quoted in the Wall  Street  Journal  immediately  prior to such
specified date (and, if relevant, the 1-month forward rate shall be used).

         "EXCHANGE RIGHT AGREEMENT" means the agreement to be entered into as of
the Closing Date among Parent,  Buyer and Sellers,  substantially in the form of
EXHIBIT H.

         "EXPIRATION DATE" means March 31, 2007.

         "FIDUCIARY" is defined in ERISA Section 3(21).

         "FINAL ASSET PURCHASE PRICE" is defined in SECTION 4.3(B)(III)(C).

         "FINANCIAL STATEMENTS" is defined in SECTION 6.8.

         "FUTURE  PAYMENTS"  means any  amounts  payable in respect of the Buyer
Notes, the Earn-Out Payments and the Contingent Payment.

         "GMAC CF" means GMAC Commercial Finance LLC.

         "GOVERNMENTAL BODY" means any legislature,  government,  agency, board,
bureau,  branch,  department,  division,  subdivision  of any  kind  whatsoever,
commission, court, tribunal, magistrate,  judicial, regulatory,  administrative,
justice, multi-national organization,  quasi-governmental body, or other similar
recognized  organization  or body of any  federal,  provincial,  state,  county,
municipal, local, or foreign government or other similar recognized organization
or body exercising, or purporting to exercise, similar powers or authority.

         "GUGGENHEIM" means Guggenheim Corporate Funding, LLC.

         "INDEMNIFICATION CLAIM" is defined in SECTION 11.4(A).

         "INDEMNIFIED  PARTIES" means,  individually  and as a group, the Parent
Indemnified Parties and the Seller Indemnified Parties.

         "INDEMNITOR"  means any Party having any  Liability to any  Indemnified
Party under this Agreement.

         "INTELLECTUAL  PROPERTY" means any rights,  licenses,  and other claims
that any Person may have to claim ownership,  authorship,  or invention,  or the
right to use, to object to or prevent  the  modification  of, to  withdraw  from
circulation,  or to  control  the  publication  or  distribution  of, any Marks,
Patents,  Copyrights,  Trade Secrets, Software or other intellectual property or
proprietary rights.

         "INTERCREDITOR AGREEMENT" is defined in SECTION 7.15.

         "INTERIM FINANCIAL STATEMENTS" is defined in SECTION 6.8.


                                       8



         "JURISDICTIONS" is defined in SECTION 6.15(B).

         "KEY EMPLOYEES" is defined in SECTION 6.25(C).

         "KNOWLEDGE" means the knowledge of a Person's officers and directors as
of the date hereof and the Closing Date after due investigation. With respect to
particular  areas  of  interest,  "Knowledge"  includes  the  knowledge  of such
Person's  employees or of an employee of an  Affiliate  of such Person,  charged
with  responsibility  for a  particular  functional  or  regional  area  of such
Person's operations (E.G., an employee directing the environmental  section with
respect  to  knowledge  of  environmental  matters or a  regional  manager).  In
furtherance,  and not in limitation, of the forgoing, each Seller Party shall be
deemed to have  Knowledge  of all matters of which any Acquired  Subsidiary  has
Knowledge.

         "LAW"  means  any  law  (statutory,  common,  or  otherwise),  statute,
constitution,  treaty, convention,  ordinance, code, rule, regulation, executive
order, by-law, or other similar authority enacted, adopted or promulgated by any
Governmental  Body and  having  the force of law,  each as  amended  and now and
hereinafter in effect.

         "LIABILITY"  or "LIABLE"  means any  liability or  obligation,  whether
absolute or  contingent,  matured or unmatured,  conditional  or  unconditional,
accrued or unaccrued, liquidated or unliquidated, or due or to become due.

         "LISTED MARK" is defined in SECTION 6.15(B).

         "MARKS" means all fictitious business names, trademarks, service marks,
brand names, trade dress,  logos, domain names, trade names and corporate names,
whether or not registered,  including all common law rights,  and  registrations
and applications for registration  thereof  throughout the world, and all rights
therein provided by international treaties or conventions.

         "MATERIAL ADVERSE CHANGE (OR EFFECT)" means any change (or effect) that
is  materially  adverse to the  business,  operations,  condition  (financial or
otherwise),  assets,  or  liabilities  of  Acquired  Entities  taken as a whole;
PROVIDED,  HOWEVER, that a Material Adverse Change (or Effect) shall not include
any adverse change or effect (i) resulting  from any change in general  economic
or market  conditions,  including,  without  limitation,  any  change in general
economic or market conditions due to any act of war,  terrorism or threat,  (ii)
which negatively affects the wholesale or retail apparel  industries  generally,
unless  the  change  or  effect  with  respect  to  either  clause  (i) or  (ii)
disproportionately affects Acquired Entities, (iii) resulting from the execution
and performance of or compliance  with this  Agreement,  (iv) resulting from the
announcement  of  this  Agreement  and  the  transactions   contemplated  hereby
(including,  without limitation,  any (x) actions by customers or competitors or
(y) loss of  personnel  or  customers,  or (v)  resulting  from any  outbreak or
escalation of hostilities  involving the United States,  the  declaration by the
United States of a national  emergency or war, or the  occurrence of any acts of
terrorism;  PROVIDED,  HOWEVER,  that,  with respect to ARTICLE 9 and ARTICLE 10
only,  "MATERIAL ADVERSE CHANGE (OR EFFECT)" means any materially adverse event,
series of events or the lack of occurrence  thereof which,  singularly or in the
aggregate,  (a) if capable of being reduced to a dollar amount,  would be valued
at an  amount  at least  equal to  $1,500,000,  or (b) if not  capable  of


                                       9



being  reduced to a dollar  amount,  would be  expected  to cause a  third-party
purchaser,  acting  reasonably,  to refuse to complete the  Transactions  on the
terms set forth in this Agreement.

         "MINIMUM SHARE PRICE" is defined in SECTION 3.8(D).

         "MOST RECENT YEAR END" is defined in SECTION 6.8.

         "MULTIEMPLOYER PLAN" is defined in ERISA Section 3(37).

         "NON-COMPETITION AGREEMENTS" means the agreements to be entered into as
of the Closing  Date  between  Parent,  on the one hand,  and each of the Bitton
Brothers,  on the other hand,  substantially  in the form of EXHIBIT I,  whereby
each of the Bitton Brothers will agree,  for a term ending on the later of three
years from the Closing Date and one year from  termination  of  employment  with
Parent or any of its  Affiliates,  not to engage in any business  related to the
sale of apparel  products  in Canada or the United  States in  competition  with
Parent or its Affiliates.

         "ORDER"  means any order,  ruling,  decision,  verdict,  decree,  writ,
subpoena, award, judgment, injunction, or other similar determination or finding
by, before, or under the supervision of any Governmental Body or arbitrator.

         "ORDINARY  COURSE OF BUSINESS"  means the  ordinary  course of business
consistent  with past custom and practice  (including  with respect to quantity,
quality, and frequency) of the relevant Person and its Subsidiaries.

         "ORGANIZATIONAL   DOCUMENTS"  means  the  articles  of   incorporation,
certificate  of   incorporation,   charter,   bylaws,   articles  of  formation,
regulations,   operating   agreement,   certificate   of  limited   partnership,
partnership  agreement,  declaration of trust, and all other similar  documents,
instruments,   Contracts,  or  certificates  executed,   adopted,  or  filed  in
connection with the creation,  formation, or organization of a Person, including
any amendments thereto.

         "PARENT" is defined in the preamble to this Agreement.

         "PARENT BOARD" as defined in SECTION 12.6(A).

         "PARENT COMMON STOCK" means the common stock, no par value, of Parent.

         "PARENT CONTRIBUTION" is defined in SECTION 12.7.

         "PARENT CONTRIBUTION AMOUNT" is defined in SECTION 12.7.

         "PARENT FINANCIAL STATEMENTS" is defined in SECTION 5.2(F).

         "PARENT  INDEMNIFIED  PARTIES"  means each  Seller  and Trust,  and its
officers, directors, managers, employees, agents,  representatives,  controlling
Persons, stockholders, trustees, beneficiaries, and their Affiliates.

         "PARENT  MATERIAL  ADVERSE  CHANGE  (OR  EFFECT)"  means any change (or
effect)  that is  materially  adverse  to the  business,  operations,  condition
(financial or otherwise), assets, or


                                       10



liabilities  of  Parent  taken  as a  whole;  PROVIDED,  HOWEVER,  that a Parent
Material  Adverse  Change (or Effect)  shall not  include any adverse  change or
effect (i) resulting from any change in general  economic or market  conditions,
including,  without  limitation,  any  change  in  general  economic  or  market
conditions due to any act of war,  terrorism or threat, or (ii) which negatively
affects the wholesale or retail apparel industries generally,  unless the change
or effect with respect to either clause (i) or (ii)  disproportionately  affects
Parent, (iii) resulting from the execution and performance of or compliance with
this Agreement,  (iv) resulting from the  announcement of this Agreement and the
transactions contemplated hereby (including, without limitation, any (x) actions
by customers  or  competitors  or (y) loss of  personnel  or  customers  or, (v)
resulting  from any outbreak or escalation of  hostilities  involving the United
States,  the declaration by the United States of a national emergency or war, or
the occurrence of any acts of terrorism;  PROVIDED,  HOWEVER, that, with respect
to ARTICLE 9 and ARTICLE 10 only,  "PARENT  MATERIAL ADVERSE CHANGE (OR EFFECT)"
means any materially  adverse event,  series of events or the lack of occurrence
thereof which,  singularly or in the aggregate,  (a) if capable of being reduced
to a dollar  amount,  would be valued at an amount at least equal to $1,500,000,
or (b) if not capable of being reduced to a dollar amount,  would be expected to
cause a  third-party  purchaser,  acting  reasonably,  to refuse to complete the
Transactions on the terms set forth in this Agreement.

         "PARENT SEC DOCUMENTS" is defined in SECTION 5.2(F).

         "PARENT SHARE VALUE" is defined in SECTION 3.8(D).

         "PARENT SHARES" is defined in SECTION 3.5(C).

         "PARENT SPECIAL VOTING SHARES" means 130,000 shares of Series A Special
Voting  Preferred  Stock of Parent  issued in its own series which  entitles the
holder of record to 100 votes per share at meetings of holders of Parent  Common
Stock,  which  shares are to be issued  to,  deposited  with,  and voted by, the
Voting Trustee in accordance with the Voting Trust Agreement.

         "PARTIES" means,  collectively,  Buyer Parties and Seller Parties,  and
each permitted assignee, if any, of any Buyer Party that becomes a party to this
Agreement in accordance with the terms hereof.

         "PATENTS" means all patents and patent applications.

         "PAYMENT DEFAULT" is defined in SECTION 7.15.

         "PBGC" means the Pension Benefit Guaranty Corporation.

         "PERFORMANCE SUMMARY" is defined in SECTION 12.6(E).

         "PERMIT" means any permit,  license,  certificate,  approval,  consent,
waiver,  accreditation,  or other similar  authorization  required by any Law or
Governmental Body.

         "PERSON" means any individual,  partnership, limited liability company,
unlimited  liability  company,  corporation,  association,  joint stock company,
trust, entity, joint venture, labor organization,  unincorporated  organization,
Governmental Body, or other business entity.


                                       11



         "PERSONAL INDICIA" is defined in SECTION 7.14.

         "POST-CLOSING  ESTIMATED  ADJUSTMENT  AMOUNT"  is  defined  in  SECTION
4.3(B)(III)(A).

         "PRIVATE ISSUER" means a Person:

         (a)      that is not a  "reporting  issuer"  within the  meaning of the
                  SECURITIES ACT (Quebec) as of the date of this Agreement or an
                  "investment  fund" within the meaning of Regulation  45-106 as
                  of the date of this Agreement;

         (b)      the securities (other than non-convertible debt securities) of
                  which:

                  (i)      are subject to restrictions on transfer  contained in
                           that Person's  constating  documents or in agreements
                           to which its security holders are parties; and

                  (ii)     are beneficially  owned,  directly or indirectly,  by
                           not more than 50 holders (not including employees and
                           former  employees  of the Person or any  Affiliate of
                           the Person),  provided that each holder is counted as
                           one beneficial  owner unless the holder is created or
                           used solely to purchase  or hold  securities  of that
                           Person in which  case each  beneficial  owner or each
                           beneficiary of the holder,  as the case may be, shall
                           be counted as a separate beneficial owner; and

         (c)      that has  distributed,  within the meaning of Law,  securities
                  only to  persons  described  in section  2.4(2) of  Regulation
                  45-106.

         "PROHIBITED  TRANSACTIONS"  is  defined in ERISA  Section  406 and Code
Section 4975.

         "PRIORITY COLLATERAL" is defined in SECTION 7.15.

         "PROPOSED EARN-OUT AMOUNT" as defined in SECTION 12.1(B).

         "PROXY STATEMENT" is defined in SECTION 7.11(B).

         "PURCHASED  ASSETS" means (i) all cash and cash  equivalents  of Trust,
(ii) the  Related  Party  Receivables,  and  (iii) all of the  right,  title and
interest  that  Trust  possesses  and  has  the  right  to  transfer  in  and to
Intellectual Property,  including,  without limitation, Trust Marks set forth on
SCHEDULE  6.15(C),  the Contracts set forth on SCHEDULE 6.18, all Contracts with
respect to the Trust Marks  entered  into after the date of this  Agreement  and
before  the  Closing,  and in  respect of all such  Intellectual  Property:  (a)
goodwill  associated  therewith,  Contracts  (including licenses and sublicenses
granted and obtained)  with respect  thereto,  and rights  thereunder,  remedies
against  infringements  thereof,  and rights to protection of interests  therein
under the laws of all jurisdictions; (b) claims, deposits, prepayments, advances
(including payments of royalties or other obligations to Trust prior to, and not
recouped or earned as of, the Closing),  refunds,  causes of action,  chooses in
action, rights of recovery, rights of set off, and rights of recoupment; and (c)
books, records,  ledgers,  files,  documents,  correspondence,  lists, drawings,
creative materials,  advertising and promotional materials, and other printed or
written materials.


                                       12



         "REALLOCATION" as defined in SECTION 8.9.

         "RECEIVABLES" means all receivables of Acquired Entities, including all
Contracts in transit,  manufacturers  warranty  receivables,  notes  receivable,
accounts  receivable,   trade  account   receivables,   and  insurance  proceeds
receivable.

         "REGISTRATION  RIGHTS AGREEMENT" means a registration  rights contract,
substantially  in the form of EXHIBIT J,  providing for  registration  under the
Securities  Act of the resale of the Parent Common Stock by the holders  thereof
after the Closing.

         "REGULATION  45-106" means Regulation 45-106 respecting  prospectus and
registration exemptions (Quebec).

         "RELATED PARTY RECEIVABLES" means the loans receivable of Trust payable
by Buffalo Inc. (CAD $1,117,535),  Buffalo de France Corp ($2,872,000),  and 368
Canada (CAD $188,624) as described more fully on SCHEDULE 7.10.

         "RELEASEE" and "RELEASEES" is defined in SECTION 8.5.

         "REQUISITE VOTE" is defined in SECTION 5.2(H).

         "RESTRICTED AREAS" is defined in SECTION 7.14.

         "RETAIL BUDGET" as defined in SECTION 12.6(D).

         "REVISED BUDGET" as defined in SECTION 12.6(E).

         "SCHEDULES" means the Schedules to this Agreement.

         "SEC" means the U.S. Securities and Exchange Commission.

         "SECRETARY'S  CERTIFICATE"  of a specified  Person means a certificate,
duly  executed  on  behalf  of  such  Person  by its  Secretary,  attaching  and
certifying to the truth and correctness of: (a) the Organizational  Documents of
such  Person,  as in  effect  at the time of the  Closing;  (b) a good  standing
certificate  with  respect to such Person from the  applicable  authority in the
jurisdiction  of such  Person's  organization,  dated a recent  date  before the
Closing;  (c) the  resolutions  approved  by the board of  directors  or similar
governing body of such Person  authorizing  the  Transaction and the Transaction
Documents;  (d) the  resolutions,  if required,  of such Person's equity holders
approving the Transaction and the Transaction Documents;  and (e) the incumbency
of such Person's  officers who are  authorized  to execute,  deliver and perform
Transaction  Documents and any other  agreements,  instruments,  certificate  or
other documents required to be executed by it in connection therewith.

         "SECURITIES ACT" means the Securities Act of 1933, as amended.

         "SECURITY AGREEMENT" is defined in SECTION 7.15.


                                       13



         "SECURITY  INTEREST"  means  any  security  interest,  deed  of  trust,
hypothec,  mortgage,  pledge, lien, charge,  claim, or other similar interest or
right,  except for (i) liens for taxes,  assessments,  governmental  charges, or
claims that are being  contested in good faith by appropriate  Actions  promptly
instituted  and  diligently  conducted  and only to the extent that a reserve or
other appropriate provision,  if any, has been made on the face of the Financial
Statements  in an amount equal to the  Liability for which the lien is asserted,
(ii) statutory  liens of landlords and  warehousemen's,  carriers',  mechanics',
suppliers',   materialmen's,   repairmen's,   or  other  like  liens  (including
Contractual  landlords'  liens)  arising in the Ordinary  Course of Business and
with respect to amounts not yet  delinquent,  or with  respect to amounts  being
contested in good faith by  appropriate  proceedings,  only to the extent that a
reserve or other appropriate provision, if any, has been made on the face of the
Financial  Statements  in an amount equal to the Liability for which the lien is
asserted;  and (iii) liens  incurred or deposits made in the Ordinary  Course of
Business in connection with workers'  compensation,  unemployment  insurance and
other similar types of social security.

         "SELLER" and "SELLERS" are defined in the preamble to this Agreement.

         "SELLER DOCUMENTS" is defined in SECTION 7.15.

         "SELLER  INDEMNIFIED  PARTIES"  means  (a)  Buyer  Parties,  and  their
respective  Affiliates,   officers,  directors,   managers,  employees,  agents,
representatives,  controlling Persons,  and stockholders,  and (b) each Acquired
Entity.

         "SELLER OBLIGATIONS" is defined in SECTION 7.15.

         "SELLER PARTIES" is defined in the preamble to this Agreement.

         "SELLER PRIORITY COLLATERAL" is defined in SECTION 7.15.

         "SELLER RELEASEE" and "SELLER RELEASEES" are defined in SECTION 8.5(B).

         "SENIOR OBLIGATIONS" is defined in SECTION 7.15.

         "SENIOR OFFICER" as defined in SECTION 12.6(A).

         "SHAREHOLDER APPROVAL" means approval of this Agreement,  the Ancillary
Agreements,  and the Transactions,  including,  without limitation, the issuance
and sale of the Parent Shares, by the Requisite Vote obtained in compliance with
applicable Law.

         "SHARES" means, collectively,  the 368 Shares, the Buffalo Inc. Shares,
the 316 Shares and the Buffalo US Shares.

         "SHORTFALL" is defined in SECTION 12.3.

         "SOFTWARE" means computer software or middleware.

         "SPECIAL MEETING" is defined in SECTION 7.11(A).


                                       14



         "STANDSTILL AGREEMENT" means the Standstill and Voting Agreement in the
form of EXHIBIT K.

         "SUBSIDIARY"  means, with respect to any Person: (a) any corporation of
which  more than 50% of the total  voting  power of all  classes  of the  Equity
Interests entitled (without regard to the occurrence of any contingency) to vote
in the election of directors is owned by such Person  directly or through one or
more  other  Subsidiaries  of  such  Person,  and (b) any  Person  other  than a
corporation  of which at  least a  majority  of the  Equity  Interests  (however
designated)  entitled  (without regard to the occurrence of any  contingency) to
vote in the election of the governing  body,  partners,  managers or others that
will control the  management of such entity is owned by such Person  directly or
through one or more other Subsidiaries of such Person.

         "SUPPORT  AGREEMENT"  means the  agreement to be entered into as of the
Closing  Date  among  Parent  and Buyer  substantially  in the form of EXHIBIT L
pursuant to which such parties  agree to take  certain  actions so long as there
are any Buyer Exchangeable Shares outstanding.

         "SURPLUS" is defined in SECTION 12.3.

         "TARGET" is defined in SECTION 12.3.

         "TARGET COMPANIES" is defined in the preamble to this Agreement.

         "TAX" or  "TAXES"  means all  taxes,  charges,  duties,  fees,  levies,
imposts,  and  any  other  charges  of  any  kind  lawfully  levied,   assessed,
reassessed,  charged,  collected,  withheld  or  imposed  in any  manner  by any
Governmental Body under any applicable Law, including:

         (a)      federal,  provincial,  municipal  and local,  foreign or other
                  income,   franchise,   profits,   capital   (including   large
                  corporations),  capital gains,  alternative,  net worth, gross
                  receipts,  immovable  or real  property,  movable or  personal
                  property, tangible, withholding, payroll,  employment-related,
                  health,  safety,  severance,  transfer,  registration,  sales,
                  value added,  goods and services,  harmonized sales,  license,
                  stamp,  use, excise,  occupation,  consumption,  anti-dumping,
                  customs,  import,  AD  VALOREM,   countervail  duties,  Canada
                  pension plan contributions, Quebec pension plan contributions,
                  unemployment  and  employment   insurance   payments,   social
                  security, provincial workers' compensation payments, and value
                  added  taxes and all other  taxes,  contributions,  duties and
                  charges of any kind  whatsoever  for which any  corporation of
                  Acquired  Entities  may  have  any  liability  imposed  by any
                  Governmental Body, together with any installments with respect
                  thereto,  whether  disputed or not; and

         (b)      interest,  fines, penalties and additions associated therewith
                  imposed by any Governmental Body, whether disputed or not.

         "TAX PROCEEDING" is defined in SECTION 8.8(E).

         "TAX RETURN"  means all reports,  declarations,  remittances,  returns,
claims,  elections,  statements,  designations,  forms,  and other documents and
information  filed or  required to be filed in respect of Taxes or in respect of
or pursuant to any domestic or foreign federal,


                                       15



provincial,  state, municipal,  territorial,  or other taxing statute, including
any schedule or attachment thereto and any amendment thereof.

         "TERMINATION  DATE"  means the  earlier to occur of (a) the  Expiration
Date and (b) the date on which this Agreement is terminated  pursuant to SECTION
10.1 (other than SECTION 10.1(B)).

         "TERMINATION FEE" is defined in SECTION 10.2(F).

         "TRADEMARK  PURCHASE"  means the  acquisition by Trust of rights in the
Trust  Marks  pursuant  to  and  in  accordance  with  the  Trademark   Purchase
Agreements.

         "TRADEMARK   PURCHASE   AGREEMENTS"  means  the  series  of  agreements
providing  for the sale and transfer by Sarafina  Invest  Limited and  Hurstwood
Limited of their respective interests in the Trust Marks to Beldene Limited, and
the subsequent  sale and transfer of such acquired  interests in the Trust Marks
by Beldene Limited to Trust, substantially in the form of EXHIBIT M.

         "TRADE  SECRETS"  means all know-how,  trade  secrets and  confidential
information,  including customer lists, supplier lists,  technical  information,
data, process technology,  plans, drawings, designs, inventions, and conceptions
of inventions  whether  patentable or unpatentable and whether or not reduced to
practice.

         "TRADING DAY" is defined in SECTION 3.8(D).

         "TRADING MARKET" is defined in SECTION 3.8(D).

         "TRANSACTION   DOCUMENTS"   means  this  Agreement  and  the  Ancillary
Agreements.

         "TRANSACTIONS"  means  all of the  transactions  contemplated  by  this
Agreement, including: (a) the sale of the Shares by Sellers to Buyer Parties and
Buyer  Parties'  delivery of the purchase  price  therefor;  (b) the sale of the
Assets by Trust to Buyer  Parties and Buyer  Parties'  delivery of the  purchase
price  therefore;  (c) the execution,  delivery,  and  performance of all of the
documents,  instruments, and agreements to be executed, delivered, and performed
in  connection  herewith,  including  each  Ancillary  Agreement;  and  (d)  the
performance by the Parties of their respective  covenants and obligations  (pre-
and post-Closing) under this Agreement.

         "TREAS.  REG." means the  temporary and final  regulations  promulgated
under the Code.

         "TRUST" is defined in the preamble to this Agreement.

         "TRUST ADJUSTED NET REVENUE" is defined in SECTION 4.3(B)(I).

         "TRUSTEE" is defined in SECTION 5.3(A).

         "TRUST MARK" is defined in SECTION 6.15(C).

         "US  GAAP"  means,  at  any  time,  United  States  generally  accepted
accounting principles in force at such time.


                                       16



         "VOTING TRUST  AGREEMENT"  means an agreement with respect to voting by
the Voting Trustee of the Parent Special Voting Shares substantially in the form
of EXHIBIT N.

         "VOTING TRUSTEE" means  Computershare  Trust Company of Canada, a trust
company  incorporated  under the laws of  Canada,  or such other  trust  company
incorporated  under  the laws of Canada  reasonably  acceptable  to  Parent  and
Sellers.

                                    ARTICLE 2.
                                     DEPOSIT
2.1      DEPOSIT

         Upon the  execution  of this  Agreement,  Parent  shall pay to  Buffalo
International, the amount of $5,000,000 as a deposit (the "DEPOSIT"), to be held
by Buffalo  International and applied as follows:

         (a)      If the  Closing  occurs,  the  Deposit  shall be  retained  by
                  Buffalo International and applied to the Buffalo Inc. Purchase
                  Price, and the cash portion of the Buffalo Inc. Purchase Price
                  payable by Buyer at the Closing shall be reduced by the amount
                  of the Deposit.

         (b)      If this  Agreement is terminated by Sellers or Parent,  as the
                  case may be, in accordance with SECTIONS 10.1(B),  10.1(D), or
                  10.1(E)  then, as Sellers  Parties' sole and exclusive  remedy
                  and as  liquidated  damages,  the Deposit shall be retained by
                  Buffalo International.

         (c)      If this  Agreement is terminated by Sellers or Parent,  as the
                  case may be, in accordance with SECTIONS 10.1(A),  10.1(C), or
                  10.1(F), the Deposit less, in the case of termination pursuant
                  to  SECTION  10.1(F)  only,  the  Termination  Fee,  shall  be
                  refunded by Buffalo  International to Buyer promptly following
                  such termination.

                                   ARTICLE 3.
                           PURCHASE AND SALE OF SHARES

3.1      PURCHASE AND SALE OF SHARES

         (a)      On and subject to the terms and conditions of this  Agreement,
                  Parent agrees to cause Buyer to purchase from 418 Canada,  and
                  418  Canada  agrees  to sell to Buyer,  all of the 368  Canada
                  Shares for the  consideration  specified  in  SECTION  3.2 and
                  delivered in the manner specified in SECTION 3.4.

         (b)      On and subject to the terms and conditions of this  Agreement,
                  Parent   agrees  to  cause  Buyer  to  purchase  from  Buffalo
                  International,  and  Buffalo  International  agrees to sell to
                  Buyer,  all of the Buffalo Inc.  Shares and the 316 Shares for
                  the  consideration  specified in SECTION 3.2 and  delivered in
                  the manner specified in SECTION 3.4.


                                       17



         (c)      On and subject to the terms and conditions of this  Agreement,
                  Parent  agrees to  purchase  from 397  Canada,  and 397 Canada
                  agrees to sell to Parent, all of the Buffalo US Shares for the
                  consideration  specified  in SECTION 3.2 and  delivered in the
                  manner specified in SECTION 3.4.

3.2      PURCHASE PRICE FOR SHARES

         (a)      The  purchase  price  for  the 368  Canada  Shares  (the  "368
                  PURCHASE PRICE") consists of: (i) 1,000,000 Buyer Exchangeable
                  Share;  and (ii) a right to  receive  the  Contingent  Payment
                  described in SECTION 3.8 which the Parties agree currently has
                  a nominal value.

         (b)      The purchase  price for the Buffalo Inc.  Shares (the "BUFFALO
                  INC.   PURCHASE  PRICE")  consists  of:  (i)  3,000,000  Buyer
                  Exchangeable  Shares;  (ii) balance of portion of Buffalo Inc.
                  Purchase Price of $11,000,000 evidenced by Buyer Notes (iii) a
                  right to receive the Contingent  Payment  described in SECTION
                  3.8 which the Parties agree currently has a nominal value; and
                  (iv) any  portion  of the Earn Out  Amount  payable to Buffalo
                  International by virtue of ARTICLE 12.

         (c)      The  purchase  price  for  the 316  Canada  Shares  (the  "316
                  PURCHASE PRICE") consists of: (i) 9,000,000 Buyer Exchangeable
                  Shares;  (ii)  a  right  to  receive  the  Contingent  Payment
                  described in SECTION 3.8 which the Parties agree currently has
                  a nominal value;  and (iii) any portion of the Earn Out Amount
                  payable to Buffalo International by virtue of ARTICLE 12.

         (d)      The purchase  price for the Buffalo US Shares (the "BUFFALO US
                  PURCHASE  PRICE")  consists of: (i)  $17,000,000  in cash; and
                  (ii) any portion of the Earn Out Amount  payable to 397 Canada
                  by virtue of ARTICLE 12.

3.3      THE CLOSING

         The  closing of the  purchase  and sale of the Shares  (the  "CLOSING")
shall take place at the offices of Blake, Cassels & Graydon LLP, Suite 2200, 600
de Maisonneuve  Boulevard  West,  Montreal,  Quebec H3A 3J2,  commencing at 9:00
a.m., local time, on the second (2nd) business day following the satisfaction or
waiver of all  conditions to the  obligations  of the Parties to consummate  the
purchase and sale of the Shares and Assets (other than  conditions  with respect
to actions the respective Parties will take at the Closing itself) or such other
date as Buyer  Parties,  Sellers and Trust may mutually  determine (the "CLOSING
DATE").

3.4      DELIVERY OF PURCHASE PRICE FOR SHARES AT THE CLOSING

         (a)      Parent shall cause Buyer to deliver the 368 Purchase  Price at
                  the Closing by  delivering to 418 Canada,  stock  certificates
                  representing 1,000,000 Buyer Exchangeable Shares.

         (b)      Parent shall cause Buyer to deliver the Buffalo Inc.  Purchase
                  Price at the Closing as follows: (i) to Buffalo International,
                  stock certificates  representing  3,000,000


                                       18



                  Buyer Exchangeable Shares; and (ii) to Buffalo  International,
                  $11,000,000 in principal amount of Buyer Notes.

         (c)      Parent shall cause Buyer to deliver the 316 Purchase  Price at
                  the  Closing by  delivering  to Buffalo  International,  stock
                  certificates representing 9,000,000 Buyer Exchangeable Shares.

         (d)      Parent  shall  deliver the  Buffalo US  Purchase  Price at the
                  Closing, by delivering to 397 Canada,  $17,000,000 in cash via
                  Fedwire transfer.

3.5      OTHER DELIVERIES AT THE CLOSING

         (a)      At the Closing,  Sellers  shall  deliver to  applicable  Buyer
                  Party:

                  (i)      Certificates  representing the Shares,  duly endorsed
                           or accompanied by duly executed stock powers in favor
                           of Buyer  or  Parent,  as the  case may be,  or their
                           nominee in form acceptable to applicable Buyer Party;

                  (ii)     An  Officers'  certificate,  in  form  and  substance
                           reasonably  satisfactory to Parent,  duly executed on
                           Sellers'  behalf,   certifying  as  to  whether  each
                           condition  specified in SECTIONS  9.1(A)  through (d)
                           has been satisfied in all respects;

                  (iii)    A  Secretary's  Certificate,  in form  and  substance
                           reasonably  satisfactory to Parent,  duly executed on
                           Sellers' behalf;

                  (iv)     The resignation, effective as of the Closing, of each
                           Acquired Entity's directors and officers requested by
                           Parent; and

                  (v)      Each Seller's  counterpart  signatures to each of the
                           Transaction  Documents  to which  it is a party,  and
                           each Bitton Brother's  counterpart  signature to each
                           of the  Transaction  Documents  to which such  Bitton
                           Brother is a party.

         (b)      At the Closing, Parent shall deliver to Sellers:

                  (i)      An  Officers'  certificate,  in  form  and  substance
                           reasonably  satisfactory to Sellers, duly executed on
                           Parent's  behalf,   certifying  as  to  whether  each
                           condition specified in SECTIONS 9.2(A) and 9.2(D) has
                           been satisfied in all respects;

                  (ii)     A  Secretary's  Certificate,  in form  and  substance
                           reasonably  satisfactory to Sellers, duly executed on
                           Parent's behalf; and

                  (iii)    Each Buyer Party's counterpart  signatures to each of
                           the Transaction Documents to which it is a party.

         (c)      At the Closing,  Parent shall deliver to Voting  Trustee,  the
                  Parent Special Voting Shares to be held in accordance with the
                  Voting Trust Agreement.


                                       19



3.6      TAX ELECTION

         Buyer  agrees that,  at the request of a Seller who has received  Buyer
Exchangeable  Shares on Closing and who is a resident of Canada for  purposes of
the INCOME TAX ACT (Canada),  Buyer will make a joint  election with such Seller
with  respect to the Shares  sold to Buyer by such Seller  under this  Agreement
under  Subsection  85(1) of the INCOME TAX ACT  (Canada)  and the  corresponding
provisions of any applicable  provincial  income tax statute,  with such "agreed
amount" as is  determined  by such  Seller in its sole  discretion  (within  the
limits under applicable Law). Such Seller shall have sole responsibility for the
timely and proper filing of the elections with the relevant tax authorities. The
sole  obligation  of  Buyer  shall  be to  provide  any  information  reasonably
requested  by the Seller  for the  election  form(s)  concerning  Buyer,  and to
execute and return to such Seller  within ten (10) days of receipt such election
form(s)  which are received by Buyer at the address set forth in this  Agreement
not later than one hundred  twenty (120) days  following the Closing  Date.

3.7      ALLOCATION OF THE BUFFALO INC. PURCHASE PRICE

         The Buffalo Inc. Purchase Price shall be allocated as follows among the
Buffalo Inc. Shares:

         (a)      For the 4,731,301 Class "E" preferred shares, and amount in US
                  Dollars that is the equivalent of 4,731,301  Canadian  Dollars
                  at the Exchange Rate as of the Closing Date;

         (b)      For the 1,117,184 Class "F" preferred shares, and amount in US
                  Dollars that is the equivalent of 1,117,184  Canadian  Dollars
                  at the Exchange Rate as of the Closing Date; and

         (c)      For the 100 Class "A" Common shares,  the remaining balance of
                  the Buffalo Inc.  Purchase Price.

3.8      CONTINGENT PAYMENT

         (a)      Upon the terms and subject to the conditions set forth in this
                  SECTION 3.8, the Contingent  Rightholder  shall have the right
                  to  receive  from  Buyer an  amount  equal  to any  additional
                  payment  (the  "CONTINGENT   PAYMENT")  required  to  be  made
                  pursuant to this  Section and Parent  agrees to cause Buyer to
                  pay such Contingent Payment.

         (b)      The  Contingent  Payment,  if any,  to be made by Buyer to the
                  Contingent  Rightholder  shall be  determined  for each Parent
                  Share on the  basis of the  market  price  per share of Parent
                  Common  Stock  during  the  five  year  period  following  the
                  Closing, as follows:

                  (i)      With respect to each Parent Share, Parent shall cause
                           Buyer to pay to the Contingent  Rightholder an amount
                           equal to the excess of (i) the  Minimum  Share  Price
                           over (ii) the Parent Share  Value,  unless the Parent
                           Share Value for such Parent  Share  equals or exceeds
                           the Minimum  Share Price at any time on or before the
                           fifth  anniversary  of the Closing Date. For example,
                           if the Parent Share


                                       20



                           Value is $2.80,  then Parent shall cause Buyer to pay
                           to the  Contingent  Rightholder  an  amount  equal to
                           $0.276 for each Parent Share.  As a further  example,
                           if the Parent Share Value is $3.15, then Parent shall
                           have no obligation to pay the Contingent Payment.

                  (ii)     The  Contingent  Payment shall be payable by Buyer no
                           sooner  than five (5) days and no later  than  thirty
                           (30)  days  following  the fifth  anniversary  of the
                           Closing Date in cash via Fedwire transfer pursuant to
                           instructions provided by the Contingent Rightholder.

         (c)      Each Seller  receiving Buyer  Exchangeable  Shares at Closing,
                  and each  subsequent  Contingent  Rightholder,  shall have the
                  right to transfer the right to receive the Contingent  Payment
                  either together with, or separate from, the Parent Shares with
                  respect  to  which  such  Contingent   Payment  relates.   Any
                  Contingent  Rightholder  that desires to transfer its right to
                  receive the Contingent  Payment shall first deliver to Buyer a
                  copy of an assignment agreement.

         (d)      For purposes of this SECTION  3.8, the  following  terms shall
                  have the following meanings:

         "CONTINGENT RIGHTHOLDER" means any Person that has the right to receive
a  Contingent  Payment in  respect of a Parent  Share.  The  initial  Contingent
Rightholder  for all of the  Parent  Shares  shall be  Sellers  receiving  Buyer
Exchangeable Shares at Closing,  and thereafter shall include any Person to whom
such  Seller  or any  subsequent  Contingent  Rightholder  transfers  a right to
receive a Contingent Payment in accordance with this SECTION 3.8.

         "MINIMUM SHARE PRICE" means $3.076 per share of Parent Common Stock (as
adjusted for stock splits,  reverse stock splits, and similar transactions after
the date of this Agreement which affect the price of Parent Common Stock).

         "PARENT SHARE VALUE" means the highest  volume  weighted  average price
per share of the Parent Common Stock (a reported by Bloomberg Financial Markets)
on the Trading  Market over ten (10)  consecutive  Trading  Days during the five
years following the Closing Date,  during which the aggregate  trading volume of
the Parent  Common  Stock  traded on the  Trading  Market  during  such ten (10)
Trading Days is at least 500,000  shares (as adjusted for stock splits,  reverse
stock splits,  and similar  transactions  after the date of this Agreement which
affect the number of issued and outstanding shares of Parent Common Stock).

         "TRADING  DAY" means a day on which the principal  national  securities
exchange  on which the Parent  Common  Stock is listed or admitted to trading or
traded is open for the transaction of business or, if the Stock is not listed or
admitted to trading on any national securities exchange, a business day.

         "TRADING  MARKET"  means the  Nasdaq  Global  Market  or, if the Parent
Common  Stock is not then  listed or  admitted  to trading on the Nasdaq  Global
Market,  such  other  principal  securities  market  or  exchange  or  automated
quotation  system on which the Parent  Common  Stock is then  traded,  listed or
quoted on the date in question.


                                       21



                                   ARTICLE 4.
                           PURCHASE AND SALE OF ASSETS

4.1      PURCHASE AND SALE OF PURCHASED ASSETS

         On and subject to the terms and  conditions  of this  Agreement,  Buyer
Parties agree to purchase from Trust, and Trust agrees to sell to Buyer Parties,
all of the Purchased Assets for the  consideration  specified in SECTION 4.3 and
delivered  in the manner  specified in SECTION 4.6. At least ten (10) days prior
to the expected  Closing,  the Buyer Parties shall determine and notify Trust of
which of the  Purchased  Assets  will be  acquired  by  Parent  and Buyer at the
Closing  and the  portion of the Asset  Purchase  Price to be paid by Parent and
Buyer for the  Purchased  Assets to be acquired by such Buyer  Party;  PROVIDED,
HOWEVER,  that in all events,  the Buyer Note to be  delivered in payment of the
Purchase  Assets  shall be paid by Buyer for the  Purchase  Assets  acquired  by
Buyer.  Nothing in this SECTION 4.1 shall  restrict a Buyer Party from assigning
its rights under this Agreement in accordance with SECTION 13.4.

4.2      ASSUMED LIABILITIES

         On and subject to the terms and  conditions  of this  Agreement,  Buyer
Parties  agree  to  assume  and  become  responsible  for  all  of  the  Assumed
Liabilities  as of the Closing  Date.  Buyer Parties will not assume or have any
responsibility,  however,  with respect to any other  obligation or Liability of
Trust not included within the definition of Assumed Liabilities.

4.3      PURCHASE PRICE FOR PURCHASED ASSETS

         (a)      ASSET  PURCHASE  PRICE.  The purchase  price for the Purchased
                  Assets  (the  "ASSET   PURCHASE   PRICE")   consists  of:  (i)
                  $23,000,000  in cash;  and (ii)  balance  of  portion of Asset
                  Purchase Price of $4,000,000 evidenced by Buyer Notes.

         (b)      ADJUSTMENTS TO ASSET PURCHASE PRICE.  The Asset Purchase Price
                  will be adjusted in the following manner.  Any such adjustment
                  will be applied against,  and reduce,  the cash portion of the
                  Asset Purchase Price.

                  (i)      PURCHASE PRICE  ADJUSTMENT.  The Asset Purchase Price
                           will be  decreased  by the  amount by which the Trust
                           Adjusted Net Revenue  attributable to the period from
                           January  1, 2005 up to (and  including)  the  Closing
                           exceeds  the amount of cash and cash  equivalents  of
                           Trust as of the Closing  Date and which are  included
                           in the  Purchased  Assets  acquired by Buyer  Parties
                           (the "ASSET PURCHASE PRICE ADJUSTMENT"). For purposes
                           hereof,  the "TRUST  ADJUSTED NET REVENUE"  means (w)
                           all  revenues of Trust LESS (x) all expenses of Trust
                           (including  income taxes of Trust and 6144195  Canada
                           Inc.  relating to revenues of Trust or 6144195 Canada
                           Inc.  revenues from Trust and which are actually paid
                           to the taxing  authorities either during or after the
                           period  for  which  the   applicable   revenues  were
                           accrued),  other than (A) expenses paid or payable to
                           Affiliates of Trust other than for bona fide services
                           actually  rendered by such  Affiliate for the Trust's
                           benefit  (which in no event  shall  include  interest
                           expense  payable  to  Affiliates)  and  (B)  non-cash
                           expenses (including, without limitation, amortization
                           expense),  LESS  (y) the  Related  Party  Receivables
                           (provided that the amount of the loans giving rise to


                                       22



                           such  Related   Party   Receivables   have  not  been
                           distributed  by the  Acquired  Entities to  Sellers),
                           LESS (z)  $3,000,000,  all  determined  in accordance
                           with Canadian  GAAP and the  financial  statements of
                           Trust.  The Asset Purchase Price  Adjustment shall be
                           determined  in  Canadian  Dollars  and  converted  to
                           United States  Dollars using the Exchange Rate on the
                           Closing Date.

                  (ii)     INITIAL ASSET PURCHASE PRICE ADJUSTMENT. Ten calendar
                           days prior to the expected  Closing Date,  Trust will
                           deliver to Buyer a written  statement  setting  forth
                           Trust's  good faith  estimate  of the Asset  Purchase
                           Price Adjustment as of the Closing Date (the "CLOSING
                           DATE ADJUSTMENT AMOUNT"). The Asset Purchase Price as
                           adjusted by the Closing Date Adjustment Amount is the
                           "CLOSING DATE ADJUSTED ASSET PURCHASE PRICE."

                  (iii)    DEFINITIVE ASSET PURCHASE PRICE ADJUSTMENT.

                           (A)      As promptly as practicable after the Closing
                                    Date,  but not later than 60  calendar  days
                                    thereafter,  Parent will  deliver to Trust a
                                    schedule setting forth in reasonable  detail
                                    Parent's  calculation  of the Asset Purchase
                                    Price  Adjustment  as of  the  Closing  Date
                                    based on actual  results (the  "POST-CLOSING
                                    ESTIMATED  ADJUSTMENT  AMOUNT").  If  Parent
                                    fails to deliver such  schedule  within such
                                    period,  the  Closing  Date  Adjusted  Asset
                                    Purchase  Price  will  be  deemed  to be the
                                    Final Asset Purchase Price.

                           (B)      The Post-Closing Estimated Adjustment Amount
                                    will  be  subject  to  Trust's  review.   In
                                    reviewing   the    Post-Closing    Estimated
                                    Adjustment Amount, Trust will have the right
                                    to communicate  with, and to review the work
                                    papers,   schedules,   memoranda  and  other
                                    documents  Parent  prepared  or  reviewed in
                                    determining   the   Post-Closing   Estimated
                                    Adjustment  Amount and thereafter  will have
                                    access to all  relevant  books and  records,
                                    all to the extent Trust reasonably  requires
                                    to   complete   its   review   of   Parent's
                                    calculation  of the  Post-Closing  Estimated
                                    Adjustment  Amount.  Within 30 calendar days
                                    after its receipt of Parent's calculation of
                                    the   Post-Closing    Estimated   Adjustment
                                    Amount,  Trust will advise  Parent  whether,
                                    based on such review,  it has any exceptions
                                    to such  calculation.  Unless Trust delivers
                                    to Parent within such 30 calendar day period
                                    a  letter   describing   its  exceptions  to
                                    Parent's    calculation   of    Post-Closing
                                    Estimated  Adjustment Amount as set forth in
                                    the schedule  delivered by Parent  described
                                    in SECTION 4.3(B)(III)(A),  the Post-Closing
                                    Estimated    Adjustment   Amount   will   be
                                    conclusive  and binding on Parent and Trust.
                                    If  Trust  submits  a letter  detailing  any
                                    exceptions   to  the   calculation   of  the
                                    Post-Closing  Estimated  Adjustment  Amount,
                                    then (1) for 20 days  after the date  Parent
                                    receives such letter,  Trust and Parent will
                                    use their Commercially Reasonable Efforts to
                                    agree on the calculation of the Post-Closing
                                    Estimated  Adjustment Amount and (2) lacking
                                    such agreement,  the matter will be referred
                                    to an independent accounting firm reasonably
                                    acceptable  to Parent and Sellers,  who will
                                    determine the correct Post-Closing Estimated
                                    Adjustment  Amount  within  30  days of


                                       23



                                    such referral,  which  determination will be
                                    final and  binding  on Parent  and Trust for
                                    all  purposes.  Such  amount  determined  in
                                    accordance with this SECTION  4.3(B)(III)(B)
                                    is the "CONCLUSIVE ADJUSTMENT AMOUNT."

                           (C)      If  the  Conclusive   Adjustment  Amount  is
                                    different  than the Closing Date  Adjustment
                                    Amount,  then,  within two business  days of
                                    the    determination   of   the   Conclusive
                                    Adjustment Amount, Sellers (Parent) will pay
                                    to  Parent  (Sellers),  as  appropriate,  an
                                    amount equal to the  difference  between the
                                    Closing  Date  Adjustment   Amount  and  the
                                    Conclusive Adjustment Amount,  together with
                                    interest  thereon at a rate of seven percent
                                    (7%) per annum during the period  commencing
                                    on  and   including  the  Closing  Date  and
                                    continuing  through but  excluding  the date
                                    such  amount  is  paid.   The  "FINAL  ASSET
                                    PURCHASE PRICE" is the Closing Date Adjusted
                                    Asset   Purchase    Price,    increased   or
                                    decreased, as applicable, by the amount paid
                                    by Parent or Seller pursuant to this SECTION
                                    4.3(B)(III)(C).

4.4      ASSET PURCHASE PRICE ALLOCATION

         Buyer Parties and Sellers agree to cooperate in good faith to determine
on or prior to the  Closing  Date the manner in which the Asset  Purchase  Price
shall be allocated among the Purchased Assets,  which determination shall be set
forth on SCHEDULE 4.4 and initialed by the parties hereto at the Closing.  Buyer
Parties  and  Sellers  shall  file and  cause to be filed all Tax  Returns,  and
execute such other  documents as may be required by any taxing  authority,  in a
manner consistent with the Asset Purchase Price  allocation,  and shall refrain,
and cause their  Affiliates  to refrain,  from taking any position  inconsistent
with such Asset Purchase Price allocation with any taxing authority unless,  and
then  only to the  extent,  required  to do so by a  taxing  authority.

4.5      THE CLOSING

         The closing of the  purchase  and sale of the  Purchased  Assets  shall
occur  concurrently  with the closing of the  purchase and sale of the Shares at
the Closing on the Closing Date.

4.6      DELIVERY OF ASSET PURCHASE PRICE AT THE CLOSING

         Buyer Parties  shall deliver to Trust at Closing:  (i) the cash portion
of the Closing Date Adjusted Asset Purchase Price in cash via Fedwire  transfer;
and (ii) $4,000,000 in principal  amount of Buyer Notes.

4.7      OTHER DELIVERIES AT THE CLOSING

         (a)      At the Closing, Trust shall deliver to Buyer Parties:

                  (i)      The Bill of Sale and the  Assignment  and  Assumption
                           Agreement, each duly executed by Trust;

                  (ii)     Such  other  bills of sale,  assignments,  and  other
                           instruments  of transfer or  conveyance as Parent may
                           reasonably  request or as may be otherwise


                                       24



                           necessary   to   evidence   and   effect   the  sale,
                           assignment, transfer, conveyance, and delivery of the
                           Purchased Assets to Buyer Parties, including, without
                           limitation,  duly executed  assignments of trademarks
                           for all applicable  jurisdictions  and suitable to be
                           recorded therein;

                  (iii)    All cash and cash equivalents of Trust;

                  (iv)     An  Officers'  certificate,  in  form  and  substance
                           reasonably  satisfactory to Parent,  duly executed on
                           Trust's   behalf,   certifying  as  to  whether  each
                           condition  specified in SECTIONS  9.1(A)  through (D)
                           has been satisfied in all respects;

                  (v)      A  Secretary's  Certificate,  in form  and  substance
                           reasonably  satisfactory to Parent,  duly executed on
                           Trust's behalf; and

                  (vi)     Trust's   counterpart   signatures  to  each  of  the
                           Transaction  Documents to which it is a party.

         (b)      At the Closing, Buyer Parties shall deliver to Trust:


                  (i)      The  Assignment  and   Assumption   Agreement,   duly
                           executed by each Buyer Party;

                  (ii)     An  Officers'  certificate,  in  form  and  substance
                           reasonably  satisfactory  to Trust,  duly executed on
                           each Buyer Party's  behalf,  certifying as to whether
                           each condition  specified in SECTIONS  9.2(A) through
                           (F) has been satisfied in all respects;

                  (iii)    A  Secretary's  Certificate,  in form  and  substance
                           reasonably  satisfactory  to Trust,  duly executed on
                           each Buyer Party's behalf; and

                  (iv)     Each Buyer Party's counterpart  signatures to each of
                           the Transaction Documents to which it is a party.

4.8      CERTAIN TAX TREATMENT

         Buyer Parties and Trust agree that, pursuant to Section 10 of Part V of
Schedule VI of the EXCISE TAX Act (Canada) and section 188 of an ACT  RESPECTING
THE  QUEBEC  SALES  TAX,  no Goods and  Services  Tax under the  EXCISE  TAX ACT
(Canada) or Quebec  Sales Tax under an ACT  RESPECTING  THE QUEBEC  SALES TAX is
payable in respect of the purchase  and sale of the  Purchased  Assets.  In that
respect,  Parent  represents  that it is not registered  under  Subdivision d of
Division  V of Part IX of the EXCISE TAX ACT  (Canada)  and under  Division I of
Chapter VIII of an ACT RESPECTING THE QUEBEC SALES TAX.


                                       25



                                   ARTICLE 5.
                         REPRESENTATIONS AND WARRANTIES
                           CONCERNING THE TRANSACTION

5.1      REPRESENTATIONS AND WARRANTIES OF SELLERS

         Sellers, jointly and severally,  represent and warrant to Buyer Parties
the following as of the date of this Agreement:

         (a)      STATUS OF  CERTAIN  SELLERS.  Each  Seller  is an entity  duly
                  created,  formed or organized,  validly existing,  and in good
                  standing under the Laws of the  jurisdiction  of its creation,
                  formation, or organization.  There is no pending or threatened
                  Action  for  the  dissolution,   liquidation,  insolvency,  or
                  rehabilitation of any Seller.

         (b)      POWER AND AUTHORITY; ENFORCEABILITY. Each Seller has the power
                  and authority to execute and deliver each Transaction Document
                  to which such Seller is a party, and to perform and consummate
                  the Transactions.  Each Seller has taken all actions necessary
                  to authorize the  execution  and delivery of each  Transaction
                  Document  to  which  it is  party,  the  performance  of  such
                  Seller's obligation's thereunder,  and the consummation of the
                  Transactions.   Each   Transaction   Document  has  been  duly
                  authorized,  executed,  and delivered by, and assuming the due
                  authorization,  execution,  and delivery thereof by each other
                  party  thereto,  is Enforceable  against,  each Seller that is
                  party thereto.

         (c)      NO  VIOLATION.  Except as set forth on  SCHEDULE  5.1(C),  the
                  execution  and the  delivery of the  Transaction  Documents by
                  each Seller party thereto and the performance and consummation
                  of the  Transactions  by such  Seller will not (i) result in a
                  material  Breach of any Law or Order to which  such  Seller is
                  subject or any provision of its Organizational Documents, (ii)
                  result in a material Breach of any Contract,  Order, or Permit
                  to which  such  Seller is a party or by which  such  Seller is
                  bound or to which any of such Seller's  assets is subject,  or
                  (iii)  require any Consent,  except any SEC and other  filings
                  required  to be made by  Parent or  Buyer.  No Seller  that is
                  party to any Contract to which any Acquired  Entity is a party
                  or by which any Acquired  Entity is bound or any of its assets
                  is subject has Breached any such Contract.

         (d)      RESIDENCE  OF SELLERS.  Each Seller is not a  non-resident  of
                  Canada  for  purposes  of  section  116 of the  INCOME TAX ACT
                  (Canada) and Part II of the TAXATION ACT (Quebec).

         (e)      BROKERS'  FEES.  No  Seller  has  any  Liability  to  pay  any
                  compensation to any broker,  finder,  or agent with respect to
                  the  Transactions  for which any Buyer  Party or any  Acquired
                  Entity could become directly or indirectly Liable.

         (f)      SHARES;  SELLER  INFORMATION.  Each Seller holds of record and
                  owns  beneficially  the  number of Shares as set forth next to
                  such  Seller's  name in  EXHIBIT  A,  free  and  clear  of any
                  Encumbrances (other than any restrictions under the Securities
                  Act and state securities  Laws).  With respect to each Seller,
                  EXHIBIT A also sets forth the address,  state of residence and
                  federal tax identification  number (or social security


                                       26



                  number,  as  applicable) of such Seller as of the date hereof.
                  No Seller is a party to any Contract  that could  require such
                  Seller to sell, transfer,  or otherwise dispose of any capital
                  stock of any Acquired Entity (other than this  Agreement).  No
                  Seller is a party to any other  Contract  with  respect to any
                  capital stock of any Acquired Entity.

         (g)      INVESTMENT. Each Seller (i) understands that none of the Buyer
                  Notes,  the Buyer  Exchangeable  Shares or the  Parent  Common
                  Stock have been,  nor will be,  except as provided  for in the
                  Registration Rights Agreement, registered under the Securities
                  Act,  under any state  securities  Laws, or under any Canadian
                  securities   Laws,  and  that  the  Buyer  Notes,   the  Buyer
                  Exchangeable  Shares  and the  Parent  Common  Stock are being
                  offered and sold in reliance  upon United  States  federal and
                  state,  and Canadian  provincial,  exemptions for transactions
                  not involving any public offering, (ii) is acquiring the Buyer
                  Notes,  the Buyer  Exchangeable  Shares and the Parent  Common
                  Stock solely for Seller's own account for investment purposes,
                  and not with a view to the  distribution  thereof,  (iii) is a
                  sophisticated   investor  with  knowledge  and  experience  in
                  business and  financial  matters,  (iv) has  received  certain
                  information   concerning   Buyer   Parties  and  has  had  the
                  opportunity  to obtain  additional  information  as desired to
                  evaluate  the merits  and the risks  inherent  in holding  the
                  Buyer  Notes,  the Buyer  Exchangeable  Shares  and the Parent
                  Common  Stock,  (v) is able to bear the economic risk and lack
                  of liquidity  inherent in holding the Buyer  Notes,  the Buyer
                  Exchangeable  Shares and the Parent Common  Stock,  (vi) is an
                  "accredited  investor" as defined in  Regulation D promulgated
                  under  the  Securities  Act and as  defined  under  Regulation
                  45-106 and,  where  applicable,  has not been  created or used
                  solely  to  purchase  or  hold  securities  as an  "accredited
                  investor"  for purposes of  Regulation  45-106,  (vii) has not
                  entered  into this  transactions  as a result  of any  general
                  solicitation  or general  advertising  (within  the meaning of
                  Regulation D under the Securities  Act and (viii)  understands
                  that the Buyer Notes, the Buyer  Exchangeable  Shares, and the
                  Parent Shares issuable in exchange thereof will be "restricted
                  securities"  within  the  meaning  of  Rule  144(a)(3)  of the
                  Securities  Act and may not be  offered  or sold in the United
                  States or to a U.S.  Person except  pursuant to a registration
                  statement  under the Securities Act or an exemption  therefrom
                  and except pursuant to a prospectus  filed and receipted under
                  applicable  Canadian  securities  legislation  or an exemption
                  therefrom.

         (h)      BUYER REVIEW. Each Seller:

                  (i)      Has such  knowledge  and  experience in financial and
                           business matters that it is capable of evaluating the
                           merits and risks of such  Seller's  investment in the
                           Buyer Notes,  the Buyer  Exchangeable  Shares and the
                           Parent  Common Stock  contemplated  hereby,  and that
                           such Seller is able to bear the economic risk of such
                           investment indefinitely.

                  (ii)     Has   (A)   had  the   opportunity   to   meet   with
                           representative  officers and other representatives of
                           Parent to discuss its business, assets,  liabilities,
                           financial condition,  cash flow, and operations,  and
                           (B)  received  all  materials,  documents  and  other
                           information  that it deems  necessary or advisable to
                           evaluate  the Buyer  Notes,  the  Buyer  Exchangeable
                           Shares   and  the   Parent   Common   Stock  and  the
                           Transactions.


                                       27



                  (iii)    Has   made   its   own    independent    examination,
                           investigation,  analysis and  evaluation of the Buyer
                           Notes, the Buyer  Exchangeable  Shares and the Parent
                           Common Stock Buyer, including its own estimate of the
                           value of the  Buyer  Notes,  the  Buyer  Exchangeable
                           Shares and the Parent Common Stock.

                  (iv)     Has undertaken such due diligence (including a review
                           of Parent's assets, properties,  liabilities,  books,
                           records,   and  contracts)  as  it  deems   adequate,
                           including that described above.

                  Nothing in SECTION  5.1(H) will preclude a Seller from relying
         on the representations,  warranties, covenants, and agreements of Buyer
         Parties herein or from pursuing their remedies with respect to a Breach
         thereof.

         (i)      ASSETS  AND  LIABILITIES.  Except  as set  forth  on  SCHEDULE
                  5.1(I),  each Seller is a holding company and does not operate
                  any  business  nor have any assets or  Liabilities  other than
                  such Seller's ownership of the Shares and Liabilities  related
                  thereto.

5.2      REPRESENTATIONS AND WARRANTIES OF BUYER PARTIES

         Buyer Parties, jointly and severally,  represent and warrant to Sellers
and Trust the following as of the date of this Agreement.

         (a)      ENTITY STATUS. Each Buyer Party is a corporation duly created,
                  formed or  organized,  validly  existing and in good  standing
                  under the Laws of the jurisdiction of its creation,  formation
                  or organization.  Each Buyer Party has the requisite power and
                  authority to own or lease its  properties  and to carry on its
                  business  as  currently  conducted.  There  is no  pending  or
                  threatened   Action   for   the   dissolution,    liquidation,
                  insolvency,  or rehabilitation of any Buyer Party.  Buyer (not
                  Parent) is a Private Issuer.

         (b)      POWER AND AUTHORITY;  ENFORCEABILITY. Each Buyer Party has the
                  relevant  corporate power and authority to execute and deliver
                  each Transaction  Document to which it is party,  and, subject
                  to obtaining  Shareholder  Approval, to perform and consummate
                  the Transactions.  Other than obtaining  Shareholder Approval,
                  each Buyer Party has taken all action  necessary  to authorize
                  the  execution  and delivery of each  Transaction  Document to
                  which  it  is  party,   the  performance  of  its  obligations
                  thereunder,  and the  consummation of the  Transactions.  Each
                  Transaction  Document has been duly  authorized,  executed and
                  delivered by, and assuming the due  authorization,  execution,
                  and delivery thereof by each other party thereto and obtaining
                  Shareholder Approval, is Enforceable against, each Buyer Party
                  that is a party thereto.

         (c)      NO  VIOLATION.  Except as set forth on  SCHEDULE  5.2(C),  the
                  execution  and delivery of the  Transaction  Documents by each
                  Buyer Party party thereto and the performance and consummation
                  of the  Transactions  by such Buyer  Party will not (i) Breach
                  any Law or Order to which such  Buyer  Party is subject or any
                  provision  of its  Organizational  Documents;  (ii) Breach any
                  Contract,  Order,  or Permit to which  such  Buyer  Party is a
                  party or by which it is bound or to which any of its assets is
                  subject;  (iii)  require  any  Consent,  except (A)  obtaining
                  Shareholder  Approval,  and  (B) any  SEC  and


                                       28



                  other  filings  required  to  be  made  by  Buyer  or  Parent,
                  including the Proxy  Statement to be filed in connection  with
                  obtaining Shareholder Approval.

         (d)      BROKERS'  FEES.  No Buyer Party has any  Liability  to pay any
                  compensation to any broker,  finder,  or agent with respect to
                  the Transactions for which any Seller could become directly or
                  indirectly Liable.

         (e)      CAPITALIZATION.

                  (i)      Buyer's  authorized  share  capital  consists  of  an
                           unlimited number of Buyer Common Shares, of which 100
                           shares are issued and  outstanding  and no shares are
                           held  in  treasury,  an  unlimited  number  of  Buyer
                           Exchangeable  Shares,  of which no shares  are issued
                           and  outstanding  and no shares are held in treasury,
                           an unlimited  number of first  preferred  shares,  of
                           which no shares  are issued  and  outstanding  and no
                           shares are held in treasury,  and an unlimited number
                           of second  preferred  shares,  of which no shares are
                           issued  and  outstanding  and no  shares  are held in
                           treasury.  All of the  issued and  outstanding  Buyer
                           Common  Shares  (A) have  been duly  authorized,  are
                           validly issued,  fully paid, and  nonassessable,  (B)
                           were issued in compliance with all applicable  United
                           States  federal  and  state  securities  Laws and all
                           applicable Canadian securities Laws, and (C) were not
                           issued in Breach of any  Commitments.  No Commitments
                           exist with respect to any Buyer Common  Shares and no
                           such  Commitments  will arise in connection  with the
                           Transactions.  There are no Contracts with respect to
                           the  voting or  transfer  of Buyer's  share  capital,
                           other than the Ancillary  Agreements and Voting Trust
                           Agreement.  Buyer  is  not  obligated  to  redeem  or
                           otherwise   acquire  any  of  its  outstanding  share
                           capital other than the Buyer Exchangeable Shares.

                  (ii)     The Buyer  Exchangeable  Shares to be issued pursuant
                           to this  Agreement will be duly  authorized,  validly
                           issued,  fully paid and nonassessable,  and the Buyer
                           Exchangeable  Shares and the Buyer Notes to be issued
                           pursuant  to  this   Agreement   will  be  issued  in
                           compliance with all applicable  United States federal
                           and state securities Laws and all applicable Canadian
                           securities Laws.

                  (iii)    Parent's   authorized   capital  stock   consists  of
                           100,000,000  shares of Parent Common Stock,  of which
                           30,543,763  shares are issued and  outstanding  as of
                           November 24, 2006 and no shares are held in treasury,
                           and  2,000,000  shares  of  preferred  stock,  no par
                           value,  of which 250,000 shares have been  designated
                           Series B  Preferred  Stock,  of which no  shares  are
                           issued  and  outstanding  and no  shares  are held in
                           treasury.  Prior to the Closing,  Parent's authorized
                           capital  stock also will  include the Parent  Special
                           Voting  Shares.  All of the  issued  and  outstanding
                           shares  of  Parent  Common  Stock  (A) have been duly
                           authorized,  are  validly  issued,  fully  paid,  and
                           nonassessable, (B) were issued in compliance with all
                           applicable  state,  federal  and  foreign  securities
                           Laws,  and (C)  were  not  issued  in  Breach  of any
                           Commitments.  Except as described in SCHEDULE  5.2(E)
                           or  disclosed  in  the  Parent  SEC   Documents,   no
                           Commitments  exist with respect to any Parent  Common
                           Stock  and  no  such   Commitments   will   arise  in
                           connection  with  the  Transactions.  Parent  is  not
                           obligated to redeem or  otherwise  acquire any of its
                           outstanding capital stock.


                                       29



                  (iv)     The  shares of  Parent  Common  Stock and the  Parent
                           Special  Voting Shares to be issued  pursuant to this
                           Agreement will be duly  authorized,  validly  issued,
                           fully  paid and  nonassessable  and will be issued in
                           compliance with all applicable  United States federal
                           and state securities Laws and all applicable Canadian
                           securities Laws.

         (f)      PARENT'S SECURITIES FILINGS AND FINANCIAL  STATEMENTS.  Parent
                  has furnished or made  available to Sellers and Trust true and
                  complete  copies of all  reports  or  registration  statements
                  Parent has filed with the SEC under the Securities Act and the
                  Exchange Act, for all periods subsequent to December 31, 2004,
                  all in  the  form  so  filed  (collectively  the  "PARENT  SEC
                  DOCUMENTS").  As of their respective  filing dates, the Parent
                  SEC  Documents  complied  in all  material  respects  with the
                  requirements  of the  Securities  Act or the Exchange  Act, as
                  applicable,  and none of the Parent SEC Documents  filed under
                  the Exchange Act contained any untrue  statement of a material
                  fact or omitted to state a material fact required to be stated
                  therein or necessary to make the statements  made therein,  in
                  light  of the  circumstances  in which  they  were  made,  not
                  misleading,  except to the extent  corrected by a subsequently
                  filed  document with the SEC. None of the Parent SEC Documents
                  filed under the Securities  Act contained an untrue  statement
                  of material  fact or omitted to state a material fact required
                  to be  stated  therein  or  necessary  to make the  statements
                  therein not  misleading  at the time such Parent SEC Documents
                  became effective under the Securities Act. Parent's  financial
                  statements,  including  the  notes  thereto,  included  in the
                  Parent  SEC  Documents  (the  "PARENT  FINANCIAL  STATEMENTS")
                  comply as to form in all  material  respects  with  applicable
                  accounting  requirements  and with  the  published  rules  and
                  regulations  of  the  SEC  with  respect  thereto,  have  been
                  prepared  in  accordance  with  US GAAP  consistently  applied
                  (except as may be indicated in the notes  thereto) and present
                  fairly Parent's  consolidated  financial position at the dates
                  thereof and of its  operations  and cash flows for the periods
                  then ended (subject, in the case of unaudited  statements,  to
                  normal audit  adjustments).  Since the date of the most recent
                  Parent SEC Document, Parent has not effected any change in any
                  method of accounting or  accounting  practice,  except for any
                  such  change  required  because of a  concurrent  change in US
                  GAAP.  Except as disclosed in the Parent SEC Documents,  there
                  has not  been an event  or  development  that has had or would
                  reasonably  be  expected  to have a  Parent  Material  Adverse
                  Effect.

         (g)      ACQUIRED ENTITY REVIEW. Each Buyer Party:

                  (i)      Has such  knowledge  and  experience in financial and
                           business matters that it is capable of evaluating the
                           merits  and  risks of its  investment  in the  Shares
                           being  acquired  by  such  Buyer  Party  contemplated
                           hereby, and that such Buyer Party is able to bear the
                           economic risk of such investment indefinitely.

                  (ii)     Has   (A)   had  the   opportunity   to   meet   with
                           representative  officers and other representatives of
                           each Acquired Entity to discuss its business, assets,
                           liabilities,  financial  condition,  cash  flow,  and
                           operations, and (B) received all materials, documents
                           and  other  information  that it deems  necessary  or
                           advisable    to   evaluate   the   Shares   and   the
                           Transactions.


                                       30



                  (iii)    Has   made   its   own    independent    examination,
                           investigation, analysis and evaluation of the Shares,
                           including  its  own  estimate  of  the  value  of the
                           Shares.

                  (iv)     Has undertaken such due diligence (including a review
                           of    Acquired    Entities'    assets,    properties,
                           liabilities,  books,  records,  and  contracts) as it
                           deems adequate, including that described above.

                  Nothing in this SECTION  5.2(G) will  preclude any Buyer Party
         from  relying  on  the  representations,   warranties,  covenants,  and
         agreements of Seller  Parties  herein or from pursuing  their  remedies
         with respect to a Breach thereof.

         (h)      REQUIRED  VOTE.  The  affirmative  vote  of the  holders  of a
                  majority  of the votes  entitled  to be cast by the holders of
                  the Parent  Common  Stock (the  "REQUISITE  VOTE") is the only
                  vote of the holders of any class or series of Parent's capital
                  stock  necessary  to approve  this  Agreement,  the  Ancillary
                  Agreements,   and   the   Transactions,   including,   without
                  limitation, the issuance and sale of the Parent Shares.

         (i)      RIGHTS  AGREEMENT.  The  Board  of  Directors  of  Parent  has
                  unanimously approved this Agreement, the Ancillary Agreements,
                  and  the  Transactions,  including,  without  limitation,  the
                  issuance  and sale of the  Parent  Special  Voting  Shares and
                  Parent  Shares,  and  Parent  has  otherwise  taken all action
                  sufficient  to  render  inapplicable  to this  Agreement,  the
                  Ancillary Agreements, and the Transactions, including, without
                  limitation, the issuance and sale of the Parent Special Voting
                  Shares  and  Parent  Shares,  the  provisions  of that  Rights
                  Agreement,  dated as of  November  21,  2003,  by and  between
                  Parent and Computershare Trust Company, as amended.

         (j)      NO UNDISCLOSED LIABILITIES.  Except as disclosed in the Parent
                  SEC Documents,  and except for normal or recurring Liabilities
                  in the  ordinary  course  of  business  consistent  with  past
                  practice,  the  Parent  and its  Subsidiaries  do not have any
                  liabilities,  either accrued, contingent or otherwise, whether
                  due or to become due, which  individually  or in the aggregate
                  are  reasonably  likely  to  have a  Parent  Material  Adverse
                  Effect.

         (k)      LEGAL  COMPLIANCE.  Each of Parent  and its  Subsidiaries  has
                  complied in all material  respects with all  applicable  Laws,
                  and no Action is pending or, to Parent's Knowledge, threatened
                  against it alleging any such failure to comply.

         (l)      LITIGATION.

                  (i)      Except as disclosed in SCHEDULE  5.2(L) or the Parent
                           SEC   Reports,   neither   Parent   nor  any  of  its
                           Subsidiaries (a) is subject to any outstanding  Order
                           or (b) is a party,  the  subject  of, or, to Parent's
                           Knowledge, is threatened to be made a party to or the
                           subject of any Action that seeks monetary  Damages in
                           excess of  $500,000.  Except as disclosed in SCHEDULE
                           5.2(L),  no Action  questions the  Enforceability  of
                           this Agreement or the  Transactions,  or could result
                           in any Parent Material Adverse Change, and Parent has
                           no basis to  believe  that  any  such  Action  may be
                           brought  or  threatened  against  any  of  Parent  or
                           Subsidiaries.


                                       31



                  (ii)     To Parent's  Knowledge,  there is no instance  where,
                           due either to (a) rights  asserted by another Person,
                           (b)   a   covenant   granted   by   Parent   or   any
                           predecessor-in-interest  or Affiliate thereof, or (c)
                           any Order, there is any restriction on the ability of
                           Parent or its  Subsidiaries  to carry on the business
                           currently  carried  on by such  Parent or  Subsidiary
                           anywhere   in  the   world,   whether   or  not  such
                           restriction  results  in a  Parent  Material  Adverse
                           Change.

5.3      REPRESENTATIONS AND WARRANTIES OF TRUST

         Trust  represents  and warrants to Buyer  Parties  that the  statements
contained  in this  SECTION 5.3 are correct and  complete as of the date of this
Agreement:

         (a)      STATUS  OF TRUST.  Trust is a trust  duly  created,  formed or
                  organized,  validly  existing,  and in good standing under the
                  Laws  of the  jurisdiction  of  its  creation,  formation,  or
                  organization,  pursuant  to  Declaration  of Trust dated as of
                  October 1, 2003,  which is  currently  in effect.  There is no
                  pending or threatened Action for the dissolution, liquidation,
                  insolvency,  or rehabilitation of Trust. The sole trustee (the
                  "TRUSTEE")  of  Trust  is  BFL   Management   Inc.,  a  Canada
                  corporation, which is wholly-owned, directly or indirectly, by
                  418 Canada.  The sole  beneficiary  of Trust is 6144195 Canada
                  Inc., a Canada corporation, which is wholly-owned, directly or
                  indirectly,  by 418  Canada.  Trust is not a  non-resident  of
                  Canada  for  purposes  of  Section  116 of the  INCOME TAX ACT
                  (Canada) and Part II of the TAXATION ACT (Quebec).

         (b)      POWER AND AUTHORITY; ENFORCEABILITY. Each of Trust and Trustee
                  has the  power and  authority  to  execute  and  deliver  each
                  Transaction Document to which Trust is a party, and to perform
                  and consummate the Transactions. Each of Trust and Trustee has
                  taken all actions  necessary to authorize  the  execution  and
                  delivery of each Transaction Document to which Trust is party,
                  the performance of Trust's  obligation's  thereunder,  and the
                  consummation of the Transactions. Each Transaction Document to
                  which Trust is a party has been duly authorized, executed, and
                  delivered by, and assuming the due  authorization,  execution,
                  and  delivery   thereof  by  each  other  party  thereto,   is
                  Enforceable against, Trust.

         (c)      NO  VIOLATION.  Except as set forth on  SCHEDULE  5.3(C),  the
                  execution  and the  delivery of the  Transaction  Documents by
                  Trust to the extent a party  thereto and the  performance  and
                  consummation of the Transactions by Trust, including,  without
                  limitation, the sale and transfer of the Purchase Assets, will
                  not (i) result in a material  Breach of any Law (including the
                  Bulk Sales Act  (Ontario))  or Order to which Trust is subject
                  or any provision of its Organizational  Documents, (ii) result
                  in a  material  Breach of any  Contract,  Order,  or Permit to
                  which  Trust is a party or by which Trust is bound or to which
                  any of  Trust's  assets  is  subject,  or  (iii)  require  any
                  Consent,  except any SEC and other filings required to be made
                  by Parent or Buyer.  To the extent  Trust is a party  thereto,
                  Trust has not  Breached  any  Contract  to which any  Acquired
                  Entity is a party or by which any Acquired  Entity is bound or
                  any of its assets is subject.


                                       32



         (d)      BROKERS' FEES.  Trust has no Liability to pay any compensation
                  to  any  broker,   finder,   or  agent  with  respect  to  the
                  Transactions  for which any Buyer Party or any Acquired Entity
                  could become directly or indirectly Liable.

                                   ARTICLE 6.
                    REPRESENTATIONS AND WARRANTIES CONCERNING
                     ACQUIRED ENTITIES AND PURCHASED ASSETS

         Each Seller Party,  jointly and  severally,  represents and warrants to
each Buyer Party the following as of the date of this Agreement:

6.1      ENTITY STATUS

         Each Acquired Entity is an entity duly created,  formed,  or organized,
validly existing, and in good standing under the Laws of the jurisdiction of its
creation, formation, or organization. Each Acquired Entity is duly authorized to
conduct its business and is in good standing under the laws of each jurisdiction
where such  qualification  is required.  Each Acquired  Entity has the requisite
power and authority necessary to own or lease its properties and to carry on its
businesses as currently  conducted.  SCHEDULE 6.1 lists each  Acquired  Entity's
directors and officers.  Sellers have  delivered to Parent  correct and complete
copies of each Acquired Entity's  Organizational  Documents, as amended to date.
No  Acquired  Entity  is in  Breach  of  any  provision  of  its  Organizational
Documents. There is no pending or, to each Seller Party's Knowledge,  threatened
Action for the dissolution,  liquidation,  insolvency,  or rehabilitation of any
Acquired Entity. Each Acquired Entity is a Private Issuer.

6.2      POWER AND AUTHORITY; ENFORCEABILITY

         Each Acquired Entity has the relevant power and authority  necessary to
execute  and  deliver  each  Transaction  Document to which it is a party and to
perform and  consummate  the  Transactions.  Each Acquired  Entity has taken all
action  necessary to authorize the  execution  and delivery of each  Transaction
Document  to which it is a party,  the  performance  of such  Acquired  Entity's
obligations  thereunder,   and  the  consummation  of  the  Transactions.   Each
Transaction  Document  to which  any  Acquired  Entity  is party  has been  duly
authorized,  executed,  and  delivered  by, and assuming the due  authorization,
execution,  and delivery  thereof by each other party  thereto,  is  Enforceable
against, such Acquired Entity.

6.3      NO VIOLATION

         Except as listed on SCHEDULE 6.3, the execution and the delivery of the
Transaction  Documents to which an Acquired  Entity is a party by such  Acquired
Entity  and the  performance  of  their  respective  obligations  hereunder  and
thereunder,  and  consummation of the  Transactions by each Acquired Entity will
not (a)  result in a material  Breach of any Law or Order to which any  Acquired
Entity is subject or any provision of its Organizational  Documents;  (b) result
in a material  Breach of any  Contract,  Order,  or Permit to which any Acquired
Entity  is a party or by which it is  bound  or to which  any of its  assets  is
subject (or result in the imposition of any Encumbrance upon any of its assets);
(c) require any Consent;  (d) trigger any rights of first refusal,  preferential
purchase,  or similar  rights;  or (e) cause the recognition of gain or loss for


                                       33



Tax purposes with respect to any Acquired  Entity or subject any Acquired Entity
or its assets to any Tax.

6.4      BROKERS' FEES

         No Acquired  Entity has any  Liability to pay any  compensation  to any
broker,  finder,  or agent with respect to the  Transactions for which any Buyer
Party or any Acquired Entity could become directly or indirectly Liable.

6.5      CAPITALIZATION

         Each of Target Companies'  authorized Equity Interests are described on
SCHEDULE 6.5, of which only the Shares are issued and  outstanding and no shares
are held in treasury by any Target  Company.  All of the issued and  outstanding
Shares:  (a) have been duly authorized and are validly  issued,  fully paid, and
nonassessable,  (b) were issued in compliance with all applicable state, federal
and foreign  securities  Laws, (c) were not issued in Breach of any Commitments,
and (d) are held of record and owned  beneficially by the respective  Sellers as
set forth in EXHIBIT A. No Commitments exist with respect to any Equity Interest
of Target  Companies,  and no  Commitments  will  arise in  connection  with the
Transactions.  There are no Contracts  with respect to the voting or transfer of
any of Target Companies' Equity Interests. None of Target Companies is obligated
to redeem or otherwise acquire any of its outstanding Equity Interests.

6.6      RECORDS

         The copies of Acquired  Entities'  Organizational  Documents  that were
provided to Parent are accurate and  complete  and reflect all  amendments  made
through the date  hereof.  Acquired  Entities'  minute books and in all material
respects  other  records  made  available  to Parent for review were correct and
complete  in all  material  respects as of the date of such  review,  no further
entries have been made through the date of this Agreement, such minute books and
records  contain the true  signatures  of the persons  purporting to have signed
them,  and such  minute  books and  records  contain an  accurate  record of all
material actions of the stockholders,  directors,  members,  managers,  or other
such  representatives  of  Acquired  Entities  taken by  written  consent,  at a
meeting, or otherwise since formation.

6.7      ACQUIRED SUBSIDIARIES

         Set  forth  on  SCHEDULE  6.7  is  a  list  of  each  Target  Company's
Subsidiaries  (collectively,  the "ACQUIRED SUBSIDIARIES") and for each Acquired
Subsidiary  (a)  its  name  and   jurisdiction   of  creation,   formation,   or
organization,  (b) if such Acquired Subsidiary is a corporation,  (i) the number
of authorized Equity Interests of each class of its Equity  Interests,  (ii) the
number of issued and  outstanding  Equity  Interests of each class of its Equity
Interests,  the names of the holders thereof, and the number of Equity Interests
held by each  such  holder,  and (iii) the  number of Equity  Interests  held in
treasury,  and (c) if such  Acquired  Subsidiary is not a  corporation,  (i) the
class  of  Equity   Interests   created   under   such   Acquired   Subsidiary's
Organizational  Documents and (ii) the holder(s) of such Equity Interests.  Each
Acquired  Subsidiary  is a Private  Issuer.  All of the issued  and  outstanding
Equity Interests of each Acquired Subsidiary (A) that is a corporation have been
duly authorized and are validly issued,


                                       34



fully paid, and  nonassessable  and (B) that is not a corporation  (i) have been
duly  created  pursuant  to  the  Laws  of the  jurisdiction  of  such  Acquired
Subsidiary,  (ii)  have  been  issued  and  paid  for  in  accordance  with  the
Organizational Documents governing such Acquired Subsidiary, and (iii) are fully
paid and non-assessable and require no further capital  contribution,  loans, or
credit support. Acquired Entities hold of record and own beneficially all of the
outstanding  Equity  Interests of Acquired  Subsidiaries,  free and clear of any
Encumbrances  (other  than  restrictions  under  the  Securities  Act and  state
securities  Laws).  No Commitments  exist or are authorized  with respect to any
Acquired  Subsidiaries or their Equity  Interests and no such  Commitments  will
arise in connection with the Transactions.  No Acquired  Subsidiary is obligated
to redeem or otherwise acquire any of its Equity  Interests.  No Acquired Entity
controls,  directly or indirectly, or has any direct or indirect Equity Interest
in any Person that is not an Acquired Subsidiary.

6.8      FINANCIAL STATEMENTS

         Set  forth  on  SCHEDULE  6.8 are the  following  financial  statements
(collectively the "FINANCIAL Statements"):

         (a)      audited  combined  balance  sheets and  statements  of income,
                  changes in stockholders'  equity,  and cash flow as of and for
                  the fiscal years ended  December  31, 2003,  December 31, 2004
                  and  December 31, 2005 (the "MOST RECENT YEAR END") for Target
                  Companies    (consolidated    with   each   Target   Company's
                  Subsidiaries) and Trust; and

         (b)      unaudited  combined  balance  sheets and statements of income,
                  changes in stockholders'  equity,  and cash flow as of and for
                  the nine months ended  September 30, 2006 (the "BALANCE  SHEET
                  DATE") for Target  Companies  (consolidated  with each  Target
                  Company's  Subsidiaries)  and Trust  (the  "INTERIM  FINANCIAL
                  STATEMENTS").

         The Financial Statements have been prepared in accordance with Canadian
GAAP applied on a  consistent  basis  throughout  the periods  covered  thereby,
present  fairly the  financial  condition  of Acquired  Entities  and Trust on a
combined  basis as of such  dates and the  results  of  operations  of  Acquired
Entities and Trust on a combined basis for such periods, are consistent with the
books and records of Acquired  Entities and Trust,  and include a reconciliation
to US GAAP prepared in accordance  with Item 17 of Form 20-F  promulgated by the
SEC;  PROVIDED,  HOWEVER,  that the Interim Financial  Statements are subject to
normal year-end  adjustments (which will not be material  individually or in the
aggregate) and lack footnotes and other  presentation  items.  Since the Balance
Sheet Date neither Trust nor any Acquired  Entity has effected any change in any
method of accounting or accounting practice, except for any such change required
because of a concurrent change in Canadian GAAP.

6.9      SUBSEQUENT EVENTS

         Except as set forth in SCHEDULE 6.9, since the Balance Sheet Date, each
Acquired  Entity and Trust has operated in the Ordinary  Course of Business and,
as of the date hereof,  there have been no events,  series of events or the lack
of occurrence thereof which, singularly or in the


                                       35



aggregate,  have had a Material Adverse Effect.  Without limiting the foregoing,
except as set forth in SCHEDULE 6.9,  since the Balance Sheet Date,  none of the
following have occurred:

         (a)      Neither  Trust  nor any  Acquired  Entity  has  sold,  leased,
                  transferred,  or  assigned  any  assets  other than for a fair
                  consideration  in the Ordinary Course of Business and sales of
                  assets have not exceeded $25,000  singularly or $50,000 in the
                  aggregate.

         (b)      Trust has not  sold,  leased,  transferred,  or  assigned  any
                  Purchased Assets.

         (c)      Neither  Trust nor any  Acquired  Entity has entered  into any
                  Contract  (or series of related  Contracts)  either  involving
                  more than $30,000 or outside the Ordinary Course of Business.

         (d)      No Security  Interest  has been imposed upon any assets of any
                  Acquired Entity or Trust.

         (e)      Neither  Trust nor any  Acquired  Entity has made any  capital
                  expenditure  (or  series  of  related  capital   expenditures)
                  involving  more  than  $25,000  individually,  $50,000  in the
                  aggregate, or outside the Ordinary Course of Business.

         (f)      Neither  Trust nor any  Acquired  Entity has made any  capital
                  investment  in,  any  loan  to,  or  any  acquisition  of  the
                  securities or assets of, any other Person  involving more than
                  $25,000 singularly,  $50,000 in the aggregate,  or outside the
                  Ordinary Course of Business.

         (g)      Neither  Trust nor any  Acquired  Entity  has issued any note,
                  bond, or other debt security or created, incurred, assumed, or
                  guaranteed  any  Liability for borrowed  money or  capitalized
                  lease Contract either involving more than $15,000 individually
                  or $30,000 in the aggregate.

         (h)      Neither Trust nor any Acquired Entity has delayed or postponed
                  the payment of accounts  payable or other  Liabilities  either
                  involving  more  than  $15,000  singularly,   $30,000  in  the
                  aggregate, or outside the Ordinary Course of Business.

         (i)      Neither   Trust  nor  any   Acquired   Entity  has   canceled,
                  compromised,  waived,  or  released  any  Action (or series of
                  related Actions) either involving more than $15,000 or outside
                  the Ordinary Course of Business.

         (j)      Neither  Trust  nor  any  Acquired  Entity  nor  any of  their
                  respective Affiliates, customers, or licensees has granted, or
                  has become party to any  Contracts  granting,  any rights with
                  respect to any Intellectual Property.

         (k)      There has been no change made or  authorized to be made to the
                  Organizational Documents of any Acquired Entity or Trust.

         (l)      No Acquired Entity has issued,  sold, or otherwise disposed of
                  any of its Equity Interests.


                                       36



         (m)      No  Acquired  Entity  has  declared,  set  aside,  or paid any
                  dividend or made any  distribution  with respect to its Equity
                  Interests (whether in cash or in kind) or redeemed, purchased,
                  or otherwise acquired any of its Equity Interests.

         (n)      Neither  Trust nor any  Acquired  Entity has  experienced  any
                  damage,  destruction,  or  loss  (whether  or not  covered  by
                  insurance)  to its  properties  involving  more  than  $25,000
                  singularly or $50,000 in the aggregate.

         (o)      Neither Trust nor any Acquired Entity has made any loan to, or
                  entered into any other transaction with, any of its directors,
                  officers, employees, trustees, or beneficiaries.

         (p)      No Acquired Entity has entered into any collective  bargaining
                  Contract,  or any  employment  Contract not  terminable by the
                  Acquired Entity upon no more than sixty (60) days notice at no
                  cost to the Acquired Entity, or modified the terms of any such
                  existing Contract.

         (q)      No Acquired  Entity has  committed to pay any bonus or granted
                  any increase in the base  compensation  (i) of any director or
                  officer,  or an employee  who is also a Seller or an Affiliate
                  of Seller, or (ii) outside of the Ordinary Course of Business,
                  of any of its other employees.

         (r)      No  Acquired  Entity  has  adopted,   amended,   modified,  or
                  terminated any bonus, profit-sharing, incentive, severance, or
                  similar  Contract  for the  benefit  of any of its  directors,
                  officers,  or employees (or taken any such action with respect
                  to any other Employee Benefit Plan).

         (s)      No  Acquired  Entity has made any other  change in  employment
                  terms for any of its officers,  directors or employees outside
                  the Ordinary Course of Business.

         (t)      No Acquired  Entity has made or pledged to make any charitable
                  or other  capital  contribution  either  involving  more  than
                  $15,000  (individually  or in the  aggregate)  or outside  the
                  Ordinary Course of Business.

         (u)      Neither Trust nor any Acquired  Entity has committed to any of
                  the foregoing.

6.10     LIABILITIES

         Except as set forth on SCHEDULE  6.10,  neither  Trust nor any Acquired
Entity has any  liabilities  required to be disclosed  on the Interim  Financial
Statements  in  accordance  with  Canadian  GAAP,  except  for  (a)  liabilities
reflected  in the  Interim  Financial  Statements  and  not  heretofore  paid or
discharged, and (b) liabilities that have arisen after the Balance Sheet Date in
the Ordinary Course of Business which are not material.

6.11     LEGAL COMPLIANCE

         Each  Acquired  Entity has complied in all material  respects  with all
applicable Laws, and no Action is pending or, to each Seller Party's  Knowledge,
threatened  against  it  alleging  any  such  failure  to  comply.  No  material
expenditures  are, or based on applicable Law will be,  required of any Acquired
Entity for it and its  business  and  operations  to remain in  compliance  with
applicable Law.


                                       37



6.12     TAX MATTERS

         (a)      Each   Acquired   Entity  has  prepared  and  filed  with  all
                  appropriate Governmental Bodies all Tax Returns required to be
                  filed in respect  of Taxes  within the times and in the manner
                  prescribed by  applicable  Law for all fiscal  periods  ending
                  prior to the date hereof and will continue to do so in respect
                  of all fiscal  periods  ending  before the  Closing  Date and,
                  where applicable, has been assessed with respect to all fiscal
                  periods  up to and  including  those  set  forth  in  SCHEDULE
                  6.12(A) and has given no waiver of any  limitation  period for
                  collection,   assessment  or   reassessment   of  Tax  to  any
                  Governmental Body. All such Tax Returns were accurate, correct
                  and complete in all material respects;  accurately reflect the
                  facts  regarding  the income,  business,  assets,  operations,
                  activities,  status,  or other matters of each Acquired Entity
                  or any other  information  required to be shown or  considered
                  thereon.  No Acquired  Entity  currently is the beneficiary of
                  any  extension  of time  within  which to file any Tax Return.
                  Each  Acquired  Entity has paid in full all Taxes as reflected
                  on all such  Tax  Returns,  including  on all  assessments  in
                  respect of all such returns,  and has paid,  and will continue
                  paying,  all  installments  and made all other  remittances on
                  account  of Tax  required  to be paid by such  corporation  in
                  respect  of all  periods  for which a Tax  Return has not been
                  filed.  Without  limiting in any manner  whatsoever the effect
                  and validity of SECTION 6.12(A) and any Tax matters  addressed
                  in this Agreement, all Tax Returns that may have been prepared
                  and filed after the time prescribed by applicable Law, if any,
                  have not and will not result in any adverse  Tax  consequences
                  for the Acquired  Entity so  concerned  or any other  Acquired
                  Entities. For greater certainty,  subject only for having been
                  filed  after the  prescribed  time,  such Tax  Returns  remain
                  subject to all Tax matters addressed in this Agreement.

         (b)      Except as provided in SCHEDULE  6.12(B),  no Tax Return of any
                  Acquired Entity has been reassessed by any Governmental  Body.
                  To each  Seller  Party's  Knowledge,  except  as  provided  in
                  SCHEDULE 6.12(B), there is no review, audit, request,  Action,
                  demand or  reassessment  in  respect  of any Tax Return or Tax
                  liability of any Acquired Entity at present in course, pending
                  or  threatened by any  Governmental  Body. No Seller Party has
                  Knowledge of any contingent Tax liabilities or any grounds for
                  an assessment or  reassessment  of an Acquired  Entity,  other
                  than as disclosed in SCHEDULE 6.12(B).

         (c)      Each  Acquired  Entity has paid in full all Taxes  required by
                  applicable Law to be paid on or prior to the date hereof,  and
                  is not and will not be liable  for any Taxes in respect of any
                  fiscal  period  ending on or before the Closing  Date,  nor in
                  respect of such  portion of a fiscal  period  ending after the
                  Closing Date which, for purposes of this


                                       38



                  Agreement,  is deemed to end on the Closing  Date,  other than
                  Tax liabilities the amount of which shall have been accrued in
                  the Financial Statements (rather than in any notes thereto).

         (d)      Each  Acquired  Entity  has  withheld  or  deducted,  and will
                  continue to do so until the Closing  Date,  from each  payment
                  made or owed to its  present and former  officers,  directors,
                  employees, independent contractors,  shareholders, Affiliates,
                  creditors,  other  third  party,  and to all  Persons  who are
                  non-residents of Canada for the purposes of the INCOME TAX ACT
                  (Canada),  all amounts which it is required by any  applicable
                  Law to which it is subject to  withhold or deduct and has duly
                  remitted,  and will  continue to do so until the Closing Date,
                  all amounts so withheld or deducted to the proper Governmental
                  Authority thereof within the delays and in the manner required
                  by applicable Law. Each Acquired Entity has charged, collected
                  and  remitted,  and will  continue to do so, on a timely basis
                  and in the manner  required by applicable Law all Taxes on any
                  sale,  supply  or  delivery  whatsoever,  made by it or on its
                  behalf.  The Interim Financial  Statements (rather than in the
                  notes thereto) show adequate reserves for all such amounts and
                  Taxes not  required  by  applicable  Law to be  remitted on or
                  before the Closing Date.

         (e)      Except as provided  in SCHEDULE  6.12(E)  which  confirms  the
                  subject  Acquired Entity and the applicable  jurisdiction,  to
                  each Seller Party's  Knowledge,  none of Acquired Entities has
                  ever  been nor is  required  to file any Tax  Return or to pay
                  Taxes with any  Governmental  Body located in any jurisdiction
                  outside Canada.  No action has ever been initiated or, to each
                  Seller Party's Knowledge, threatened by a Governmental Body in
                  a  jurisdiction  with respect to a fiscal  period for which an
                  Acquired Entity did not file a Tax Return in such jurisdiction
                  that it is or may be subject to Tax by that  jurisdiction  for
                  such  period.  There are no  Encumbrances  on any Assets  that
                  arose in connection  with any failure (or alleged  failure) to
                  pay any Tax.

         (f)      Sellers have delivered or has made available to Parent correct
                  and complete copies of all Tax Returns, reports and statements
                  of deficiencies assessed or reassessed against or agreed to by
                  any Acquired  Entity for all fiscal  periods or other  periods
                  for which the relevant  limitation  period or  prescription in
                  any  applicable  Laws  has  not  expired,   including  written
                  communications relating thereto from any Governmental Body and
                  the  responses,  if  any,  of  the  Acquired  Entity  to  such
                  communication.  SCHEDULE  6.12(F)  indicates such periods that
                  have not been audited.

         (g)      No  Acquired  Entity  will  at any  time be  deemed  to have a
                  capital gain pursuant to Subsection 80.03(2) of the INCOME TAX
                  ACT (Canada) or any analogous Canadian provincial  legislative
                  provision as a result of any transaction or event taking place
                  in any taxation year ending on or prior to the Closing Date.

         (h)      There are no circumstances  existing which could result in the
                  application  of Sections 78, 80, 160, or 247 of the INCOME TAX
                  ACT (Canada) or any equivalent Canadian  provincial  provision
                  to any Acquired Entity.

         (i)      There is no contract, plan, or arrangement,  including but not
                  limited to the  provisions  of this  Agreement,  covering  any
                  employee  or  former  employee  of an  Acquired


                                       39



                  Entity that, individually or collectively,  could give rise to
                  the payment  after the  Closing  Date of any amount that would
                  not be  deductible  by such  entity  as an  expense  under any
                  applicable  Law  other  than  reimbursements  of a  reasonable
                  amount of  entertainment  expenses  and  other  non-deductible
                  expenses  that  are  commonly   paid  by  similarly   situated
                  businesses in reasonable amounts.

         (j)      There is no tax sharing agreement,  tax indemnity  obligation,
                  or similar written or unwritten agreement,  understanding,  or
                  practice with respect to Taxes  (including any advance pricing
                  agreement, closing agreement, or other arrangement relating to
                  Taxes) that will require any payment by any Acquired Entity to
                  any other Person as a  transferee  or successor by contract or
                  otherwise.

         (k)      No  Acquired  Entity has filed a consent  under  Code  Section
                  341(f) concerning collapsible corporations.

         (l)      No  Acquired  Entity has been a United  States  real  property
                  holding   corporation  within  the  meaning  of  Code  Section
                  897(c)(2)  during  the  applicable  period  specified  in Code
                  Section 897(c)(1)(A)(ii).

         (m)      Each  Acquired  Entity has  disclosed  on its Tax  Returns all
                  positions  taken therein that could give rise to a substantial
                  understatement  of federal  income  Tax within the  meaning of
                  Code Section 6662.

         (n)      No Acquired Entity is a party to any Tax allocation or sharing
                  Contract  (other than a group the common parent of which is or
                  was a Target Company).

         (o)      No  Acquired  Entity  (i) has been a member  of an  Affiliated
                  Group filing a  consolidated  federal income Tax Return (other
                  than a group  the  common  parent  of which is or was a Target
                  Company) or (ii) has any Liability for the Taxes of any Person
                  (other than each Acquired  Entity) under Treas.  Reg.  Section
                  1.1502-6 or similar  Law, as a  transferee  or  successor,  by
                  Contract, or otherwise.

         (p)      The unpaid or  unremitted  Taxes of Acquired  Entities (i) did
                  not, as of the Balance Sheet Date,  exceed the reserve for Tax
                  Liability   (other  than  any  reserve  for   deferred   Taxes
                  established to reflect timing differences between book and Tax
                  income)  set  forth  on  the  face  of the  Interim  Financial
                  Statements  (other than in any notes  thereto) and (ii) do not
                  exceed  that  reserve  as  adjusted  for the  passage  of time
                  through the Closing  Date in  accordance  with the past custom
                  and practice of Acquired Entities in filing their Tax Returns.
                  Since the Balance Sheet Date, no Acquired  Entity has incurred
                  any  liability  for  Taxes  outside  the  Ordinary  Course  of
                  Business consistent with past custom and practice.

         (q)      No  Acquired  Entity  will be  required to include any item of
                  income  in, or exclude  any item of  deduction  from,  taxable
                  income for any  taxable  period (or  portion  thereof)  ending
                  after  the  Closing  Date as a result  of any:  (A)  change in
                  method of accounting  for a taxable  period ending on or prior
                  to the Closing Date;  (B) "closing  agreement" as described in
                  Code section 7121 (or any  corresponding or similar  provision
                  of state,  local or  foreign  income Tax law)  executed  on or
                  prior to the Closing Date; (C)


                                       40



                  intercompany transactions or any excess loss account described
                  in  Treasury  Regulations  under  Code  Section  1502  (or any
                  corresponding or similar provision of state,  local or foreign
                  income  Tax law);  (D)  installment  sale or open  transaction
                  disposition  made on or  prior  to the  Closing  Date;  or (E)
                  prepaid amount received on or prior to the Closing Date.

6.13     TITLE TO AND CONDITION OF ASSETS; RETAIL STORES

         (a)      Acquired  Entities have good, and indefeasible  title to, or a
                  valid  leasehold   interest  in,  all  buildings,   machinery,
                  equipment,   and  other  tangible   assets  located  on  their
                  premises,  shown  on  the  Interim  Financial  Statements,  or
                  acquired after the Balance Sheet Date, which are necessary for
                  the conduct of their business as currently conducted,  in each
                  case  free and clear of all  Security  Interests,  except  for
                  properties  and assets  disposed of in the Ordinary  Course of
                  Business  since the Balance Sheet Date and Security  Interests
                  listed on SCHEDULE 6.13(A).  Each such tangible asset has been
                  maintained in accordance with normal industry practice and, is
                  in good operating condition (subject to normal wear and tear).

         (b)      Trust  has  good and  indefeasible  title to the cash and cash
                  equivalents  that comprise  part of the Purchased  Assets free
                  and clear of all  Security  Interests,  except  to the  extent
                  listed on SCHEDULE 6.13(B).

         (c)      Since December 31, 2005,  the Acquired  Entities have built or
                  are in the process of building seven (7) retail stores.  As of
                  the date of this  Agreement,  the  Acquired  Entities  own and
                  operate a total of forty  four (44)  retail  stores.  SCHEDULE
                  6.13(C)   lists  the   approved   capital   expenditures   and
                  development  committee  economic  model for the current retail
                  stores built or under construction since December 31, 2005.

6.14     REAL PROPERTY

         (a)      No Acquired Entity owns (or has ever owned) any real property.

         (b)      SCHEDULE 6.14(B) lists and describes briefly all real property
                  leased or subleased to each  Acquired  Entity,  each lease and
                  sublease Contract,  and in respect of each such Contract:  the
                  municipal  address and applicable  unit or premises  leased at
                  the date of such  contract  and any  amendments;  the  parties
                  thereto;  the area of the space subject thereto; the remaining
                  term and any unexpired options to extend or renew; the current
                  basic and  percentage  rent;  the amount of any prepaid  rent;
                  deposit,  guarantee,  indemnity  or  security;  any current or
                  future rent-free  period,  all of such information  being true
                  and accurate.  Sellers have made  available to Parent  correct
                  and complete  copies of the lease and sublease  Contracts  (as
                  amended to date)  listed in  SCHEDULE  6.14(B).  Except as set
                  forth in  SCHEDULE  6.14(B),  with  respect  to each lease and
                  sublease Contract required to be listed in such schedule:

                  (i)      the Contract is Enforceable and unamended;

                  (ii)     the  Contract  will  continue  to be  Enforceable  on
                           identical  terms  following the  consummation  of the
                           Transactions;


                                       41



                  (iii)    no  Acquired  Entity  (and  to  each  Seller  Party's
                           Knowledge  without  investigation  beyond  the Seller
                           Party),   no  counter-party  is  in  Breach  of  such
                           Contract,  and no  event  has  occurred  which,  with
                           notice or lapse of time,  would constitute a material
                           Breach by an Acquired Entity thereunder;

                  (iv)     no party to the  Contract  has  delivered  a  written
                           demand for early termination thereof;

                  (v)      there are no  Actions,  Orders,  or  forbearances  in
                           effect as to the Contract;

                  (vi)     with   respect  to  each   sublease   Contract,   the
                           representations  and warranties set forth in SECTIONS
                           6.14(B)(I)   -  (V)  are,  to  each  Seller   Party's
                           Knowledge  without  investigation  beyond  the Seller
                           Party,   true  and  correct   with   respect  to  the
                           underlying lease Contract;

                  (vii)    no  Acquired  Entity has granted or suffered to exist
                           any   Security   Interest   in   the   leasehold   or
                           subleasehold Contract save for the Security Interests
                           listed on SCHEDULE 6.13(A);

                  (viii)   the  Contract  has not been  assigned in favor of any
                           Person;

                  (ix)     all facilities leased or subleased under the Contract
                           have received all Permits required in connection with
                           the operation  thereof by the Seller Parties and have
                           been operated and maintained in all material respects
                           in accordance with applicable Laws; and

                  (x)      all facilities leased or subleased under the Contract
                           are  supplied  with   utilities  and  other  services
                           necessary for the operation of said facilities.

6.15     INTELLECTUAL PROPERTY

         (a)      Neither  Trust nor any  Acquired  Entity  owns any  Patents or
                  registered Copyrights.

         (b)      SCHEDULE  6.15(B) contains a complete and accurate list of (i)
                  all Marks that are owned by or licensed to any Acquired Entity
                  (each such Mark  listed or  required  to be listed in SCHEDULE
                  6.15(B) is  referred to herein as a "LISTED  MARK"),  and (ii)
                  for  each  Listed  Mark,  the   countries,   states  or  other
                  jurisdictions (the  "JURISDICTIONS") in which such Listed Mark
                  is  registered  or in  which  a  registration  application  is
                  pending,  the registration or application number, the dates of
                  registration (or application), the classes of registration and
                  the  name  of  the  Person  in  which  each   Listed  Mark  is
                  registered.  All Listed Marks that have been  registered  in a
                  Jurisdiction are currently in compliance with all formal legal
                  requirements (including the timely post-registration filing of
                  affidavits   of   use   and   incontestability   and   renewal
                  applications) and, to each Seller Party's Knowledge and except
                  as disclosed in SCHEDULE  6.15(B),  are valid and Enforceable.
                  Except as disclosed in SCHEDULE 6.15(B), no Listed Mark is now
                  involved in any opposition, invalidation, or cancellation and,
                  to each Seller  Party's  Knowledge  and except as disclosed in
                  SCHEDULE  6.15(B),  no such  action  is  threatened  with  the
                  respect to any such Listed Mark.  As of the  Closing,  to each
                  Seller Party's Knowledge and except as


                                       42



                  disclosed in SCHEDULE 6.15(B),  each Acquired Entity will have
                  the  exclusive  ownership of and right to use the Listed Marks
                  now  owned  by  such   Acquired   Entity   and  at  least  the
                  nonexclusive  right to use the Listed  Marks now  licensed  to
                  such Acquired Entity,  in each case, in the  Jurisdictions and
                  for the classes of registration under which the Licensed Marks
                  are now used by such  Acquired  Entity to the  fullest  extent
                  permitted  under  applicable  trademark law. No Person has any
                  right,  by Contract or otherwise,  to acquire from Trust,  any
                  Acquired Entity,  Sarafina Invest Limited,  Hurstwood Limited,
                  Beldene  Limited,  or any  Affiliate of any of the  foregoing,
                  beneficial or legal ownership of any Listed Mark.

         (c)      SCHEDULE  6.15(C) contains a complete and accurate list of (i)
                  all Marks that are owned by or  licensed  to Trust  (each such
                  Mark listed or  required  to be listed in SCHEDULE  6.15(C) is
                  referred to herein as a "TRUST MARK"), and (ii) for each Trust
                  Mark, the Jurisdictions in which such Trust Mark is registered
                  or  in  which  a  registration  application  is  pending,  the
                  registration or application  number, the dates of registration
                  (or application),  the classes of registration and the name of
                  the Person in which each Trust Mark is  registered.  All Trust
                  Marks  that  have  been  registered  in  a  Jurisdiction   are
                  currently in  compliance  with all formal  legal  requirements
                  (including the timely  post-registration  filing of affidavits
                  of use and incontestability and renewal  applications) and, to
                  each  Seller  Party's  Knowledge  and except as  disclosed  in
                  SCHEDULE  6.15(C),  are  valid  and  Enforceable.   Except  as
                  disclosed in SCHEDULE  6.15(C),  no Trust Mark is now involved
                  in any opposition,  invalidation, or cancellation and, to each
                  Seller  Party's  Knowledge and except as disclosed in SCHEDULE
                  6.15(C),  no such action is threatened with the respect to any
                  such Trust Mark. As of the Closing, after giving effect to the
                  Trademark  Purchase and  immediately  prior to the sale of the
                  Purchased  Assets to Buyer  Parties,  to each  Seller  Party's
                  Knowledge and except as disclosed in SCHEDULE  6.15(C),  Trust
                  will have the exclusive right to use, and Trust and 368 Canada
                  collectively  will have  exclusive  ownership  of, Trust Marks
                  listed on SCHEDULE  6.15(C) in the  Jurisdictions  and for the
                  classes of registration under which the Licensed Marks are now
                  used by Trust to the fullest extent permitted under applicable
                  trademark  law,  subject  only to the rights of third  parties
                  under the Contracts listed on SCHEDULE 6.18. No Person has any
                  right,  by Contract or otherwise,  to acquire from Trust,  any
                  Acquired Entity,  Sarafina Invest Limited,  Hurstwood Limited,
                  Beldene  Limited,  or any  Affiliate of any of the  foregoing,
                  beneficial or legal ownership of any Trust Mark.

         (d)      To each Seller Party's Knowledge, the Acquired Entities own or
                  have the right to use pursuant to an Enforceable  Contract all
                  Intellectual  Property necessary to operate Acquired Entities'
                  businesses as currently  conducted.  Each item of Intellectual
                  Property that each Acquired  Entity owned or used  immediately
                  prior to the  Closing  will be owned or  available  for use by
                  such  Acquired   Entity  on  identical  terms  and  conditions
                  immediately  subsequent to the Closing.  Each Acquired  Entity
                  has taken all  necessary  action to maintain  and protect each
                  item of Intellectual Property that it owns or uses.

         (e)      Seller Parties have delivered or will prior to Closing deliver
                  to  Parent   correct  and  complete   copies  of  all  written
                  documentation   evidencing   ownership  and


                                       43



                  prosecution  (if  applicable)  of each  item  of any  Acquired
                  Entity's Intellectual Property. With respect to each such item
                  of  Intellectual  Property and except as disclosed in SCHEDULE
                  6.15(E):

                  (i)      to each Seller Party's Knowledge,  an Acquired Entity
                           possesses  all right,  title,  and interest in and to
                           the item, free and clear of any Security Interest;

                  (ii)     the item is not subject to any outstanding Order;

                  (iii)    no  Action is  pending  or,  to each  Seller  Party's
                           Knowledge,    threatened    which    challenges   the
                           Enforceability, use, or ownership of the item;

                  (iv)     no Acquired  Entity has ever agreed to indemnify  any
                           Person for or against any interference, infringement,
                           misappropriation,  or other  conflict with respect to
                           the item; and

                  (v)      except as  disclosed in SCHEDULE  6.15(E),  no Seller
                           Party has Knowledge of any  covenants,  rights of any
                           other Person,  or other  restriction on or in respect
                           of the ability to sell wares  presently being sold by
                           any Acquired  Entity in  association  with any of the
                           Marks   anywhere   in   world,   including,   without
                           limitation,  Marks  containing  or  consisting of the
                           words REQUEST or BUFFALO.

         (f)      Except as disclosed in SCHEDULE 6.15(F), no Seller or Acquired
                  Entity has  received  any notice  alleging  that any  Acquired
                  Entity has interfered with,  infringed upon,  misappropriated,
                  or  otherwise  violated or come into  conflict  with any other
                  Person's  Intellectual  Property (including any claim that any
                  Acquired  Entity must  license or refrain from using any other
                  Person's  Intellectual   Property).  To  each  Seller  Party's
                  Knowledge  and except as  disclosed  in SCHEDULE  6.15(F),  no
                  third Person has any Intellectual  Property that interferes or
                  would be likely to interfere with any Acquired Entity's use of
                  any of its  Intellectual  Property.  To  each  Seller  Party's
                  Knowledge  and except as  disclosed  in SCHEDULE  6.15(F),  no
                  Acquired   Entity  will   interfere   with,   infringe   upon,
                  misappropriate,  or otherwise  come into  conflict  with,  any
                  Intellectual  Property  rights of any other Person as a result
                  of the  continued  operation  of its  businesses  as currently
                  conducted.  To each  Seller  Party's  Knowledge  and except as
                  disclosed in SCHEDULE 6.15(F),  no other Person has interfered
                  with, infringed upon, misappropriated,  or otherwise come into
                  conflict with any Acquired Entity's Intellectual Property.

6.16     INVENTORY

         Acquired  Entities'  inventory,  whether  reflected  on  the  Financial
Statements or not,  consists of raw materials  and  supplies,  manufactured  and
processed  parts,  goods  in  process,  and  finished  goods,  all of  which  is
merchantable  and,  except as has been  written  down on the face of the Interim
Financial Statements (rather than the notes thereto),  none of which has been in
inventory  for more  than one  hundred  twenty  (120)  days or is  damaged.  Any
inventory that has been written down has either been written off or written down
to its net  realizable  value.  There has been no change in inventory  valuation
standards or methods with respect to the  inventory of Acquired  Entities in the
prior  three  years.  No  Acquired  Entity  holds  any  items  of  inventory  on


                                       44



consignment  from other Persons and no other Person holds any items of inventory
on consignment from any Acquired Entity.

6.17     ACQUIRED ENTITY CONTRACTS

         Except as otherwise  disclosed in SCHEDULES  6.14(B),  6.21,  and 6.26,
SCHEDULE  6.17 lists the following  Contracts to which any Acquired  Entity is a
party:

         (a)      Any Contract (or group of related  Contracts) for the lease of
                  personal  property to or from any Person  providing  for lease
                  payments in excess of $15,000 per annum.

         (b)      Any Contract (or group of related  Contracts) for the purchase
                  or sale of raw materials, commodities,  supplies, products, or
                  other personal  property,  or for the furnishing or receipt of
                  services,  the  performance of which will extend over a period
                  of more  than  one  year,  result  in a  material  loss to any
                  Acquired Entity, or involve annual  consideration in excess of
                  $30,000.

         (c)      Any   Contract   concerning  a  limited   liability   company,
                  partnership,  joint  venture or similar  arrangement.  (d) Any
                  Contract  (or  group of  related  Contracts)  under  which any
                  Acquired Entity has created, incurred,  assumed, or guaranteed
                  any Liability for borrowed money or any  capitalized  lease in
                  excess of $15,000 per annum,  or under which the  Contract has
                  imposed  or the  Acquired  Entity  has  suffered  to  exist an
                  Encumbrance on any of its assets.

         (e)      Any  Contract  restricting  any  Acquired  Entity's  right  to
                  compete.

         (f)      Any Contract  with any Seller or any  Affiliates of any Seller
                  other than Acquired Entities.

         (g)      Any  profit  sharing,  stock  option,  stock  purchase,  stock
                  appreciation,  deferred  compensation,   severance,  or  other
                  similar  Contract  for the  benefit  of its  current or former
                  directors, officers, and employees.

         (h)      Any collective bargaining Contract.

         (i)      Any  Contract  for  the  employment  of  any  individual  on a
                  full-time,  part-time,  consulting,  or other basis  providing
                  annual   compensation   in  excess  of  $40,000  or  providing
                  severance benefits.

         (j)      Any Contract  under which it has advanced or loaned any amount
                  to any of its directors or officers or any Seller or Affiliate
                  or any Seller or, outside the Ordinary Course of Business,  to
                  its  employees  that  are not  Sellers  or  Affiliates  of any
                  Seller.

         (k)      Any Contract pursuant to which any Acquired Entity has granted
                  to a  Person  rights  under  or  with  respect  to  any of the
                  Acquired Entity's Intellectual Property.


                                       45



         (l)      Any  Contract  pursuant  to  which  any  Acquired  Entity  has
                  obtained  from a Person rights under or with respect to any of
                  the Acquired Entity's Intellectual Property.

         (m)      Any  other  Contract  (or  group  of  related  Contracts)  the
                  performance  of which  involves  receipt  or payment of annual
                  consideration in excess of $40,000.

         Sellers have  delivered  to Parent a correct and complete  copy of each
written  Contract  (as amended to date)  listed in  SCHEDULE  6.17 and a written
summary setting forth the terms and conditions of each oral Contract referred to
in SCHEDULE 6.17. With respect to each such Contract:

                  (i)      the Contract is Enforceable and unamended;

                  (ii)     the  Contract  will  continue  to be  Enforceable  on
                           identical  terms  following the  consummation  of the
                           Transactions;

                  (iii)    no  Acquired  Entity  (and  to  each  Seller  Party's
                           Knowledge, no counter-party) is in material Breach of
                           such Contract,  and no event has occurred which, with
                           notice or lapse of time, would constitute a Breach by
                           any Acquired Entity thereunder; and

                  (iv)     no party to the  Contract  has  delivered  a  written
                           demand  for  early  termination   thereof;

                  (v)      the  Contract  has not been  assigned in favor of any
                           Person;

                  (vi)     no Consent is required from any Person as a result of
                           the Transactions  (for assignment,  change of control
                           or otherwise); and

                  (vii)    there  are  no   renegotiations   of,   attempts   to
                           renegotiate or outstanding  rights to renegotiate any
                           material  amounts  paid or  payable  to any  Acquired
                           Entity under such Contract with any Person having the
                           contractual  or statutory  right to demand or require
                           such  renegotiation  and  no  such  Person  has  made
                           written demand for such renegotiation.

6.18     TRUST CONTRACTS

         (a)      SCHEDULE 6.18 lists each Contract  pursuant to which (a) Trust
                  has granted to a Person rights under or with respect to any of
                  Trust's Intellectual Property, and (b) Trust has obtained from
                  a  Person  rights  under  or with  respect  to any of  Trust's
                  Intellectual Property.

         (b)      Trust has  delivered to Parent a correct and complete  copy of
                  each written  Contract (as amended to date) listed in SCHEDULE
                  6.18  and a  written  summary  setting  forth  the  terms  and
                  conditions of each oral Contract referred to in SCHEDULE 6.18.
                  With respect to each such Contract:

                  (i)      the Contract is Enforceable and unamended;


                                       46



                  (ii)     upon the Closing,  the Contract  will  continue to be
                           Enforceable on identical terms in effect  immediately
                           prior  to the  Closing,  except  to the  extent  such
                           Contract  is  amended  or  terminated  prior  to  the
                           Closing as contemplated by this Agreement;

                  (iii)    Trust  (and  to each  Seller  Party's  Knowledge,  no
                           counter-party) is in Breach of such Contract,  and no
                           event has  occurred  which,  with  notice or lapse of
                           time, would constitute a Breach by Trust thereunder;

                  (iv)     no party to the  Contract  has  delivered  a  written
                           demand  for  early  termination   thereof;

                  (v)      the  Contract  has not been  assigned in favor of any
                           Person;

                  (vi)     no Consent is required from any Person as a result of
                           the Transactions  (for assignment,  change of control
                           or otherwise); and

                  (vii)    there  are  no   renegotiations   of,   attempts   to
                           renegotiate or outstanding  rights to renegotiate any
                           material  amounts paid or payable to Trust under such
                           Contract  with any Person having the  contractual  or
                           statutory   right   to   demand   or   require   such
                           renegotiation  and no such  Person  has made  written
                           demand for such renegotiation.

         (c)      Trust has not  received  any  prepayments,  advances  or other
                  amounts from Persons that have rights to Trust's  Intellectual
                  Property with respect to rights or obligations  for periods or
                  activities  occurring  from and after the Closing,  including,
                  without limitation, advance payments of royalties not recouped
                  or earned as of the Closing.

6.19     RECEIVABLES

         All of the Receivables  represent bona fide transactions,  and arose in
the Ordinary Course of Business of Acquired Entities, and are reflected properly
in their books and  records.  All of the  Receivables  are good and  collectible
receivables in accordance with past practice and the terms of such  Receivables,
without set off or counterclaims,  subject only to the reserve for bad debts set
forth on the face of the Interim Financial  Statements (rather than in any notes
thereto)  as  adjusted  for the  passage of time  through  the  Closing  Date in
accordance with the Ordinary Course of Business of Acquired Entities, consistent
with Canadian GAAP. No customer or supplier of any Acquired Entity has any basis
to believe  that it has or would be  entitled  to any  payment  terms other than
terms in the Ordinary Course of Business, including any prior course of conduct.

6.20 POWERS OF ATTORNEY

         Except  as set  forth in  SCHEDULE  6.20 and for  revocable  powers  of
attorney  related to the  management  of  trademarks,  there are no  outstanding
powers of attorney executed on behalf of any Acquired Entity.


                                       47



6.21     INSURANCE

         SCHEDULE 6.21 sets forth the following information with respect to each
insurance policy Contract  (including  policies  providing  property,  casualty,
liability, and workers' compensation coverage, and bond and surety arrangements)
to which any Acquired Entity has been a party, a named insured, or otherwise the
beneficiary of coverage at any time within the past three years:

         (a)      the name, address, and telephone number of the agent;

         (b)      the name of the insurer, the name of the policyholder, and the
                  name of each covered insured;

         (c)      the policy number and the period of coverage;

         (d)      the scope (including an indication of whether the coverage was
                  on a claims  made,  occurrence,  or other  basis)  and  amount
                  (including a description of how  deductibles  and ceilings are
                  calculated and operate) of coverage; and

         (e)      a description of any retroactive  premium adjustments or other
                  loss-sharing arrangements.

                  With respect to each insurance policy Contract:

                  (i)      the Contract is Enforceable and unamended;

                  (ii)     the  Contract  will  continue  to be  Enforceable  on
                           identical  terms  following the  consummation  of the
                           Transactions;

                  (iii)    no  Acquired  Entity  (and  to  each  Seller  Party's
                           Knowledge, no counter-party) is in material Breach of
                           such Contract,  and no event has occurred which, with
                           notice or lapse of time, would constitute a Breach by
                           an Acquired Entity thereunder;

                  (iv)     the  Contract  has not been  assigned in favor of any
                           Person; and

                  (v)      no party to the  Contract  has  delivered  a  written
                           demand for early termination thereof.

         No  insurance  that  any  Acquired  Entity  has ever  carried  has been
canceled nor, to each Seller Party's  Knowledge,  has any such cancellation been
threatened. No Acquired Entity has ever been denied coverage nor, to each Seller
Party's Knowledge, has any such denial been threatened. Each Acquired Entity has
been  covered  during  the past  three  years by  insurance  in scope and amount
customary and  reasonable for the businesses in which it has engaged during such
period.  SCHEDULE 6.21 also describes any self-insurance  arrangements affecting
any Acquired Entity.


                                       48



6.22     LITIGATION

         (a)      SCHEDULE  6.22 sets forth each  instance in which any Acquired
                  Entity  (a) is subject  to any  outstanding  Order or (b) is a
                  party,  the subject of, or, to each Seller Party's  Knowledge,
                  is  threatened  to be made a party  to or the  subject  of any
                  Action.  No Action  required to be set forth in SCHEDULE  6.22
                  questions  the   Enforceability   of  this  Agreement  or  the
                  Transactions,  or could result in any Material Adverse Change,
                  and  Seller  Parties  have no basis to  believe  that any such
                  Action may be  brought  or  threatened  against  any  Acquired
                  Entity.

         (b)      SCHEDULE 6.22 sets forth,  to each Seller  Party's  Knowledge,
                  each  instance  where,  due either to (a) rights  asserted  by
                  another  Person,  (b) a  covenant  granted  by any  Seller  or
                  Acquired  Entity or any  predecessor-in-interest  or Affiliate
                  thereof,  or (c) any Order,  there is any  restriction  on the
                  ability of any Acquired  Entity or its  Affiliates to carry on
                  the  business  currently  carried on by such  Acquired  Entity
                  anywhere in the world, whether or not such restriction results
                  in a Material Adverse Change.

6.23     PRODUCT WARRANTY

         To each Seller  Party'  Knowledge,  each  product  manufactured,  sold,
leased,  or  delivered  by Acquired  Entities  has been in  conformity  with all
applicable  Law,  Contracts,  and all  express and  implied  warranties,  and no
Acquired  Entity has any  Liability  (and  there is no basis for any  present or
future Action against any of them giving rise to any Liability) for  replacement
or repair thereof or other Damages in connection therewith,  subject only to the
reserve  for  product  warranty  claims  set  forth on the  face of the  Interim
Financial  Statements  (rather  than in any notes  thereto) as adjusted  for the
passage of time through the Closing Date in accordance  with the Ordinary Course
of Business of Acquired  Entities,  consistent  with  Canadian  GAAP. No product
designed,  manufactured,  sold,  leased,  or delivered by any Acquired Entity is
subject to any  guaranty,  warranty,  or other  indemnity  or similar  Liability
beyond the applicable  standard terms and conditions of sale or lease.  SCHEDULE
6.23 includes  copies of the standard  terms and conditions of sale or lease for
each Acquired Entity  (containing  applicable  guaranty,  warranty,  and similar
Liability indemnity provisions).

6.24     PRODUCT LIABILITY

         No  Acquired  Entity  has any  Liability  (and to each  Seller  Party's
Knowledge,  there is no basis for any  present or future  Action  against any of
them giving rise to any  Liability)  arising out of any injury to individuals or
property  as a  result  of the  ownership,  possession,  or  use of any  product
designed, manufactured, sold, leased, or delivered by any Acquired Entity.

6.25     LABOR AND EMPLOYEES

         (a)      SCHEDULE  6.25(A)  lists all the  employees,  consultants  and
                  independent  contractors  providing  services to each Acquired
                  Entity by their employee number without  providing their names
                  with, where applicable,  their respective  position.  SCHEDULE
                  6.25(A)  also  includes   another  list  with  the  salary  or
                  financial compensation,  location,  unionized or non-unionized
                  status,  years  of  service,  and  whether  or  not a  written
                  agreement  was  signed,  with  respect  to all the  employees,
                  consultants and independent


                                       49



                  contractors  providing  services to each Acquired Entity.  All
                  Employee  Agreements  have been  disclosed  and a copy of each
                  written Employee  Agreement has been provided to Buyer Parties
                  prior to the Closing Date. No Employee  Agreement contains any
                  provision triggering the payment of any financial compensation
                  in relation to the Transactions.

         (b)      Except as disclosed  in SCHEDULE  6.25(A),  Acquired  Entities
                  have  complied  at all  times and are in  compliance  with all
                  applicable  Laws in relation to employment,  labor  relations,
                  workers' compensation, and pay equity.

         (c)      The  location,  and position of each key employee is listed in
                  SCHEDULE 6.25(A) (the "KEY EMPLOYEES").

         (d)      To each Seller Party's Knowledge, no executive,  Key Employee,
                  or group of employees  has any plans to  terminate  employment
                  with  any  Acquired  Entity;  PROVIDED,  HOWEVER,  that,  with
                  respect to each executive  officer of an Acquired Entity,  the
                  determination of whether any Seller Party has Knowledge of any
                  such  executive's  plans  to  terminate  employment  with  any
                  Acquired  Entity  shall  be  made  without  reference  to such
                  executive's Knowledge.

         (e)      Except as disclosed in SCHEDULE 6.25(E), no Acquired Entity is
                  bound by any bargaining  certificate or is a party to or bound
                  by any  collective  bargaining  Contract,  nor has any of them
                  experienced  any  strikes  or  lockouts  in the last  five (5)
                  years.  To  each  Seller  Party's   Knowledge,   there  is  no
                  organizational effort currently being made or threatened by or
                  on behalf of any labor  union  with  respect  to any  Acquired
                  Entity's employees.

         (f)      No Acquired Entity has committed any unfair labor practice (as
                  determined under any Law) and there is no complaint,  claim or
                  any other legal  procedure  filed or, to each  Seller  Party's
                  Knowledge, threatened against any Acquired Entity.

6.26     EMPLOYEE BENEFITS

         (a)      SCHEDULE  6.26 lists each  Employee  Benefit  Plan that is now
                  sponsored,  maintained,  contributed  to,  or  required  to be
                  contributed  to,  or with  respect  to  which  any  withdrawal
                  Liability  (within the  meaning of Section  4201 of ERISA) has
                  been incurred,  by any Acquired  Entity or any ERISA Affiliate
                  for any employee's benefit, and pursuant to which any Acquired
                  Entity or any ERISA Affiliate has or may have any Liability.

         (b)      None of  Acquired  Entities  is party to,  bound by or has any
                  obligations in relation to any Canadian Pension Plan.

         (c)      Sellers  have made  available  to Parent  correct and complete
                  copies of all Employee  Benefit Plans required to be listed on
                  SCHEDULE  6.26 and,  if  applicable,  the plan  Contracts  and
                  summary plan descriptions and any modifications  thereto,  the
                  most recent  determination  letter  received from the Internal
                  Revenue Service,  the most recent Form 5500 Annual Report, the
                  three  (3) more  recent  actuarial  valuations  and  financial
                  reports,  whether or not filed with the competent authorities,
                  and all related trust, insurance,  and


                                       50



                  other  funding  Contracts  that  implement  each such Employee
                  Benefit Plan and any modifications thereto.

         (d)      Each such  Employee  Benefit  Plan (and  each  related  trust,
                  insurance Contract, or fund) complies in form and in operation
                  in all respects with the applicable requirements of ERISA, the
                  Code, other Laws, and its own terms.

         (e)      All required  reports and  descriptions  (including  Form 5500
                  Annual Reports, Summary Annual Reports,  PBGC-l's, and Summary
                  Plan    Descriptions)   have   been   filed   or   distributed
                  appropriately with respect to each such Employee Benefit Plan,
                  if  applicable.  The  requirements  of Part 6 of Subtitle B of
                  Title I of ERISA and of Code Section  4980B have been met with
                  respect to each such Employee Benefit Plan that is an Employee
                  Welfare Benefit Plan.

         (f)      All  contributions  (including all employer  contributions and
                  employee  salary  reduction  contributions)  that are due have
                  been  paid to  each  such  Employee  Benefit  Plan  that is an
                  Employee  Pension Benefit Plan and all  contributions  for any
                  period  ending on or before the Closing  Date that are not yet
                  due have been paid to each such Employee  Pension Benefit Plan
                  or accrued in the  Ordinary  Course of  Business  by  Acquired
                  Entities.  All premiums or other payments that are due for all
                  periods ending on or before the Closing Date have been paid or
                  accrued on the Financial  Statements with respect to each such
                  Employee  Benefit  Plan that is an  Employee  Welfare  Benefit
                  Plan.

         (g)      No Employee  Benefit Plan is an Employee  Pension Benefit Plan
                  that is  intended  to meet the  requirements  of a  "qualified
                  plan" under Code Section 401(a).

         (h)      With respect to each  Employee  Benefit Plan that any Acquired
                  Entity or any ERISA  Affiliate  sponsors  or in the last seven
                  years  sponsored,  maintains,  or in the last seven  years has
                  maintained  or to  which  any of them  contributes,  has  ever
                  contributed, or has ever been required to contribute:

                  (i)      no such Employee  Benefit Plan is subject to Title IV
                           of ERISA;

                  (ii)     there  have  been  no  Prohibited  Transactions  with
                           respect to any such Employee Benefit Plan;

                  (iii)    no  Fiduciary   has  any   Liability  for  breach  of
                           fiduciary  duty or any other failure to act or comply
                           with the requirements of applicable Law in connection
                           with the  administration  or investment of the assets
                           of any such Employee Benefit Plan; and

                  (iv)     no Action with respect to the  administration  or the
                           investment of the assets of any such Employee Benefit
                           Plan  (other than  routine  claims for  benefits)  is
                           pending or, to each of the Seller Party's  Knowledge,
                           threatened,  and no Acquired Entity has incurred, and
                           no  Seller  Party has any  reason to expect  that any
                           Acquired Entity will incur, any Liability to the PBGC
                           (other than PBGC premium payments) or otherwise under
                           Title  IV  of   ERISA   (including   any   withdrawal


                                       51



                           Liability) or under the Code with respect to any such
                           Employee  Benefit  Plan that is an  Employee  Pension
                           Benefit Plan.

         (i)      No Acquired Entity or any ERISA Affiliate contributes to, ever
                  has contributed to, or ever has been required to contribute to
                  any  Multiemployer  Plan  or  has  any  Liability   (including
                  withdrawal Liability) under any Multiemployer Plan.

         (j)      No Acquired  Entity or any ERISA  Affiliate  (i)  maintains or
                  contributes to any Employee Benefit Plan that provides, or has
                  any Liability to provide, life insurance,  medical,  severance
                  or other  employee  welfare  benefits  to any  employee or any
                  dependent  of any  employee  upon  his or  her  retirement  or
                  termination of  employment,  except as may be required by Code
                  Section  4980B;  or (ii) has  ever  represented,  promised  or
                  Contracted  (whether in oral or written  form) to any employee
                  (either  individually  or to  employees  as a group) that such
                  employee(s)   or  dependents   would  be  provided  with  life
                  insurance,   medical,  severance  or  other  employee  welfare
                  benefits upon their  retirement or  termination of employment,
                  except to the extent required by Code Section 4980B.

         (k)      Except as disclosed in SCHEDULE  6.26,  the  execution of this
                  Agreement and the  consummation of the  Transactions  will not
                  (either  alone or upon the  occurrence  of any  additional  or
                  subsequent  events) (i) constitute an event under any Employee
                  Benefit Plan, Employee Agreement,  trust, or loan that will or
                  may  result  in  any  payment  (whether  of  severance  pay or
                  otherwise),   acceleration,   forgiveness   of   indebtedness,
                  vesting, distribution,  increase in benefits, or obligation to
                  fund benefits with respect to any employee,  or (ii) result in
                  the   triggering  or  imposition   of  any   restrictions   or
                  limitations  on the  right of any  Acquired  Entity or the any
                  Buyer Party to amend or terminate  any  Employee  Benefit Plan
                  and receive the full amount of any excess assets  remaining or
                  resulting  from such  amendment  or  termination,  subject  to
                  applicable  Taxes.  No payment or benefit  that has been made,
                  will be made, or may be made by any Acquired Entity, any Buyer
                  Party, or any of their  respective  Affiliates with respect to
                  any Acquired  Entity's  employee will be  characterized  as an
                  "excess parachute payment," within the meaning of Code Section
                  280G(b)(l).

6.27     ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS

         Except as set forth in SCHEDULE  6.27,  (a) each Acquired  Entity is in
compliance in all material  respects with all  Environmental,  Health and Safety
Requirements in connection  with owning,  using,  maintaining,  or operating its
business or assets;  (b) each location at which any Acquired Entity operates its
business is in compliance,  in all material  respects,  with all  Environmental,
Health and Safety Requirements;  and (c) there are no pending or, to each Seller
Party's  Knowledge,  threatened Actions by any Person that any Acquired Entity's
properties or assets is not, or that its businesses has not been  conducted,  in
compliance with all Environmental, Health and Safety Requirements.

6.28     CUSTOMERS AND SUPPLIERS

         SCHEDULE  6.28 lists  Acquired  Entities'  (a) 10 largest  customers in
terms of sales  during (i) the 12 month  period ended as of the Most Recent Year
End and (ii) the nine month period


                                       52



ended as of the  Balance  Sheet Date and states the  approximate  total sales by
Acquired  Entities to each such customer during such periods,  respectively  and
(b) ten largest suppliers during the 12 month period ended as of the Most Recent
Year End and the nine month period ended as of the Balance Sheet Date. Except as
set forth in SCHEDULE  6.28, no Seller Party has received  notice of termination
or an intention to terminate the  relationship  with Acquired  Entities from any
customer or supplier.

6.29     PERMITS

         Acquired Entities possess all Permits required to be obtained for their
businesses and operations.  SCHEDULE 6.29 sets forth a list of all such Permits.
Except as set forth in SCHEDULE 6.29, with respect to each such Permit:

         (a)      it is valid, subsisting and in full force and effect;

         (b)      there are no  violations of such Permit that would result in a
                  termination of such Permit;

         (c)      if applicable,  no Acquired Entity has received written notice
                  that such Permit will not be renewed; and

         (d)      the  Transactions  will not  adversely  affect the validity of
                  such Permit or cause a cancellation of or otherwise  adversely
                  affect such Permit.

6.30     CERTAIN BUSINESS RELATIONSHIPS WITH ACQUIRED ENTITIES

         Except  as  set  forth  on  SCHEDULE  6.30,  no  Seller  or  any of its
Affiliates has been involved in any business  arrangement or  relationship  with
any Acquired  Entity at any time since January 1, 2003,  and no Seller or any of
its Affiliates owns any asset that is used in any Acquired Entity's business.

6.31     PROXY STATEMENT

         None of the  information  to be supplied in writing by any Seller Party
or Acquired  Entity for inclusion in the Proxy  Statement  will, on the date the
Proxy  Statement  (or any  amendment or  supplement  thereto) is first mailed to
shareholders  of Parent,  or will at the time of the Special Meeting contain any
untrue statement of a material fact, or omit to state any material fact required
to be stated therein or necessary in order to make the statements  made therein,
in the light of the  circumstances  under which they are made,  not  misleading.

                                   ARTICLE 7.
                              PRE-CLOSING COVENANTS

         The Parties  agree as follows  with  respect to the period  between the
execution of this  Agreement and the earlier of the Closing and the  Termination
Date:


                                       53



7.1      GENERAL

         Each Party shall use its  Commercially  Reasonable  Efforts to take all
actions and to do all things necessary to consummate, make effective, and comply
with all of the terms of this  Agreement and the  Transactions  applicable to it
(including satisfaction,  but not waiver, of the Closing conditions for which it
is responsible or otherwise in control, as set forth in ARTICLE 9).

7.2      NOTICES AND CONSENTS

         (a)      Each Seller Party shall give any notices to third parties, and
                  shall use its Best Efforts to obtain any third party  Consents
                  listed or required to be listed on SCHEDULES  5.1(C),  5.3(C),
                  or 6.3, or that Parent  reasonably  may  otherwise  request in
                  connection  with the matters  referred to in SECTIONS  5.1(C),
                  5.3(C) and 6.3.  Each Seller  Party shall give any notices to,
                  make any filings with,  and use its Best Efforts to obtain any
                  Consents  of  Governmental   Bodies,   if  any,   required  or
                  reasonably   deemed   advisable  by  Buyer   pursuant  to  any
                  applicable Law in connection with the  Transactions  including
                  in connection with the matters referred to in SECTIONS 5.1(C),
                  5.3(C) and 6.3.

         (b)      Each Buyer Party shall give any notices to third parties,  and
                  shall use its Best Efforts to obtain any third party  Consents
                  listed or required to be listed on  SCHEDULE  5.2(C),  or that
                  Sellers  reasonably may otherwise  request in connection  with
                  the matters  referred to in SECTION  5.2(C).  Each Buyer Party
                  shall give any notices to, make any filings with,  and use its
                  Best Efforts to obtain any Consents of Governmental Bodies, if
                  any,  required  or  reasonably  deemed  advisable  by  Sellers
                  pursuant  to  any  applicable  Law  in  connection   with  the
                  Transactions including in connection with the matters referred
                  to in SECTION 5.2(C).

         (c)      Each Party shall  cooperate  and use its Best Efforts to agree
                  jointly  on  a  method  to  overcome  any  objections  by  any
                  Governmental Body to the Transactions.

         (d)      Nothing in this  SECTION 7.2 will  require  that (i) Parent or
                  its  Affiliates  divest,  sell, or hold  separately any of its
                  assets or  properties,  or (ii)  Parent,  its  Affiliates,  or
                  Acquired  Entities  take any  actions  that  could  affect the
                  normal and regular  operations of Parent,  its Affiliates,  or
                  Acquired Entities after the Closing.

7.3      OPERATION OF BUSINESS

         (a)      Each  Seller  Party  covenants  and  agrees to ensure  that no
                  Acquired  Entity or Trust shall engage in any  practice,  take
                  any action, or enter into any transaction outside the Ordinary
                  Course of Business or engage in any practice, take any action,
                  or enter into any transaction of the sort described in SECTION
                  6.9,  except that (i) an  Acquired  Entity (but not Trust) may
                  engage in any  practice,  take any  action,  or enter into any
                  transaction  described  in SECTIONS  6.9(A),  6.9(C),  6.9(E),
                  6.9(F),  6.9(G),  6.9(H),  6.9(I),  6.9(J), 6.9(N), 6.9(P), or
                  6.9(T) that is in the Ordinary  Course of  Business,  and (ii)
                  Trust may enter into  Contracts  granting third parties rights
                  to the Trust Marks in the Ordinary  Course of Business so long
                  as  such  Contracts  constitute  Purchased  Assets  hereunder.
                  Subject  to  compliance  with  applicable  Law,  from the date
                  hereof  until  the  earlier  to  occur of the


                                       54



                  Closing or the Termination  Date,  Seller Parties shall confer
                  on  a   regular   and   frequent   basis   with  one  or  more
                  representatives of Parent to report on operational matters and
                  the general  status of Acquired  Entities'  ongoing  business,
                  operations and finances and promptly  provide to Parent or its
                  representatives  copies of all material filings they make with
                  any  Governmental  Body  during such  period.  Notwithstanding
                  SECTION  13.5,  Seller  Parties  may  request  consent  to any
                  activity under this SECTION 7.3 by communicating  such request
                  in  writing or by  electronic  mail to the Vice  President  of
                  Finance (or such Person as may be  designated  by such Person)
                  of Parent.  Consent shall be deemed to be given if such Person
                  does not respond to Seller Parties in writing or by electronic
                  mail on or before 5:00 p.m.,  Pacific time, on the third (3rd)
                  business day following  the day on which such Person  receives
                  such  request  in writing or by  electronic  mail from  Seller
                  Parties.

         (b)      Notwithstanding SECTION 7.3(A) to the contrary, not later than
                  ten (10) business days prior to the Closing,  subject to Buyer
                  Parties'  prior  written  consent,  which consent shall not be
                  unreasonably  withheld,  Sellers may cause any of the Acquired
                  Entities  to  increase  its  stated  capital  or issue a stock
                  dividend on the Shares held by any of the Sellers, or pay to a
                  Seller a dividend  in cash or in the form of a note,  provided
                  that (i) any such cash  dividend  or note  dividend  is solely
                  used by such  Seller to  subscribe  for share  capital  of the
                  Acquired  Entity   immediately   following  the   distribution
                  thereof,  (ii)  such  transaction  does not  cause  and is not
                  reasonably  likely to cause an adverse Tax consequence for any
                  Acquired  Entity  or Buyer  Party,  and  (iii) if an  Acquired
                  Entity  issues a stock  dividend to a Seller,  the  securities
                  that comprise such stock dividend  shall,  without any further
                  action  of the  parties,  become  part of the  Shares  of such
                  Acquired  Entity for all purposes  under this  Agreement,  and
                  shall be transferred and sold to the applicable Buyer Party at
                  the  Closing in the same  manner and to the same extent as all
                  other Shares to be  transferred by such Seller at the Closing,
                  for the same total  consideration  to such Seller set forth in
                  this  Agreement   (i.e.,  no  additional   consideration   for
                  securities issued as a stock dividend).

         (c)      Notwithstanding SECTION 7.3(A) to the contrary, not later than
                  ten (10) business days prior to the Closing,  subject to Buyer
                  Parties'  prior  written  consent,  which consent shall not be
                  unreasonably  withheld,  any  Seller may  amalgamate,  merger,
                  wind-up,  liquidate,  proceed  to  dissolution  with  or  into
                  another  Seller,  or transfer  all or part of Shares of any of
                  the Acquired Entities to another Seller, provided that (i) any
                  such transaction  does not cause and is not reasonably  likely
                  to cause an adverse Tax consequence for any Acquired Entity or
                  Buyer  Party,  and  (ii)  adequate  provision  is made for the
                  purchase  and sale of the Shares  held by such Seller from the
                  Seller  surviving  such  transaction,  which  Shares  shall be
                  transferred  and  sold to the  applicable  Buyer  Party at the
                  Closing  for the same total  consideration  for such Shares as
                  set forth in this Agreement.

         (d)      Each  Seller  Party  covenants  and agrees to ensure  that the
                  maximum  indebtedness  of Trust and the  Acquired  Entities to
                  HSBC  Bank  Canada  and its  Affiliates  does  not at any time
                  exceed  $25,000,000 (or the equivalent in Canadian  Dollars at
                  the Exchange Rate) in principal amount.


                                       55



7.4      PRESERVATION OF BUSINESS

         Each Seller  Party  covenants  and agrees to ensure that Trust and each
Acquired Entity shall conduct its business in  substantially  the same manner as
it has been previously conducted,  including maintaining its physical facilities
and its relationships with lessors, licensors,  licensees, suppliers, customers,
officers,  employees,  and any other Person having business  relationships  with
Trust or such Acquired Entity.

7.5      ACCESS TO BUSINESS INFORMATION

         Each Seller  Party  covenants  and agrees to ensure that Trust and each
Acquired  Entity shall permit  representatives  of Parent  (including  financing
providers) to have full access at all  reasonable  times,  and in a manner so as
not to  interfere  with the  normal  business  operations  of Trust or  Acquired
Entities, to all premises, properties,  personnel, books, records, Contracts and
documents  pertaining to Trust and such Acquired Entity and shall furnish copies
of all such books, records, Contracts and documents and all financial, operating
and other data, and other information as Parent may reasonably request.

7.6      NOTICE OF DEVELOPMENTS

         Seller  Parties  shall  give  prompt  written  notice  to Parent of any
development  occurring  after the date of this  Agreement,  or with  respect  to
representations  and warranties that are qualified by Knowledge,  any item about
which such Person did not have Knowledge on the date of this Agreement, which in
each case causes or reasonably could be expected to cause a Breach of any of the
representations and warranties in SECTIONS 5.1 or 5.3 or ARTICLE 6. Parent shall
give prompt  written  notice to Sellers and Trust of any  development  occurring
after  the  date of this  Agreement,  or with  respect  to  representations  and
warranties that are qualified by Knowledge, any item about which such Person did
not have  Knowledge on the date of this  Agreement,  which causes or  reasonably
could be expected to cause a Breach of any of the representations and warranties
in SECTION 5.2. No disclosure by any Party pursuant to this SECTION 7.6 shall be
deemed  to  amend  or  supplement  the  Schedules  or to  prevent  or  cure  any
misrepresentation or Breach of any representation, warranty, or covenant.

7.7      EXCLUSIVITY

         No Seller Party will (a) solicit, initiate, or encourage the submission
of any  proposal  or offer from any Person  relating to the  acquisition  of any
Equity  Interests  or any  substantial  portion  of the  assets  of Trust or any
Acquired   Entity   (including   any   acquisition   structured   as  a  merger,
consolidation,  or share  exchange) or (b)  participate  in any  discussions  or
negotiations  regarding,  furnish any  information  with  respect to,  assist or
participate  in, or  facilitate in any other manner any effort or attempt by any
Person to do or seek any of the  foregoing.  No Seller  will vote its  Shares in
favor of any such  transaction.  Seller Parties will notify Buyer immediately if
any Person makes any proposal, offer, inquiry, or contact with respect to any of
the foregoing and the terms of any such proposal, offer, inquiry, or contact.

         No Buyer Party or any of its Affiliates will (a) solicit,  initiate, or
encourage  the  submission of any proposal or offer from any Person with respect
to a merger, acquisition or similar transaction involving the purchase of all or
substantially all of the assets or equity


                                       56


securities of a third party  (including any acquisition  structured as a merger,
consolidation,  or share  exchange),  or (b)  participate in any  discussions or
negotiations  regarding,  furnish any  information  with  respect to,  assist or
participate  in, or  facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing.

7.8      AFFILIATED TRANSACTIONS

         Except as disclosed on SCHEDULE  7.8,  Seller  Parties  shall cause all
Contracts and transactions by and between any Seller,  Trust or any Affiliate of
any Seller  (other  than an  Acquired  Entity),  on the one hand,  and  Acquired
Entities,  on the other hand,  to be  terminated  effective  as of the  Closing,
without any cost or  continuing  obligation  to  Acquired  Entities or any Buyer
Party,  and  shall  deliver  to Parent  evidence  of such  terminations  that is
reasonably acceptable to Parent.

7.9      REPAYMENT OF CERTAIN LIABILITIES OF SELLERS AND TRUST

         At or prior to the Closing, each Seller and Trust shall satisfy, pay in
full,  or discharge  all  Liabilities  that such Seller or Trust or any of their
respective  Affiliates  (other  than an  Acquired  Entity)  may have to Acquired
Entities,  including the Liabilities described on SCHEDULE 7.9, other than up to
$400,000 of such  Liabilities  to be forgiven by the Acquired  Entities prior to
the Closing as expressly  provided for on SCHEDULE 7.9.  Sellers and Trust shall
provide evidence to Parent of such repayment,  discharge, or forgiveness in form
and substance reasonably acceptable to Parent.

7.10     DISCHARGE OF CERTAIN LIABILITIES PAYABLE TO SELLERS AND TRUST

         At or prior to the Closing,  each Acquired Entity shall satisfy, pay in
full or discharge all  Liabilities  it may have to any Seller or Trust or any of
their  respective  Affiliates  (other  than an  Acquired  Entity),  all of which
Liabilities  are described on SCHEDULE  7.10.  Acquired  Entities  shall provide
evidence to Parent of such  repayment,  discharge,  or  forgiveness  in form and
substance  reasonably  acceptable to Parent.

7.11     SHAREHOLDERS MEETING; PROXY STATEMENT

         (a)      If required by Parent's articles of incorporation,  as amended
                  and now or hereafter in effect, and/or applicable law in order
                  to consummate the Transactions,  Parent shall use Commercially
                  Reasonable  Efforts to take all action necessary in accordance
                  with the CGCL  and  Parent's  articles  of  incorporation  and
                  bylaws,  each as amended and now or hereafter in effect,  duly
                  to  call,  give  notice  of,  convene  and hold a  meeting  of
                  Parent's  shareholders (the "SPECIAL  MEETING") as promptly as
                  practicable  following  the  date  of this  Agreement  for the
                  purpose of  considering  and taking action upon this Agreement
                  and the Transactions.

         (b)      If required  under  applicable  law,  Parent shall prepare and
                  file with the SEC a preliminary proxy or information statement
                  relating to this Agreement and the Transactions and obtain and
                  furnish the information  required to be included by the SEC in
                  the  Proxy  Statement  and,  after  consultation  with  Seller
                  Parties, respond promptly to any comments made by the SEC with
                  respect to the preliminary proxy or information


                                       57



                  statement  and  cause  a  definitive   proxy  or   information
                  statement,  including any  amendments or  supplements  thereto
                  (the "PROXY  STATEMENT") to be mailed to its  shareholders  at
                  the earliest  practicable date, provided that no amendments or
                  supplements  to the  Proxy  Statement  will be made by  Parent
                  without  consultation  with Seller  Parties and their counsel.
                  The Parties shall cooperate with each other in the preparation
                  of the Proxy Statement, and Parent shall notify Seller Parties
                  of the receipt of any  comments of the SEC with respect to the
                  Proxy  Statement  and  of any  requests  by the  SEC  for  any
                  amendment or supplement thereto or for additional  information
                  and shall  provide to Seller  Parties  promptly  copies of all
                  correspondence  between Parent or any representative of Parent
                  and the SEC.  Parent  shall  give  Seller  Parties  and  their
                  counsel the opportunity to review and comment  thereon.  If at
                  any time  after  the date the  Proxy  Statement  is  mailed to
                  shareholders  and prior to the Special Meeting any information
                  relating to Buyer Parties,  Sellers, Acquired Entities, Trust,
                  or any of their respective Affiliates,  officers or directors,
                  is  discovered  by any of the Parties  which is required to be
                  set forth in an amendment or supplement to the Proxy Statement
                  so that the  Proxy  Statement  will  not  include  any  untrue
                  statement  of a  material  fact or omit to state any  material
                  fact necessary to make the statements therein, in light of the
                  circumstances under which they were made, not misleading,  the
                  party which discovers such  information  shall promptly notify
                  the  other  party  hereto  and  an  appropriate  amendment  or
                  supplement describing such information shall be promptly filed
                  with the SEC by  Parent  and to the  extent  required  by law,
                  disseminated  to Parent's  shareholders.  Seller Parties agree
                  that  (i)  they  will  provide  Parent  with  all  information
                  concerning  Sellers,  Trust,  and Acquired  Entities and their
                  respective  Affiliates necessary or appropriate to be included
                  in the Proxy  Statement,  (ii) at the  Special  Meeting or any
                  postponement  or adjournment  thereof (or at any other meeting
                  at which the  Transactions or this Agreement are considered by
                  shareholders),  they will vote,  or cause to be voted,  all of
                  the shares of Parent  Common Stock then owned by them,  or any
                  of their  Affiliates,  if any,  in favor of  adoption  of this
                  Agreement and the  Transactions,  and (iii) they will promptly
                  notify  Parent of any request by the SEC and use  Commercially
                  Reasonable Efforts to assist Parent in responding  promptly to
                  all such  comments of and  requests by the SEC. As promptly as
                  practicable  after the Proxy Statement has been cleared by the
                  SEC, Parent shall mail the Proxy Statement to the shareholders
                  of Parent.

7.12     PUBLICITY

         Buyer  Parties will consult with Seller  Parties  before  issuing,  and
provide Sellers  reasonable time and opportunity to review and comment upon, and
use reasonable  efforts to agree on the form and substance of, any press release
or other public statement with respect to the Transactions,  and shall not issue
any such  press  release or make such other  public  announcement  prior to such
consultation,  except as required under  applicable Laws  (including  securities
Laws).  Seller  Parties will not issue any press release or other  statements to
any third party  (other than to their  respective  agents)  with  respect to the
Transactions without the express written consent of the Parent.


                                       58



7.13     TRADEMARK PURCHASE

         Prior to the Closing,  Trust shall acquire the Trust Marks  pursuant to
and in accordance with the Trademark Purchase Agreements.

7.14     RIGHTS TO NAME

         The  Sellers  shall  procure and cause David  Bitton,  without  further
consideration  payable by the Buyer Parties or the Acquired  Entities,  to enter
into an agreement  with Buyer,  in a form that is mutually  acceptable  to Buyer
Parties and David Bitton,  that provides in substance  that:  (a) subject to the
exclusions below, Buyer and its Affiliates  collectively shall have a fully-paid
up, fully  transferable and sub licensable,  exclusive  license to use his name,
surname signature,  likeness and other personal indicia ("PERSONAL  INDICIA") in
perpetuity  in  association  with the  operation  of a business  in the field of
apparel and apparel  accessories,  including clothing,  footwear,  belts, totes,
  leather goods, and hats, and fragrances ("RESTRICTED AREAS"); (b) a covenant
that David Bitton will not use his Personal Indicia in perpetuity in conjunction
with goods or services in the  Restricted  Areas;  but (c)  notwithstanding  the
foregoing, David Bitton shall be free to use his Personal Indicia in association
with all  activities  other  than in the  Restricted  Areas.  Additionally,  the
agreement with David Bitton shall  restrict Buyer and its Affiliates  from using
the Personal  Indicia in association with merchandise sold through certain lower
tier  distribution  channels (budget and mass market  retailers) if the Personal
Indicia was not used  previously in connection  with the sale of  merchandise by
Buyer or the Acquired Entities through such  distribution  channels prior to the
Closing or after the Closing while Gabriel  Bitton serves as the Senior  Officer
of Buyer.

7.15     SECURITY AGREEMENT AND INTERCREDITOR AGREEMENT

         (a)      At Closing,  the Buyer  Parties and the Sellers  shall execute
                  and  deliver  a  Security  Agreement  in  form  and  substance
                  reasonably  acceptable  to Buyer  Parties and the Sellers (the
                  "SECURITY  AGREEMENT"),  pursuant  to which the Buyer  Parties
                  will grant the  Sellers,  as security  for the Buyer  Parties'
                  obligations   to  make  the  Future   Payments   (the  "SELLER
                  OBLIGATIONS"),  a  first  priority  Security  Interest  in the
                  Seller Priority  Collateral and a Security  Interest,  ranking
                  second in priority only to the Security Interest of Guggenheim
                  therein to the extent securing the Senior Obligations,  in the
                  Trust Marks and all proceeds thereof (the "SELLER SUBORDINATED
                  COLLATERAL" and together with the Seller Priority  Collateral,
                  the  "COLLATERAL").  Sellers  acknowledge and agree that Buyer
                  Parties  shall be free to  grant a  Security  Interest  in the
                  Collateral  to  Guggenheim  provided  that  Sellers'  Security
                  Interest  in the Seller  Priority  Collateral  pursuant to the
                  Security Agreement shall have priority over any other Security
                  Interests in the Collateral.

         (b)      At  Closing,   the  Sellers   shall  execute  and  deliver  an
                  Intercreditor  Agreement  with  Guggenheim,  GMAC CF and other
                  lenders to Buyer Parties, in form and substance  acceptable to
                  Sellers, Guggenheim and the other lenders a party thereto (the
                  "INTERCREDITOR AGREEMENT"),  and containing, among other terms
                  and conditions, the following terms and conditions:


                                       59



                  (i)      The  Sellers  acknowledge  and  agree  that  each  of
                           Guggenheim  and  certain  other  lenders of the Buyer
                           Parties  has  been  or  will be  granted  a  Security
                           Interest in the  Collateral  and that Sellers have no
                           right or interest in any other  property of the Buyer
                           Parties, other than the Collateral.

                  (ii)     Except for Guggenheim's first priority (to the extent
                           it secures the Senior Obligations)  Security Interest
                           in the Seller Subordinated  Collateral,  the Security
                           Interests  of  each  of  Guggenheim,  GMAC CF and any
                           other  secured  creditors  of  Buyer  Parties  in the
                           Collateral will be subordinated to Sellers'  Security
                           Interest in the Collateral.

                  (iii)    Each of the  Sellers  will agree to  subordinate  its
                           Security   Interest   in  the   Seller   Subordinated
                           Collateral to the Security  Interest of Guggenheim to
                           the extent such Security  Interest secures the Senior
                           Obligations.

                  (iv)     The Sellers  will agree not to exercise  any remedies
                           or  rights  under  this  Agreement  and the  Security
                           Agreement  (the "SELLER  DOCUMENTS")  with respect to
                           any  Collateral,  other than as set forth  below with
                           respect to Seller Priority Collateral.

                  (v)      The Sellers  will agree not to exercise  any remedies
                           or rights under the Seller  Documents with respect to
                           the  Collateral,  provided that such  standstill will
                           terminate   with  respect  to  the  Seller   Priority
                           Collateral  on a date  which  is 180  days  following
                           delivery of a notice of a Payment Default following a
                           Payment Default under the Seller Documents.

                  (vi)     The Sellers will grant Guggenheim a right (but not an
                           obligation) to purchase all of the Seller Obligations
                           after  the  occurrence  of a breach  under any of the
                           Seller Documents.

                  (vii)    Sellers will agree that,  if an event of default with
                           respect to the Senior Obligations has occurred and is
                           continuing  and Sellers have received  written notice
                           of such event of default,  all payments of the Seller
                           Obligations  shall be subordinate and junior in right
                           of payment to the Senior  Obligations,  provided that
                           such  subordination  shall continue only for a period
                           of 180 days following delivery of a notice by Sellers
                           to  Guggenheim  of  a  Payment  Default  following  a
                           Payment Default under the Seller Documents.

                  (viii)   The  Sellers  and  Guggenheim  will agree to grant to
                           GMAC CF a nonexclusive,  royalty-free  license to use
                           the  Collateral  to sell or otherwise  dispose of any
                           inventory  (including raw materials,  work-in-process
                           and finished goods) on hand or ordered, against which
                           inventory GMAC CF has directly  loaned amounts to the
                           Buyer  Parties  and  which  inventory   secures  such
                           financing  arrangements  between  GMAC CF, on the one
                           hand,   and  the  Buyer  Parties  and  any  of  their
                           respective Affiliates and Subsidiaries,  on the other
                           hand. The license will be similar in substance to the
                           limited  license  granted to GMAC CF with  respect to
                           American   Rag(R)  and  other   trademarked   apparel
                           inventory   as   provided   for   in   that


                                       60



                           certain Intercreditor Agreement, dated as of June 16,
                           2006, between GMAC CF and Guggenheim.

         (c)      For purposes of this SECTION 7.15,  the following  terms shall
                  have the  following  meanings:  "PAYMENT  DEFAULT"  means  the
                  failure by the Buyer Parties to make any payment on the Seller
                  Obligations  when  due  (after  giving  effect  to  any  grace
                  periods)  which has  continued  for a period of  fifteen  (15)
                  days;    "SELLER   PRIORITY    COLLATERAL"   means   Contracts
                  constituting  part of the  Purchased  Assets and  pursuant  to
                  which  Trust  has  granted  to a Person  rights  under or with
                  respect  to any  of  Trust's  Intellectual  Property  and  the
                  proceeds  thereof,   all  renewals  of  any  of  the  forgoing
                  Contracts for an additional  term,  and all new Contracts that
                  replace any of the  forgoing  Contracts  entered into with the
                  existing licensee or any new licensee, so long as such renewal
                  or replacement  Contract grants  substantially the same rights
                  with  respect  to   substantially   the  same  merchandise  in
                  substantially the same territory  provided for in the original
                  Contract being renewed or replaced;  and "SENIOR  OBLIGATIONS"
                  means  the  obligations  of the  Buyer  Parties  and/or  their
                  Affiliates  to  Guggenheim  and the  lenders  under the Credit
                  Agreement,  dated June 16, 2006, among Parent, Guggenheim, the
                  lenders  thereunder and other parties thereto,  as the same is
                  amended,  restated,  renewed,  extended or otherwise  modified
                  from  time  to  time,   but  solely  with  respect  to  up  to
                  $65,000,000 in principal amount of advances made by Guggenheim
                  and such lenders to Buyer Parties or their  Affiliates  (which
                  amount  shall be reduced by the  amount of any  repayments  of
                  principal on the Senior Obligations after the Closing).

7.16     DISCHARGE OF CERTAIN SECURITY INTERESTS OF ACQUIRED ENTITIES

         At or prior to the Closing, each Seller Party shall discharge or caused
to be discharged the Security Interest listed on SCHEDULE 7.16 and shall provide
confirmation  of the  discharges  received from the relevant  authorities to the
Buyer Parties.

7.17     ANCILLARY AGREEMENTS

         At the Closing,  the Sellers shall procure and cause each of the Bitton
Brothers to enter into each Ancillary  Agreement to which such Bitton Brother is
a party.

7.18     TAX RETURNS; AFFIDAVIT

         Prior to Closing,  the Sellers shall cause each Acquired Entity to have
prepared and filed with all appropriate  Governmental  Bodies all Tax Returns in
respect of Taxes  required to be filed by applicable Law on or prior to Closing.
At or immediately  before  Closing,  Sellers  Parties shall deliver to Parent an
affidavit,  under  penalties of perjury,  stating that Buffalo US is not and has
not been a United  States real  property  holding  corporation,  dated as of the
Closing  Date and in form and  substance  required  under  Treasury  Regulations
Sections 1.897-2(h) and 1.1445-2(c)(3) so that Parent is exempt from withholding
any portion of the US Buffalo Purchase Price.


                                       61



                                   ARTICLE 8.
                             POST-CLOSING COVENANTS

         The Parties  agree as follows with respect to the period  following the
Closing:

8.1      GENERAL

         In case at any time after the Closing any further  action is  necessary
to carry out the purposes of this Agreement,  each Party shall take such further
action  (including   executing  and  delivering  such  further  instruments  and
documents)  as any other Party  reasonably  may request,  all at the  requesting
Party's  sole cost and  expense  (unless  the  requesting  Party is  entitled to
indemnification  therefor under ARTICLE 11).  After the Closing,  Buyer shall be
entitled  to  possession  of all  documents,  books,  records,  agreements,  and
financial data of any sort relating to Acquired Entities.

8.2      LITIGATION SUPPORT

         So long as any Party  actively is contesting  or defending  against any
Action in  connection  with (a) the  Transactions  or (b) any  fact,  situation,
circumstance,  status, condition,  activity, practice, plan, occurrence,  event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving any Acquired  Entity or the Purchased  Assets,  each other Party shall
cooperate  with such Party and such  Party's  counsel in the contest or defense,
make available their  personnel,  and provide such testimony and access to their
books and  records  as will be  necessary  in  connection  with the  contest  or
defense,  at the sole cost and  expense of the  contesting  or  defending  Party
(unless the  contesting or defending  Party or one of its Affiliates is entitled
to indemnification therefor under ARTICLE 11).

8.3      TRANSITION

         No Seller or Trust  shall take any action  that is designed or intended
to have the effect of discouraging  any lessor,  licensor,  licensee,  customer,
supplier,  or other business associate of any Acquired Entity or relating to the
Purchased Assets from maintaining at least as favorable  business  relationships
with Acquired  Entities or Buyer Parties after the Closing as it maintained with
Acquired  Entities or Trust prior to the  Closing.  Each Seller and Trust shall,
and shall cause its  Affiliates  to,  refer all  customer,  supplier,  and other
inquiries  relating  to the  businesses  of Acquired  Entities or the  Purchased
Assets to Buyer Parties or an Affiliate thereof.

8.4      CONFIDENTIALITY

         Each  Seller  and  Trust  shall  treat  and  hold  as  such  all of the
Confidential Information, refrain from using any of the Confidential Information
except  in  connection  with  this  Agreement.  If Trust or any  Seller  is ever
requested or required (by oral question or request for  information or documents
in any Action) to disclose any  Confidential  Information,  Trust or such Seller
shall notify Parent  promptly of the request or  requirement  so that Parent may
seek an appropriate  protective Order or waive compliance with this SECTION 8.4.
If, in the absence of a protective  Order or the receipt of a waiver  hereunder,
Trust or any Seller  that,  on the written  advice of counsel,  is  compelled to
disclose any Confidential  Information to any Governmental Body, arbitrator,  or
mediator or else stand  Liable for  contempt,  Trust or that Seller may disclose
the


                                       62



Confidential  Information to the  Governmental  Body,  arbitrator,  or mediator;
PROVIDED,  HOWEVER;  that  the  disclosing  Party  shall  use  its  Commercially
Reasonable  Efforts to  obtain,  at the  request  of  Parent,  an Order or other
assurance that  confidential  treatment shall be accorded to such portion of the
Confidential Information required to be disclosed as Parent may designate.

8.5      RELEASE

         (a)      Trust and each  Seller,  on behalf of such  Person and each of
                  such Person's heirs, representatives, successors, and assigns,
                  hereby releases and forever  discharges each Acquired  Entity,
                  and  each of its  respective  officers,  directors,  managers,
                  employees,   agents,   stockholders,    controlling   persons,
                  representatives,      Affiliates,      successors,     assigns
                  (individually,  a "RELEASEE"  and  collectively,  "Releasees")
                  from any and all Actions, Orders, Damages,  Liabilities,  and,
                  except as expressly  contemplated  by this  Agreement  and the
                  Ancillary Agreements,  Contracts whatsoever,  whether known or
                  unknown, suspected or unsuspected,  both at Law and in equity,
                  which such Person or any of such  Person's  respective  heirs,
                  representatives,  successors or assigns now has, have ever had
                  or may hereafter have against the respective Releasees arising
                  on or prior to the  Closing  Date or on  account of or arising
                  out of any matter,  cause,  or event  occurring on or prior to
                  the Closing Date  including any rights to  indemnification  or
                  reimbursement  from any Acquired  Entity,  whether pursuant to
                  their  respective   Organizational   Documents,   Contract  or
                  otherwise  and whether or not relating to Actions  pending on,
                  or asserted after, the Closing Date; PROVIDED,  HOWEVER,  that
                  nothing   contained   herein  will   operate  to  release  any
                  obligations   of  any  Acquired   Entity  arising  under  this
                  Agreement and the Ancillary Agreements.  Trust and each Seller
                  hereby  irrevocably  covenants  to refrain  from,  directly or
                  indirectly,  asserting  any cause of  Action,  or  commencing,
                  instituting  or causing to be  commenced,  any Action,  of any
                  kind against any Releasee,  based upon any matter purported to
                  be released hereby.

         (b)      Each  Acquired  Entity,  on behalf of such  Person and each of
                  such Person's heirs, representatives, successors, and assigns,
                  hereby  releases  and forever  discharges  each of Sellers and
                  Trust,  and  each  of  its  respective  officers,   directors,
                  managers,   employees,   agents,   stockholders,   controlling
                  persons,  representatives,   Affiliates,  successors,  assigns
                  (individually,  a "SELLER RELEASEE" and collectively,  "SELLER
                  RELEASEES")  from  any  and  all  Actions,   Orders,  Damages,
                  Liabilities,  and,  except as expressly  contemplated  by this
                  Agreement and the Ancillary Agreements,  Contracts whatsoever,
                  whether known or unknown,  suspected or  unsuspected,  both at
                  Law and in equity,  which such Person or any of such  Person's
                  respective heirs,  representatives,  successors or assigns now
                  has,  have  ever  had  or  may  hereafter   have  against  the
                  respective Seller Releasees on or prior to the Closing Date or
                  on account of or arising  out of any matter,  cause,  or event
                  occurring  on or  prior to the  Closing  Date  whether  or not
                  relating to Actions pending on, or asserted after, the Closing
                  Date;  PROVIDED,  HOWEVER,  that nothing contained herein will
                  operate to release any  obligations  of any of Seller Party or
                  Trust   arising   under  this   Agreement  and  the  Ancillary
                  Agreements.  Each Acquired Entity hereby irrevocably covenants
                  to refrain from,  directly or indirectly,  asserting any cause
                  of  Action,  or  commencing,  instituting  or  causing  to  be
                  commenced,   any  Action,  of  any  kind  against  any  Seller
                  Releasee,  based  upon any  matter  purported  to be  released
                  hereby.


                                       63



8.6      STOCK CERTIFICATES

         (a)      Each stock certificate  representing Buyer Exchangeable Shares
                  will be imprinted with a legend substantially in the following
                  form:

         UNLESS PERMITTED UNDER CANADIAN SECURITIES  LEGISLATION,  THE HOLDER OF
         THIS SECURITY MUST NOT TRADE THE SECURITY  BEFORE THE DATE THAT IS FOUR
         (4) MONTHS AND A DAY AFTER THE LATER OF (I) [CLOSING DATE] AND (II) THE
         DATE THE ISSUER BECAME A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY.

         NEITHER THE SECURITIES EVIDENCED BY THIS CERTIFICATE NOR THE SECURITIES
         ISSUABLE  IN  EXCHANGE  THEREOF  HAVE  BEEN  REGISTERED  UNDER THE U.S.
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
         APPLICABLE  SECURITIES  LAWS.  THESE  SECURITIES  HAVE  BEEN  ISSUED IN
         RELIANCE UPON AN EXEMPTION FROM THE  REGISTRATION  REQUIREMENTS  OF THE
         SECURITIES ACT AND SUCH OTHER SECURITIES  LAWS.  NEITHER THIS SECURITY,
         NOR ANY SECURITIES  ISSUABLE IN EXCHANGE  THEREOF,  NOR ANY INTEREST OR
         PARTICIPATION  THEREIN MAY BE REOFFERED,  SOLD, ASSIGNED,  TRANSFERRED,
         PLEDGED,  ENCUMBERED,  HYPOTHECATED  OR OTHERWISE  DISPOSED OF,  EXCEPT
         PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE SECURITIES
         ACT OR PURSUANT TO A  TRANSACTION  THAT IS EXEMPT FROM,  OR NOT SUBJECT
         TO, SUCH REGISTRATION.

         (b)      Each stock  certificate  representing  Parent  Shares  will be
                  imprinted with legends substantially in the following form:

         THE SECURITIES  EVIDENCED BY THIS  CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE U.S.  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES
         ACT"), OR ANY OTHER APPLICABLE  SECURITIES LAWS AND HAVE BEEN ISSUED IN
         RELIANCE UPON AN EXEMPTION FROM THE  REGISTRATION  REQUIREMENTS  OF THE
         SECURITIES ACT AND SUCH OTHER  SECURITIES  LAWS.  NEITHER THIS SECURITY
         NOR ANY  INTEREST  OR  PARTICIPATION  HEREIN  MAY BE  REOFFERED,  SOLD,
         ASSIGNED, TRANSFERRED,  PLEDGED, ENCUMBERED,  HYPOTHECATED OR OTHERWISE
         DISPOSED OF,  EXCEPT  PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT
         UNDER THE  SECURITIES  ACT OR PURSUANT TO A TRANSACTION  THAT IS EXEMPT
         FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.

         "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN AGREEMENT
         RESTRICTING THEIR TRANSFER, A COPY OF WHICH IS ON FILE AT THE OFFICE OF
         THE COMPANY AND WILL BE  FURNISHED  TO ANY  PROSPECTIVE  PURCHASERS  ON
         REQUEST.  THE  AGREEMENT  PROVIDES,  AMONG  OTHER  THINGS,  FOR CERTAIN
         RESTRICTIONS  ON THE SALE,


                                       64



         TRANSFER,  PLEDGE,  HYPOTHECATION  OR OTHER  DISPOSITION  OF THE SHARES
         REPRESENTED BY THIS CERTIFICATE."

8.7      BOARD REPRESENTATION

         Effective  upon the Closing,  Parent shall appoint  Gabriel  Bitton and
Louis  Padilla  or, if  either or both of  Gabriel  Bitton or Louis  Padilla  is
unwilling to serve or is unable to serve due to death or  disability  or for the
reasons described in clause (ii) of this paragraph, any other nominee of Sellers
reasonably  acceptable to Parent (Gabriel Bitton and Louis Padilla or such other
nominee,  the  "SELLER  NOMINEES")  to serve  on  Parent's  Board of  Directors.
Following the Closing and until the earlier of (a) the fifth  anniversary of the
Closing  Date and (b) the date  that  Sellers  and  their  Affiliates  as of the
Closing Date  collectively  "beneficially  own" (as determined  pursuant to Rule
13d-3 of the General  Rules and  Regulations  under the Exchange  Act) less than
five million shares (as adjusted for stock splits,  reverse stock splits,  etc.)
of the issued and  outstanding  Parent Common  Stock,  Parent shall use its best
efforts to  nominate  the Seller  Nominees  as  nominees  of  Parent's  Board of
Directors for reelection as directors at each shareholders  meeting at which the
Seller  Nominees'  seats on Parent's  Board of  Directors  are being voted upon;
PROVIDED,  HOWEVER,  that  Parent  shall not be  required  to  nominate a Seller
Nominee  (i) if the Seller  Nominee  does not agree to be named as a nominee and
provide all information  required to be included in Parent's proxy statement for
the  applicable  shareholders  meeting or otherwise  required to be disclosed by
Parent or (ii) the Seller Nominee is prohibited or disqualified  from serving on
the Board of Directors of Parent pursuant to any order,  judgment,  or decree of
any Governmental Authority.

         Parent  will  indemnify  the  Seller  Nominees  to the  fullest  extent
permitted by Law against any liability  for any act or omission  relating to his
appointment as director of Parent.  Nothing in this Agreement  limits the rights
of a Seller  Nominee  to claim  indemnity  apart  from  the  provisions  of this
Agreement,  if he is  entitled  to such  indemnity.  Parent  will  purchase  and
maintain customary directors and officers' insurance coverage for the benefit of
the Seller  Nominees and all other members of Parent's  Board of  Directors,  in
such amounts and on such terms as are approved by Parent's Board of Directors.

8.8      TREATMENT OF CERTAIN TAX MATTERS POST-CLOSING

         The following  provisions shall govern the allocation of responsibility
as between  Buyer  Parties and Sellers  for  certain Tax matters  following  the
Closing Date:

         (a)      TAXABLE PERIODS AND ALLOCATION OF TAXES.  The Target Companies
                  shall,  unless prohibited by applicable Law, close the taxable
                  period  of each of  Acquired  Entities  as of the close of the
                  Closing Date. For purposes of this Section, in the case of any
                  Taxes that are imposed on a periodic basis and are payable for
                  a Taxable period which begins before the Closing Date and ends
                  after the Closing Date,  the portion of such Tax which relates
                  to the portion of such  Taxable  period  ending on the Closing
                  Date shall (x) in the case of any Taxes other than Taxes based
                  upon or  related  to income or  receipts,  be deemed to be the
                  amount of such Tax for the entire Taxable period multiplied by
                  a fraction the numerator of which is the number of days in the
                  Taxable period ending on the Closing Date and the  denominator
                  of which is the number of days in the entire


                                       65



                  Taxable  period,  and (y) in the case of any Tax based upon or
                  related to income or  receipts,  be deemed equal to the amount
                  which would be payable if the relevant Taxable period ended on
                  the Closing  Date.  Any credits  relating to a Taxable  period
                  that begins  before and ends after the  Closing  Date shall be
                  taken into account as though the relevant Taxable period ended
                  on the Closing  Date.  All  determinations  necessary  to give
                  effect to the foregoing  allocations of income,  gains,  loss,
                  deduction,  and credits  shall be made in a manner  consistent
                  with prior practice of the applicable Target Company.

         (b)      CLOSING TAX RETURNS.  The Target  Companies  shall  prepare or
                  cause to be  prepared  and  file or cause to be filed  all Tax
                  Returns for  Acquired  Entities  for all periods  ending on or
                  prior to the Closing Date which are required to be filed after
                  the Closing Date and all Tax Returns for each Acquired  Entity
                  for Tax periods  which begin  before the Closing  Date and end
                  after  the  Closing  Date (the  "CLOSING  TAX  RETURNS").  The
                  applicable  Acquired Entity shall cause copies of such Closing
                  Tax Returns  (other than  informational  returns such as Forms
                  1099 and Forms W-2) to be  delivered  to Parent and Sellers at
                  least  forty five (45) days prior to the filing date for their
                  review and approval,  which shall not be unreasonably withheld
                  or delayed. Parent and Sellers shall give any comments on such
                  Closing  Tax  Returns in writing  to the  applicable  Acquired
                  Entity,  with a copy to  Parent  or  Sellers,  as  applicable,
                  within ten (10) days following the delivery of the Closing Tax
                  Returns.  The applicable  Acquired Entity,  Parent and Sellers
                  shall   attempt  in  good  faith   mutually   to  resolve  any
                  disagreements  regarding such Closing Tax Returns prior to the
                  due date for filing thereof. Any disagreements  regarding such
                  Closing Tax Returns which are not resolved by thirty (30) days
                  prior to the filing date for such Closing Tax Returns shall be
                  promptly referred to the Neutral  Accounting Firm. The Neutral
                  Accounting  Firm shall  prepare  the final  Closing Tax Return
                  within  twenty  five  (25)  days of such  referral,  and  such
                  preparation shall be final and binding on the Acquired Entity,
                  Parent  and  Sellers.  The fees and  expenses  of the  Neutral
                  Accounting  Firm shall be paid by Parent and Sellers  equally.
                  Closing Tax Returns  shall so far as  practicable  be prepared
                  using elections consistent with past practices,  and financial
                  statement  Tax  accruals  for  any  timing   differences  from
                  financial  statement  income  will be treated as Taxes paid or
                  payable for  purposes  of the  allocations  contained  in this
                  paragraph.

         (c)      AMENDMENTS.  Without  the prior  written  consent of  Sellers,
                  which consent shall not be unreasonably withheld,  neither the
                  Acquired Entity nor Parent shall file or cause to be filed for
                  fiscal  periods  ending  on or  prior to the  Closing  Date or
                  deemed  to end on the  Closing  Date for the  purpose  of this
                  Agreement,  any amended Tax Return if any such filing  affects
                  the obligation of Sellers to provide  indemnification  for any
                  Tax  Liability  of  the  Acquired   Entity  pursuant  to  this
                  Agreement.

         (d)      COOPERATION ON TAX MATTERS.

                  (i)      After the Closing Date, Acquired Entities, Parent and
                           Sellers shall  cooperate  fully, as and to the extent
                           reasonably   requested  by  the  other  parties,   in
                           connection with the filing of Tax Returns pursuant to
                           this  Section  and any  audit,  litigation  or  other
                           proceeding  with  respect to Taxes for which  Sellers
                           are or may be partially or fully liable to the Seller
                           Indemnified Parties pursuant to this


                                       66



                           Agreement.   Such   cooperation   shall  include  the
                           retention  and (upon any other  party's  request) the
                           provision  of  records  and  information   which  are
                           reasonably relevant to any such audit,  litigation or
                           other proceeding and making employees  available on a
                           mutually   convenient  basis  to  provide  additional
                           information and explanation of any material  provided
                           hereunder.

                  (ii)     Parent and each Acquired  Entity further agree,  upon
                           request,  to  provide  the  other  Parties  with  all
                           information that such Party may be required to report
                           pursuant to Section 6043 of the Code and all Treasury
                           Regulations promulgated thereunder.

         (e)      TAX PROCEEDINGS. Notwithstanding any other provision contained
                  in this Agreement,  after the Closing Date, in the case of any
                  audit, examination,  or other proceeding with respect to Taxes
                  ("TAX  Proceeding")  for which Sellers are or may be partially
                  or fully liable to the Seller Indemnified  Parties pursuant to
                  this  Agreement,  the applicable  Acquired Entity shall inform
                  Sellers within ten (10) business days after the receipt of any
                  notice of such Tax  Proceeding.  The Acquired  Entity shall be
                  responsible for the management of the Tax Proceeding, provided
                  that Sellers shall have the right (1) to participate  fully in
                  the  Tax   Proceeding,   either   personally   or   through  a
                  representative (including separate counsel of its own choosing
                  at its sole cost and  expense) to the extent it is affected by
                  such proceeding,  (2) to receive copies of all  correspondence
                  regarding the Tax  Proceeding,  and reasonable  advance notice
                  from  the  Acquired  Entity  of  any  meetings,   hearings  or
                  proceedings,  (3) to  review in  advance  and  comment  on any
                  pleadings,  briefs, or other documents to be filed, and (4) to
                  approve any judgment or settlement, closing or other agreement
                  with respect to any Tax  Proceeding,  which approval shall not
                  be unreasonably withheld or delayed.

         (f)      CERTAIN TAXES. All transfer,  documentary,  sales, use, stamp,
                  registration  and other  such  Taxes and fees  (including  any
                  penalties  and  interest)  incurred  in  connection  with this
                  Agreement,  if any, shall be paid by the  applicable  Acquired
                  Entity when due, and such Acquired  Entity  shall,  at its own
                  expense,   file  all   necessary   Tax   Returns   and   other
                  documentation with respect to all such transfer,  documentary,
                  sales, use, stamp, registration and other Taxes and fees, and,
                  if required by applicable Law, Buyer Parties shall,  and shall
                  cause its Affiliates to, join in the execution of any such Tax
                  Returns and other documentation.

         (g)      RETENTION OF DOCUMENTS.  Each Acquired Entity agrees to retain
                  all books and records with respect to Tax matters pertinent to
                  such Acquired Entity relating to any taxable period  beginning
                  before  the  Closing   Date  until  the   expiration   of  the
                  prescription period of the statute of limitations (and, to the
                  extent notified by Buyer Parties,  any extensions  thereof) of
                  the  respective  taxable  periods,  and to abide by all record
                  retention agreements entered into with any taxing authority.

         (h)      TAX INDEMNIFICATION. Without limiting the rights of the Seller
                  Indemnified Parties to be indemnified  pursuant to ARTICLE 11,
                  Sellers and Trust, jointly and severally,  shall indemnify and
                  hold the Seller Indemnified  Parties harmless from and pay any
                  and  all  Damages  directly  or  indirectly   resulting  from,
                  relating to,  arising out of,


                                       67



                  or  attributable to (i) any Tax payable by or on behalf of any
                  Seller Party or Acquired  Entity for any taxable period ending
                  on or prior to the Closing Date, (ii) Taxes of any member of a
                  consolidated  or combined  tax group of which any Seller Party
                  is, or was at any  time,  a  member,  for  which any  Acquired
                  Entity  is  jointly  or  severally  liable  as a result of its
                  inclusion in such group prior to the Closing  Date,  and (iii)
                  with  respect  to any  Taxes  payable  by or on  behalf of any
                  Acquired  Entity  due for period  beginning  before and ending
                  after the Closing Date  (whether or not assessed  prior to the
                  Closing  Date),  the Taxes  allocable  to the  portion of such
                  period that ends on and includes  the Closing Date  ("SELLERS'
                  PRO RATA  SHARE").  For purposes of  calculating  Sellers' Pro
                  Rata Share of Taxes  described  in clause  (iii),  the Closing
                  Date will be treated as the last day of a taxable period,  and
                  the portion of any such Tax that is  allocable  to the taxable
                  period that is so deemed to end on the  Closing  Date will be:
                  (1) in the case of Taxes  that are  either  (x) based  upon or
                  related to income or receipts,  (y) imposed in connection with
                  any sales or other transfer or assignment of property (real or
                  personal,   tangible  or  intangible)   other  than  transfers
                  pursuant to this Agreement, or (z) imposed on a periodic basis
                  and  measured  by the level of any item that is required to be
                  determined  as of the  Closing  Date  or  that  is  reasonably
                  determinable as of the Closing Date and such  determination is
                  made by a party in a manner  reasonably  acceptable  to Parent
                  and Sellers,  deemed equal to the amount that would be payable
                  if the period for which  such Tax is  assessed  ended with the
                  Closing  Date;  and (2) in the  cases  of Taxes  imposed  on a
                  periodic  basis and  measured by the level of any item,  other
                  than Taxes  described in clause (1) hereof,  will be deemed to
                  be the amount of such Taxes for the entire  period (or, in the
                  case of such taxes  determined on an arrears basis, the amount
                  of such Taxes for the immediately preceding period) multiplied
                  by a fraction the numerator of which is the number of calendar
                  days in the  period  ending  with  the  Closing  Date  and the
                  denominator  of which is the  number of  calendar  days in the
                  entire period;  and (3)  exemptions,  allowances or deductions
                  that are  calculated  on an annual basis such as the deduction
                  for depreciation,  will be apportioned on a daily basis in the
                  same  manner as Taxes  under  clause (2)  hereof.  Returns for
                  periods  beginning  before  closing and ending  after  closing
                  shall  so far  as  practicable  be  prepared  using  elections
                  consistent  with past practices,  and financial  statement tax
                  accruals for any timing  differences from financial  statement
                  income will be treated as taxes paid or payable  for  purposes
                  of the  allocations  contained  in  this  paragraph.  For  the
                  avoidance of doubt,  the allocation of tax  liabilities  under
                  this  paragraph  shall be  unaffected  by the carryback of tax
                  losses,  credits or other  attributes  attributable to periods
                  beginning  after closing even though such  carrybacks may have
                  the  effect of  reducing  taxes paid or  accrued  for  periods
                  covered by this tax allocation.

                  Notwithstanding   anything  in  this  SECTION  8.8(H)  to  the
         contrary, Sellers and Trust will have no obligation to indemnify Seller
         Indemnified Parties for Taxes to the extent adequate provision was made
         therefor  on  the  balance  sheet  included  in the  Interim  Financial
         Statements  (other than in the notes  thereto) or to the extent arising
         after the Balance Sheet Date in the Ordinary Course of Business.

8.9      RESTRICTIVE COVENANT

         The Buyer  Parties and the Seller  Parties agree that no portion of the
368 Purchase Price,  Buffalo Inc. Purchase Price, 316 Purchase Price, Buffalo US
Purchase Price or the Asset


                                       68



Purchase Price be allocated to a "restrictive  covenant" as that term is defined
for the purpose of the INCOME TAX ACT (Canada).  However,  if any portion of the
368 Purchase Price,  Buffalo Inc. Purchase Price, 316 Purchase Price, Buffalo US
Purchase Price or the Asset  Purchase Price is determined by tax  authorities to
be in respect of a "restrictive  covenant" (the "REALLOCATION"),  then the Buyer
Parties and the Seller  Parties agree to use their best effort in order that the
full amount of such portion be subject to an election  under Section 56.4 of the
INCOME TAX ACT (Canada), or any other provision to the same effect, in order for
such  amount to be  treated  as  proceeds  of  disposition  of the shares in the
capital of the Acquired  Entities or as part of the cumulative  eligible capital
account under subsection 14(5) of the INCOME TAX ACT (Canada).  In this respect,
the  consideration  paid to the Sellers for the Shares of the Acquired  Entities
and the consideration  paid to the Sellers for entering into this Agreement will
be deemed to be and  always to have  been the  corresponding  amounts  under the
Reallocation.  Upon the Sellers' request, Parties shall file the prescribed form
in accordance with the INCOME TAX ACT (Canada) and any subsequent amendment.  If
any Canadian provincial taxing authority proposes a similar provision, and it is
determined by such provincial tax authority that any portion of the 368 Purchase
Price,  Buffalo Inc.  Purchase Price,  316 Purchase  Price,  Buffalo US Purchase
Price or the Asset  Purchase  Price is in respect of a  "restrictive  covenant",
then the Seller  Parties and the Buyer Parties  shall make a similar  provincial
election.

8.10     OPTION AWARDS

         For a period of  twenty-four  (24) months  following  the Closing,  the
Senior  Officer  shall have  authority  to provide for the grant to employees of
Buyer and its  Subsidiaries  (other  than the  Bitton  Brothers),  of options to
purchase up to an aggregate of 1,000,000  shares of Parent Common Stock pursuant
to, and in  accordance  with,  the terms and  conditions  of Parent's 2006 Stock
Incentive Plan or such other plan approved for such purpose by Parent's Board of
Directors.  The options  shall have an  exercise  price equal to the fair market
value of Parent  Common Stock on the date of grant,  vest over four (4) years in
accordance  with Parent's then current vesting  schedule for similarly  situated
employees,  and  otherwise be subject to Parent's  form of option  agreement for
similarly situated employees.

                                   ARTICLE 9.
                               CLOSING CONDITIONS

9.1      CONDITIONS PRECEDENT TO OBLIGATION OF BUYER PARTIES

         Buyer Parties'  obligation to consummate the Transactions  contemplated
to occur in  connection  with the  Closing  and  thereafter  is  subject  to the
satisfaction of each condition precedent listed below.

         (a)      ACCURACY   OF    REPRESENTATIONS    AND    WARRANTIES.    Each
                  representation  and warranty set forth in SECTIONS 5.1 and 5.3
                  and  ARTICLE 6 must have been  accurate  and  complete  in all
                  respects  (without  giving effect to any provisions  including
                  the  word  "material"  or  words  of  similar  import,  or  to
                  materiality,   as  reflected   under  Canadian  GAAP,  in  the
                  representations  in  SECTION  6.8  relating  to the  Financial
                  Statements),  as of the  date of this  Agreement,  and must be
                  accurate and complete in all respects  (without  giving effect
                  to any  provisions  including the word  "material" or words of
                  similar import,


                                       69



                  or to  materiality,  as reflected  under Canadian GAAP, in the
                  representations  in  SECTION  6.8  relating  to the  Financial
                  Statements), as of the Closing Date, as if made on the Closing
                  Date  (except as  expressly  provided in a  representation  or
                  warranty, as arising as a direct results of the implementation
                  of  the   Transaction   Documents  in  accordance  with  their
                  respective terms and except for inaccuracies that individually
                  or in the aggregate could not reasonably be expected to result
                  in a Material Adverse Change (or Effect)).

         (b)      COMPLIANCE  WITH  OBLIGATIONS.  Each  Seller  Party  must have
                  performed  and  complied  with  all  of  its  covenants  to be
                  performed or complied with at or prior to Closing  (singularly
                  and in the aggregate) in all material respects.

         (c)      NO MATERIAL  ADVERSE CHANGE OR DESTRUCTION OF PROPERTY.  Since
                  the date  hereof  there  must have  been no  event,  series of
                  events or the lack of occurrence thereof which,  singularly or
                  in the aggregate,  has had or could  reasonably be expected to
                  have  a  Material   Adverse  Effect.   Without   limiting  the
                  foregoing,  (i)  there  must  have  been no  Material  Adverse
                  Change,  (ii) there must not have been any action or  inaction
                  by a Governmental Body,  arbitrator,  or mediator which caused
                  or could  reasonably  be expected to cause a Material  Adverse
                  Change,  and (iii)  there must not have been any fire,  flood,
                  casualty,  act of  God or the  public  enemy  or  other  cause
                  (regardless  of insurance  coverage for such damage) which has
                  had or could reasonably be expected to have a Material Adverse
                  Effect.

         (d)      NO ADVERSE LITIGATION. There must not be pending or threatened
                  any Action by or before any Governmental Body, arbitrator,  or
                  mediator  which seeks to restrain,  prohibit,  invalidate,  or
                  collect Damages arising out of the Transactions,  or which, in
                  the  reasonable  judgment of Parent,  makes it  inadvisable to
                  proceed with the Transactions.

         (e)      SELLER  PARTY  CONSENTS.  Seller  Parties  must have  received
                  Consents  to  the   Transactions  and  waivers  of  rights  to
                  terminate or modify any rights or  obligations of any Acquired
                  Entity from any Person (i) from whom such Consent is required,
                  including  Consents listed on SCHEDULES  5.1(C),  5.3(C),  and
                  6.3, and under any Contract listed or required to be listed in
                  SCHEDULES 6.17, 6.21, and 6.26, or under Law, or (ii) who as a
                  result  of  the  Transactions,   would  have  such  rights  to
                  terminate or modify such  Contracts,  either by their terms or
                  as a matter of Law,  other than (A)  Consents  required  under
                  real property leases to which the Acquired Entities are party,
                  (B) the Consent of HSBC Bank  Canada,  or (C) unless,  in each
                  case,  the failure to receive such consents or waivers  either
                  individually  or in the  aggregate  would not have a  Material
                  Adverse Effect.

         (f)      BUYER PARTY  CONSENTS.  Buyer  Parties must have  obtained all
                  Consents listed on SCHEDULE 5.2(C).

         (g)      LIABILITIES.  Prior to the Closing,  Seller  Parties must have
                  obtained  and  delivered  to  Parent  full   satisfactions  or
                  releases of all Liabilities  due to or from Acquired  Entities
                  and Trust which are due to be satisfied or released under this
                  Agreement  to or on behalf of (i) any  Affiliate  of  Acquired
                  Entities,  (ii)  Trust or any  Affiliate  of  Trust,  or (iii)
                  Sellers or any Affiliate of Sellers.


                                       70



         (h)      LEGAL  OPINIONS.  Parent  shall have  received  from  Stikeman
                  Elliot,  LLP,  counsel for Seller Parties,  written  opinions,
                  dated as of the Closing Date, addressed to Parent, in form and
                  substance reasonable satisfactory to Parent.

         (i)      SHAREHOLDER  APPROVAL.  Parent shall have obtained Shareholder
                  Approval.

         (j)      DISSENTING  SHARES.  The  holders of no more than 4.99% of the
                  Parent  Common  Stock  shall  have  exercised  their  right to
                  dissent from the Transactions under the applicable  provisions
                  of the CGCL.

         (k)      NO ORDER OR INJUNCTION. There must not be issued and in effect
                  any Order restraining or prohibiting the Transactions.

         (l)      EMPLOYMENT AGREEMENTS.  Each of the Bitton Brothers shall have
                  executed and delivered to Buyer the Employment Agreements.

         (m)      NON-COMPETITION  AGREEMENTS. Each of the Bitton Brothers shall
                  have  executed  and  delivered  to Parent the  Non-Competition
                  Agreements.

         (n)      INTERCREDITOR  AGREEMENT;  SECURITY  AGREEMENT.  Each  of  the
                  Intercreditor Agreement and Security Agreement contemplated by
                  SECTION  7.15 shall have been  executed  and  delivered by all
                  parties thereto.

         (o)      REGISTRATION  RIGHTS  AGREEMENT.  Each Seller  receiving Buyer
                  Exchangeable   Shares  at  Closing  shall  have  executed  and
                  delivered to Parent the Registration Rights Agreement.

         (p)      STANDSTILL AGREEMENT. Each Seller receiving Buyer Exchangeable
                  Shares at Closing and the Bitton  Brothers shall have executed
                  and delivered to Parent the Standstill Agreement.

9.2      CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS AND TRUST

Trust's and each Seller's obligation to consummate the Transactions contemplated
to occur in  connection  with the  Closing  and  thereafter  is  subject  to the
satisfaction of each condition precedent listed below.

         (a)      ACCURACY   OF    REPRESENTATIONS    AND    WARRANTIES.    Each
                  representation and warranty set forth in SECTION 5.2 must have
                  been  accurate and complete in all  respects  (without  giving
                  effect to any  provisions  including  the word  "material"  or
                  words of similar import, or to materiality, as reflected under
                  US GAAP, in the  representations in SECTION 5.2(F) relating to
                  the financial  statements  of Parent),  as of the date of this
                  Agreement,  and must be accurate  and complete in all respects
                  (without  giving effect to any  provisions  including the word
                  "material" or words of similar import,  or to materiality,  as
                  reflected  under US GAAP,  in the  representations  in SECTION
                  5.2(F) relating to the financial  statements of Parent), as of
                  the Closing  Date,  as if made on the Closing  Date (except as
                  expressly provided in a representation or warranty, as arising
                  as a direct


                                       71



                  results of the implementation of the Transaction  Documents in
                  accordance  with  their   respective   terms  and  except  for
                  inaccuracies  that  individually or in the aggregate could not
                  reasonably be expected to result in a Parent Material  Adverse
                  Change (or Effect)).

         (b)      COMPLIANCE  WITH  OBLIGATIONS.  Each  Buyer  Party  must  have
                  performed and complied with all its covenants and  obligations
                  required by this Agreement to be performed or complied with at
                  or prior to Closing  (singularly  and in the aggregate) in all
                  material respects.

         (c)      NO PARENT MATERIAL  ADVERSE CHANGE OR DESTRUCTION OF PROPERTY.
                  Since the date hereof there must have been no event, series of
                  events or the lack of occurrence thereof which,  singularly or
                  in the aggregate,  has had or could  reasonably be expected to
                  have a Parent Material  Adverse Effect.  Without  limiting the
                  foregoing, (i) there must have been no Parent Material Adverse
                  Change,  (ii) there must not have been any action or  inaction
                  by a Governmental Body,  arbitrator,  or mediator which caused
                  or could  reasonably  be expected  to cause a Parent  Material
                  Adverse  Change,  and (iii) there must not have been any fire,
                  flood, casualty, act of God or the public enemy or other cause
                  (regardless  of insurance  coverage for such damage) which has
                  had or could  reasonably be expected to have a Parent Material
                  Adverse Effect.

         (d)      NO ADVERSE LITIGATION. There must not be pending or threatened
                  any Action by or before any Governmental Body, arbitrator,  or
                  mediator  which seeks to restrain,  prohibit,  invalidate,  or
                  collect Damages arising out of the Transactions,  or which, in
                  the   reasonable   judgment  of  Seller   Parties,   makes  it
                  inadvisable to proceed with the Transactions.

         (e)      BUYER PARTY  CONSENTS.  Buyer  Parties must have  obtained all
                  Consents listed in SCHEDULE 5.2(C).

         (f)      NO ORDER OR INJUNCTION. There must not be issued and in effect
                  any Order restraining or prohibiting the Transactions.

         (g)      LEGAL  OPINION.  Trust and Sellers  shall have  received  from
                  Stubbs,  Alderton & Markiles LLP and  Pillsbury  Winthrop Shaw
                  Pittman LLP (or such other  counsel  reasonable  acceptable to
                  Sellers),  each counsel for Buyer Parties,  written  opinions,
                  dated as of the Closing Date,  addressed to such  Parties,  in
                  form and substance reasonable satisfactory to such Parties.

         (h)      SHAREHOLDER  APPROVAL.  Parent shall have obtained Shareholder
                  Approval

         (i)      DISSENTING  SHARES.  The  holders of no more than 4.99% of the
                  Parent  Common  Stock  shall  have  exercised  their  right to
                  dissent from the Transactions under the applicable  provisions
                  of the CGCL.

         (j)      REGISTRATION RIGHTS AGREEMENT.  Parent shall have executed and
                  delivered to each Seller receiving Buyer  Exchangeable  Shares
                  at Closing the Registration Rights Agreement.


                                       72



         (k)      INTERCREDITOR  AGREEMENT;  SECURITY  AGREEMENT.  Each  of  the
                  Intercreditor Agreement and Security Agreement contemplated by
                  SECTION  7.15 shall have been  executed  and  delivered by all
                  parties thereto.

                                   ARTICLE 10.
                                   TERMINATION

10.1     TERMINATION OF AGREEMENT

         The Parties may terminate this Agreement as provided below:

         (a)      Parent and  Sellers may  terminate  this  Agreement  as to all
                  Parties  by mutual  written  consent  at any time prior to the
                  Closing.

         (b)      Parent or Sellers may terminate  this  Agreement upon delivery
                  of  notice  if the  Closing  has  not  occurred  prior  to the
                  Expiration  Date,  PROVIDED  that the  Party  delivering  such
                  notice (or in the case of a delivery by  Sellers,  each Seller
                  Party) shall not have caused such failure to close as a result
                  of  such  Party's   default   hereunder.   In  the  event  the
                  preliminary   Proxy  Statement   related  to  the  Shareholder
                  Approval has not been filed with the SEC by December 31, 2006,
                  Parent or Sellers may terminate  this  Agreement upon delivery
                  of notice prior to January 19, 2007.

         (c)      Parent may terminate this Agreement within thirty (30) days of
                  giving  written  notice to  Sellers  at any time  prior to the
                  Closing  if  there  has been a  Material  Adverse  Change  (or
                  Effect)   or   Trust   or  any   Seller   has   Breached   any
                  representation,   warranty,  or  covenant  contained  in  this
                  Agreement  (without  giving  effect  to  materiality  for  any
                  provisions  including the word  "MATERIAL" or words of similar
                  import and SECTION 6.8), provided such Breach, individually or
                  in the aggregate,  could reasonably be expected to result in a
                  Material Adverse Change (or Effect), and such Material Adverse
                  Change (or Effect) or Breach has not been remedied  within ten
                  (10) days of the receipt of such notice by Seller.

         (d)      Sellers may terminate this  Agreement  within thirty (30) days
                  of giving  written  notice to Parent at any time  prior to the
                  Closing if there has been a Parent Material Adverse Change (or
                  Effect) or if any Buyer Party has Breached any representation,
                  warranty,  or covenant  contained in this  Agreement  (without
                  giving effect to materiality for any provisions  including the
                  "MATERIAL"  or words of  similar  import and  SECTION  5.2(F),
                  provided such Breach,  individually or in the aggregate, could
                  reasonably be expected to result in a Parent Material  Adverse
                  Change (or Effect) and such Parent Material Adverse Change (or
                  Effect) or Breach has not been  remedied  within ten (10) days
                  of the receipt of such notice by Parent.

         (e)      Parent  may  terminate  this  Agreement  by  giving  notice to
                  Sellers  on or  before  the  Expiration  Date  that it has not
                  obtained  or  reasonably  believes  that it will be  unable to
                  obtain  on terms and  conditions  reasonably  satisfactory  to
                  Parent  all  of the  financing  it  needs  to  consummate  the
                  Transactions.


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         (f)      Parent  may  terminate  this  Agreement  by  giving  notice to
                  Sellers  on or  before  the  Expiration  Date  if  Shareholder
                  Approval  was not  obtained  at a special  meeting of Parent's
                  shareholders  at which  Shareholder  Approval  was  sought  by
                  Parent.

10.2     EFFECT OF TERMINATION

         (a)      Except for the  obligations  under  ARTICLE 2, this ARTICLE 10
                  and ARTICLE 13, if this Agreement is terminated  under SECTION
                  10.1,  then,  except  as  provided  in this  SECTION  10.2 all
                  further  obligations of the Parties under this Agreement shall
                  terminate.

         (b)      If  Parent  terminates  this  Agreement  pursuant  to  SECTION
                  10.1(C),  then the  rights of Buyer  Party(ies)  to pursue all
                  legal remedies for Damages such Buyer Party(ies)  suffer shall
                  survive  such  termination   unimpaired  and  no  election  of
                  remedies  shall have been deemed to have been made;  PROVIDED,
                  HOWEVER,  that  Seller  Parties  shall not be  liable,  in the
                  aggregate, for any Damages in excess of $5,000,000.

         (c)      If Sellers  terminate  this  Agreement  pursuant  to  10.1(D),
                  Buffalo  International shall be entitled to retain the Deposit
                  as  contemplated  by SECTION  2.1(B) as the Sellers'  sole and
                  exclusive  remedy and as liquidated  damages,  and all further
                  obligations  of  the  Parties  under  this   Agreement   shall
                  terminate.

         (d)      If  Parent  or  Sellers,  as the case may be,  terminate  this
                  Agreement  pursuant  to  SECTIONS  10.1(B)  or  10.1(E),  then
                  Buffalo  International shall be entitled to retain the Deposit
                  as contemplated by SECTION 2.1(B) as the Sellers Parties' sole
                  and exclusive remedy and as liquidated damages with respect to
                  such   termination   of  this   Agreement,   and  all  further
                  obligations  of  the  Parties  under  this   Agreement   shall
                  terminate.

         (e)      If  Parent  terminates  this  Agreement  pursuant  to  SECTION
                  10.1(F), then Parent shall pay to Sellers the Termination Fee,
                  on the tenth (10th) business day following final determination
                  of the Termination Fee as provided in SECTION 10.2(E), by wire
                  transfer in immediately available funds, to compensate Sellers
                  for, among other things, their expenses and management time in
                  pursuing  the  Transactions  and for lost  opportunity  costs.
                  Seller  Parties  agree  that  such  payment  shall  be  Seller
                  Parties' sole and exclusive  remedy and as liquidated  damages
                  with respect to such  termination of this  Agreement,  and all
                  further  obligations of the Parties under this Agreement shall
                  terminate.

         (f)      The  "TERMINATION  FEE"  shall be an  amount  equal to  Seller
                  Parties'  actual and  reasonable,  documented,  out-of-pocket,
                  third  party   transaction  costs  and  expenses  incurred  in
                  connection  with the  structuring  and  negotiation of (i) the
                  term sheet dated May 17, 2006  delivered  by Parent to Buffalo
                  Inc.,  (ii) this Agreement and the Ancillary  Agreements,  and
                  (iii) the Transactions  (including,  without  limitation,  all
                  reasonable  fees  and  expenses  of  counsel  and  independent
                  auditors),  provided that Seller Parties have provided  Parent
                  with copies of reasonably detailed invoices, receipts or other
                  adequate  documentation  substantiating  all  such  costs  and
                  expenses.  Notwithstanding  anything  to the  contrary in this
                  SECTION 10.2, in no event shall Parent have any  obligation to
                  pay such


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                  costs and expenses, or any portion thereof, to the extent that
                  any Seller Party has already deducted the amount of such costs
                  and  expenses  from funds  deposited  with  Seller  Parties by
                  Parent or any third party in connection with the  Transactions
                  unless Seller Parties thereafter  reimburse Parent or any such
                  third party for any amounts so  deducted.  If Parent  disputes
                  any the amount of such costs and  expenses,  the parties agree
                  to negotiate in good faith to resolve any dispute between them
                  regarding  the  Termination  Fee. If the  negotiations  do not
                  resolve the  dispute to the  reasonable  satisfaction  of both
                  parties,  then each party shall nominate one senior officer of
                  the rank of Vice  President  or higher as its  representative.
                  These  representatives  shall,  within  thirty  (30) days of a
                  written  request by either party to call such a meeting,  meet
                  in person and alone  (except for one assistant for each party)
                  and shall attempt in good faith to resolve the dispute. If the
                  disputes  cannot be resolved  by such senior  managers in such
                  meeting,  the parties  agree that they shall,  if requested in
                  writing by either  party,  meet within  thirty (30) days after
                  such  written  notification  for one (1) day with an impartial
                  mediator and consider dispute  resolution  alternatives  other
                  than   litigation.   If  an  alternative   method  of  dispute
                  resolution  is not agreed upon  within  thirty (30) days after
                  the one (1) day mediation,  either party may begin  litigation
                  proceedings.  This procedure  shall be a  prerequisite  before
                  taking any additional  action  hereunder;  provided,  however,
                  that  if  the  timeframe   imposed  by  this  procedure  could
                  materially adversely affect a party's rights or remedies under
                  any dispute,  then the above procedure shall not apply to such
                  party with respect to such dispute.

                                    ARTICLE 11.
                                 INDEMNIFICATION

11.1     SURVIVAL OF REPRESENTATIONS AND WARRANTIES

         (a)      Each  representation  and  warranty  of Sellers  contained  in
                  SECTION  5.1  and  Trust  contained  in  SECTION  5.3  and any
                  certificate  related to such  representations  and  warranties
                  shall survive the Closing and shall continue in full force and
                  effect, forever, except for the representations and warranties
                  set  forth in  SECTIONS  5.1(E)  and  5.3(D)  which  and shall
                  continue in full force and effect until the applicable statute
                  of  limitations  expires  (or  for  7  years  if  there  is no
                  applicable  statue of limitations).  Each  representation  and
                  warranty  of Seller  Parties  contained  in  ARTICLE 6 and any
                  certificate  related to such  representations  and  warranties
                  shall survive the Closing and shall continue in full force and
                  effect   for   two   years   thereafter,    except   (i)   the
                  representations  and  warranties set forth in SECTIONS 6.4 and
                  6.26,  which shall  survive the Closing and shall  continue in
                  full  force  and  effect  until  the  applicable   statute  of
                  limitations  expires (or for 7 years if there is no applicable
                  statute  of  limitations),   (ii)  the   representations   and
                  warranties  set forth in SECTIONS 6.1, 6.2, 6.5 and 6.7, which
                  shall survive the Closing and shall continue in full force and
                  effect forever,  and (iii) the  representations and warranties
                  set forth in SECTION 6.12 which shall survive the Closing and,
                  notwithstanding  such  Closing,  and the  receipt by the Buyer
                  Parties of any opinion,  certificate or other document,  shall
                  continue  in full  force and  effect  for the  benefit  of the
                  Seller Indemnified  Parties until the date that is ninety (90)
                  days  after  the  relevant  Governmental  Body  is  no  longer
                  entitled to assess or reassess the subject  Acquired Entity in
                  respect  of the  Taxes in  question,  having  regard,  without
                  limitation, to (a) any waiver given by such Acquired Entity in
                  respect  of  such


                                       75



                  Taxes;  and  (b) any  entitlement  of a  Governmental  Body to
                  assess or reassess such Acquired Entity without  limitation in
                  the  event  of  fraud  or  misrepresentation  attributable  to
                  neglect, carelessness or willful default.

         (b)      Each representation and warranty of Buyer Parties contained in
                  SECTION   5.2   and   any   certificate    related   to   such
                  representations  and warranties  shall survive the Closing and
                  shall  continue  in  full  force  and  effect  for  two  years
                  thereafter,  except (i) the representations and warranties set
                  forth in SECTION  5.2(D),  which shall survive the Closing and
                  shall  continue in full force and effect until the  applicable
                  statute of limitations  expires (or for 7 years if there is no
                  applicable    statute   of    limitations)    and   (ii)   the
                  representations  and warranties  set forth in SECTIONS  5.2(A)
                  and 5.2(B), which shall survive the Closing and shall continue
                  in full force and effect forever.

         (c)      Each other  provision in this Agreement or any  certificate or
                  document  delivered  pursuant  hereto  will  survive  for  the
                  relevant  statute of  limitations  period,  unless a different
                  period is expressly contemplated herein or thereby.

         (d)      Where a notice  of a claim is given in  accordance  with  this
                  Agreement  in  respect  of  a   representation,   warranty  or
                  obligation  of the  Seller  Parties  relating  to  Taxes,  the
                  representation,  warranty or  obligation  to which such notice
                  applies shall survive in respect of such claim until the final
                  determination or settlement of such claim.

11.2     INDEMNIFICATION PROVISIONS FOR PARENT'S BENEFIT

         Sellers and Trust, jointly and severally,  shall indemnify and hold the
Seller Indemnified Parties harmless from and pay any and all Damages directly or
indirectly  resulting from,  relating to, arising out of, or attributable to any
one of the following:

         (a)      Any Breach of any  representation or warranty any Seller Party
                  has  made  in this  Agreement  as if  such  representation  or
                  warranty were made on and as of the Closing Date.

         (b)      Any Breach by any Seller Party of any  covenant or  obligation
                  of any Seller Party in this Agreement.

         (c)      All Liabilities of Trust or related to the Purchased Assets or
                  operation by Trust of its business prior to Closing other than
                  Assumed Liabilities.

11.3     INDEMNIFICATION PROVISIONS FOR TRUST'S AND SELLERS' BENEFIT

         Buyer Parties shall indemnify and hold the Parent  Indemnified  Parties
harmless  from and pay any and all Damages,  directly or  indirectly,  resulting
from, relating to, arising out of, or attributable to any of the following:

         (a)      Any Breach of any  representation  or warranty any Buyer Party
                  has  made  in this  Agreement  as if  such  representation  or
                  warranty were made on and as of the Closing Date.


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         (b)      Any Breach by any Buyer Party of any covenant or obligation of
                  any Buyer Party in this Agreement.

         (c)      The payment,  performance,  and  satisfaction  when due of the
                  Assumed Liabilities.

11.4     INDEMNIFICATION CLAIM PROCEDURES

         (a)      If any third party notifies any Indemnified Party with respect
                  to the  commencement  of any  Action  that may give  rise to a
                  claim for  indemnification  against any Indemnitor  under this
                  ARTICLE 11 (an "INDEMNIFICATION CLAIM"), then such Indemnified
                  Party  shall  promptly  give  notice  to the  Indemnitor.  The
                  failure  to give such  notice  shall  not  affect  whether  an
                  Indemnitor is liable for reimbursement  hereunder,  unless the
                  defense  of  such  Action  is   materially   and   irrevocably
                  prejudiced  by the  Indemnified  Party's  failure to give such
                  notice.

         (b)      Unless  provided  otherwise in this  Agreement,  an Indemnitor
                  shall  have the right to  defend  against  an  Indemnification
                  Claim with counsel of its choice  reasonably  satisfactory  to
                  the  Indemnified   Party  if  (i)  within  fifteen  (15)  days
                  following the receipt of notice of the  Indemnification  Claim
                  the Indemnitor  notifies the Indemnified Party in writing that
                  the Indemnitor shall indemnify the Indemnified  Party from and
                  against the entirety of any Damages the Indemnified  Party may
                  suffer  resulting  from,  relating  to,  arising  out  of,  or
                  attributable   to  the   Indemnification   Claim,   (ii)   the
                  Indemnification Claim involves only money Damages and does not
                  seek an injunction or other equitable relief, (iii) settlement
                  of,   or  an   adverse   judgment   with   respect   to,   the
                  Indemnification Claim is not in the good faith judgment of the
                  Indemnified Party likely to establish a precedential custom or
                  practice   materially  adverse  to  the  continuing   business
                  interests of the  Indemnified  Party,  and (iv) the Indemnitor
                  continuously conducts the defense of the Indemnification Claim
                  actively and diligently.

         (c)      So long as the  Indemnitor  is  conducting  the defense of the
                  Indemnification  Claim in accordance with SECTION 11.4(B), (i)
                  the Indemnified  Party may retain  separate  co-counsel at its
                  sole cost and  expense and  participate  in the defense of the
                  Indemnification  Claim,  (ii) the Indemnified  Party shall not
                  consent  to  the  entry  of  any  Order  with  respect  to the
                  Indemnification Claim without the prior written Consent of the
                  Indemnitor  (not to be withheld  unreasonably),  and (iii) the
                  Indemnitor  shall not  Consent  to the entry of any Order with
                  respect to the Indemnification Claim without the prior written
                  Consent  of  the   Indemnified   Party  (not  to  be  withheld
                  unreasonably,  provided  that it  shall  not be  deemed  to be
                  unreasonable for an Indemnified  Party to withhold its Consent
                  (A) with  respect to any  finding of or  admission  (1) of any
                  Breach of any Law,  Order or Permit,  (2) of any  violation of
                  the  rights  of any  Person,  or (3) which  Indemnified  Party
                  believes could have a material adverse effect on its business,
                  including on any other Actions to which the Indemnified  Party
                  or its Affiliates are party or to which  Indemnified Party has
                  a good faith belief it may become party, or (B) if any portion
                  of such Order would not remain sealed).


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         (d)      If any condition in SECTION 11.4(B) is or becomes unsatisfied,
                  (i)   the   Indemnified    Party   may   defend   against   an
                  Indemnification  Claim in any  manner it may deem  appropriate
                  (and the  Indemnified  Party need not consult  with, or obtain
                  any Consent from,  any  Indemnitor  in connection  therewith),
                  provided that the Indemnified Party may not concede, settle or
                  compromise  any  Indemnification  Claim without the Consent of
                  the Indemnitor which will not be unreasonably  withheld,  (ii)
                  each Indemnitor shall, unless such the  Indemnification  Claim
                  is being contested by the Indemnitor, jointly and severally be
                  obligated  to reimburse  the  Indemnified  Party  promptly and
                  periodically for the Damages relating to defending against the
                  Indemnification  Claim, and (iii) each Indemnitor shall remain
                  jointly and severally  Liable for any Damages the  Indemnified
                  Party may suffer relating to the Indemnification  Claim to the
                  fullest extent provided in this ARTICLE 11.

         (e)      In the event any Indemnified  Party shall have a claim against
                  any Indemnitor that does not involve an Indemnification  Claim
                  (i.e., a direct claim),  the  Indemnified  Party shall deliver
                  notice  of  such  claim  with  reasonable  promptness  to  the
                  Indemnitor.  The failure to give such notice  shall not affect
                  whether an Indemnitor is liable for reimbursement  unless such
                  failure has  resulted in the loss of  substantive  rights with
                  respect to the Indemnitor's  ability to defend such claim, and
                  then  only to the  extent  of  such  loss.  If the  Indemnitor
                  notifies  the  Indemnified  Party that it does not dispute the
                  claim  described  in  such  notice  or  fails  to  notify  the
                  Indemnified  Party within forty five (45) days after  delivery
                  of such notice by the Indemnified Party whether the Indemnitor
                  disputes the claim  described  in such notice,  the Damages in
                  the amount  specified in the Indemnified  Party's notice shall
                  be  conclusively  deemed a liability of the Indemnitor and the
                  Indemnitor  shall  pay  the  amount  of  such  Damages  to the
                  Indemnified Party on demand.

         (f)      Each Party hereby consents to the  non-exclusive  jurisdiction
                  of any Governmental Body, arbitrator,  or mediator in which an
                  Action is brought against any  Indemnified  Party for purposes
                  of any  Indemnification  Claim that an  Indemnified  Party may
                  have under this  Agreement  with respect to such Action or the
                  matters alleged therein, and agrees that process may be served
                  on such Party  with  respect  to such  claim  anywhere  in the
                  world.

11.5     LIMITATIONS ON INDEMNIFICATION LIABILITY

         Any claims any  Indemnified  Party makes under this ARTICLE 11 shall be
limited as follows:

         (a)      The amount of Damages required to be paid for Damages shall be
                  reduced to the  extent of any  amounts  an  Indemnified  Party
                  actually  receives  pursuant  to the  terms  of the  insurance
                  policies (if any) covering such Indemnification Claim.

         (b)      All indemnification obligations shall be limited to Damages.

         (c)      Any Liability of any Acquired Entity to any Seller Indemnified
                  Party under this  Agreement  shall  terminate for all purposes
                  upon the Closing and have no


                                       78



                  further  force or effect.  Although  the  representations  and
                  warranties made in ARTICLE 6 are made jointly and severally by
                  Seller Parties (including Target Companies), Sellers and Trust
                  are solely responsible for any and all  indemnification of the
                  Seller Indemnified Parties hereunder.  Further,  neither Trust
                  nor Sellers shall have any claim for contribution  against any
                  Acquired Entity.  Knowledge of any Acquired Entity  (including
                  Knowledge  of any officer,  director or other  employee of any
                  Acquired  Entity)  shall not be imputed to any Buyer Party for
                  any purpose.

         (d)      Neither the Sellers and Trust,  nor the Buyer  Parties,  shall
                  have  Liability for money  Damages  related to Breaches of the
                  representations  and  warranties  in  ARTICLE  5 or  ARTICLE 6
                  unless and until the aggregate  Damages  claimed under SECTION
                  11.2 or SECTION 11.3, as applicable, exceed $500,000; PROVIDED
                  that the limitation contemplated hereby will not be applicable
                  with  respect to (A)  Breaches  of  SECTIONS  5.1(B),  5.1(F),
                  5.2(B),  5.2(E),  5.3(B),  6.2, 6.5, or 6.12, (B) instances of
                  fraud,   willful   misconduct  or  gross   negligence  by  the
                  applicable  Indemnitor,  and (C)  matters  covered  by SECTION
                  8.8(H); and PROVIDED,  further,  that once such amount exceeds
                  $500,000,  the applicable Indemnified Parties will be entitled
                  to recover all amounts to which they are entitled in excess of
                  $500,000.

         (e)      The  aggregate   Liability  of  Sellers  and  Trust,  and  the
                  aggregate Liability of Buyer Parties,  for money Damages under
                  this Agreement related to Breaches of the  representations and
                  warranties  herein will not exceed  $7,000,000;  PROVIDED that
                  the limitation contemplated hereby will not be applicable with
                  respect to (A) Breaches of SECTIONS  5.1(B),  5.1(F),  5.2(B),
                  5.2(E),  5.3(B),  6.2, 6.5, or 6.12, with respect to which the
                  aggregate   Liability  for  money  Damages  shall  not  exceed
                  $110,000,000,  (B) instances of fraud,  willful  misconduct or
                  gross negligence by the applicable Indemnitor, and (C) matters
                  covered by SECTION 8.8(H), with respect to which the aggregate
                  Liability for money Damages shall not exceed $110,000,000.

         (f)      Excluding  instances  of fraud,  willful  misconduct  or gross
                  negligence by any of the Parties, and other than to the extent
                  covered by the  indemnification  provisions of SECTION 8.8(H),
                  if the Closing occurs the  indemnification  provisions of this
                  ARTICLE 11 shall be the  exclusive  remedy with respect to the
                  Breach of this Agreement.

         (g)      A claim for any  matter  not  involving  a third  party may be
                  asserted by notice to the Party from whom  indemnification  is
                  sought.

11.6     SET-OFF RIGHTS; LIMITATION ON CASH RECOVERY; OTHER MATTERS

         (a)      Buyer  Parties  shall have the right and  option,  but not the
                  obligation,  of setting  off all or any part of any  Damages a
                  Seller  Indemnified Party suffers and for which it is entitled
                  to  indemnification  by Sellers and Trust under this Agreement
                  by notifying Sellers and Trust that the applicable Buyer Party
                  is reducing the amount of the Future Payments by the amount of
                  such  Damages,  provided  however that Buyer Parties shall not
                  have the right or option to effect a set off in respect of any
                  portion of any Damages  that is disputed by a Seller or Trust,
                  in which case SECTION 11.6(C) shall apply.


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                  Any offset  against Future  Payments shall be applied  against
                  the next scheduled payment of any Future Payment.

         (b)      Any offset against amounts  outstanding  under the Buyer Notes
                  shall affect the timing and amount of payments  required under
                  the  Buyer  Notes in the same  manner  as if Buyer  had made a
                  permitted prepayment (without premium or penalty) thereunder.

         (c)      If at the  time  of any  scheduled  Future  Payment  there  is
                  pending or, to any Party's Knowledge,  threatened, a claim for
                  Damages with  respect to which  Parent  believes in good faith
                  that a Seller  Indemnified Party is entitled to be indemnified
                  by Sellers and Trust under this  Agreement  and such claim has
                  not been  finally  resolved,  a portion of the next  scheduled
                  Future  Payments  sufficient  to satisfy the amount of Damages
                  shall be withheld by the applicable  Buyer Party and deposited
                  with an escrow agent on terms reasonably  acceptable to Parent
                  and the  applicable  Seller  Indemnified  Parties.  Upon final
                  determination of Damages, if any, for which Seller Indemnified
                  Parties are entitled to indemnification  under this Agreement,
                  the amount of the scheduled  Future Payments so withheld shall
                  be reduced by the amount of such Damages and the  balance,  if
                  any, shall be paid in accordance  with the terms of obligation
                  creating such Future Payments.

         (d)      A Buyer Party's exercise, if in good faith, of its withholding
                  and set off rights in accordance  with this SECTION 11.6 shall
                  not constitute an event of default under this Agreement or any
                  Ancillary Agreement or any related security documents. Neither
                  the  exercise of nor failure to exercise its rights under this
                  SECTION 11.6 will  constitute an election of remedies or limit
                  any Buyer Party in any matter in the  enforcement of any other
                  remedies available to it.

         (e)      Subject to Buyer  Parties'  right and option to set off all or
                  any part of any  Damages a Seller  Indemnified  Party  suffers
                  against Future  Payments as provided for in this SECTION 11.6,
                  if Sellers  and Trust have an  obligation  to pay Damages to a
                  Seller  Indemnified  Party under this ARTICLE 11, such Damages
                  shall be paid as follows: (i) an amount equal to the lesser of
                  (A) 40% of such Damages and (B) the then-remaining outstanding
                  balance  under the Buyer Notes  shall be set off against  (and
                  reduce the amount outstanding under) the Buyer Notes; and (ii)
                  the remaining amount of such Damages shall be paid in cash.

         (f)      Any Damages paid by Sellers and Trust in  satisfaction  of its
                  indemnification  obligations  under this under this ARTICLE 11
                  shall be treated by Sellers and Trust and Buyer  Parties as an
                  adjustment to the purchase price paid for the Purchased Assets
                  or the Shares to which the Damages  paid  relate,  as the case
                  may be.

                                   ARTICLE 12.
                                    EARN-OUT

12.1     EARN-OUT

         (a)      As  additional  consideration  for the Shares,  Buyer  Parties
                  shall pay to each Seller, a portion of the Earn-Out Amount, if
                  any,  equal to the  product of such  Seller's


                                       80



                  Earn-Out  Share TIMES the Earn-Out  Amount for the  applicable
                  Calculation  Period. The Earn-Out Amount shall be paid in cash
                  and otherwise in accordance  with the terms and  conditions of
                  this ARTICLE 12. The Earn-Out Amount, if any, shall be payable
                  by Buyer with respect to the Buffalo Inc.  Shares,  316 Canada
                  Shares,  and 368 Canada Shares (and allocated as an adjustment
                  to the purchase price for such Shares in a reasonable manner),
                  and by Parent with respect to the Buffalo US Shares.

         (b)      Within  one  hundred  twenty  (120)  days  of the  end of each
                  Calculation Period, Parent shall deliver to Sellers a schedule
                  setting  forth  the  Parent's  determination  of  whether  the
                  Earn-Out  Amount for such period was earned  together with the
                  Parent's calculation of Adjusted Earnings for such period; the
                  Parent's determination shall be based on the audited financial
                  statements  of Buyer and Parent for the period ended as at the
                  end of the then  relevant  Calculation  Period (the  "PROPOSED
                  EARN-OUT  AMOUNT").  The  Proposed  Earn-Out  Amount  will  be
                  subject to Sellers' review. In reviewing the Proposed Earn-Out
                  Amount,  Sellers shall have the right to communicate with, and
                  to review the work papers,  schedules,  memoranda,  details of
                  reconciliation  entries and other documents  Buyer,  Parent or
                  the  auditors  for Buyer and Parent  prepared  or  reviewed in
                  determining  the Proposed  Earn-Out Amount for such period and
                  thereafter shall have reasonable  access to all relevant books
                  and records,  all to the extent Sellers  reasonably require to
                  complete  their  review  of  Parent's   determination  of  the
                  Proposed  Earn-Out  Amount.  Within forty five (45) days after
                  its receipt of Parent's  calculation of the Proposed  Earn-Out
                  Amount,  Sellers  shall advise Parent  whether,  based on such
                  review,  they have any  exceptions to such  determination  and
                  related calculations.  Unless Sellers deliver to Parent within
                  such  forty  five (45) day  period a letter  describing  their
                  exceptions to Parent's  calculation of the applicable Adjusted
                  Earnings and the corresponding Earn-Out Amount as set forth in
                  the  schedule  delivered  by Parent  described in this SECTION
                  12.1(B),  the  Proposed  Earn-Out  Amount  for the  applicable
                  Calculation  Period  will be  conclusive  and binding on Buyer
                  Parties  and  Sellers as to the  Adjusted  Earnings  and as to
                  whether the Earn-Out Amount for such period is payable. If the
                  Sellers  deliver  such  letter,  the Parties  shall follow the
                  procedures  for  resolution  of disputes  set forth in SECTION
                  12.5.

         (c)      Within  five (5)  business  days of the  determination  of the
                  applicable  Earn-Out Amount under this SECTION 12.1 or SECTION
                  12.5,  Buyer  shall pay to  Sellers  an  amount  equal to such
                  amount.

         (d)      Subject to SECTION 12.2, Buyer Parties' obligations under this
                  ARTICLE 12 will survive,  and Buyer shall have the  obligation
                  to pay all Earn-Out  Amounts,  if any, in accordance with this
                  ARTICLE 12,  notwithstanding  the cessation of employment  for
                  any  reason  (including  as a  result  of  death,  disability,
                  retirement or voluntary  termination of service) of any or all
                  of the Bitton Brothers.

12.2     RETIREMENT OF EARN OUT

         Within ten (10) business days after the  occurrence of an  Acceleration
Event,  Buyer shall have the obligation to terminate  payment of future Earn-Out
Amounts  by  making  a lump sum  payment  in cash to each  Seller  equal to such
Seller's share of the Accelerated Earn-Out Amount determined by multiplying such
Seller's Earn-Out Share by the Accelerated Earn-Out Amount.


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12.3     CERTAIN DEFINITIONS

         For this  Agreement,  the  following  terms  shall  have the  indicated
meanings:

         (a)      "ACCELERATED  EARN OUT AMOUNT"  means the amount  equal to the
                  net present value of the aggregate remaining Earn Out Amounts,
                  calculated as if all of such remaining  Earn-Out Amounts would
                  have been earned in full. In determining the net present value
                  of such Earn Out Amounts,  a discount  rate equal to 7.0% will
                  be used.

         (b)      "ACCELERATION  EVENT"  means  the  occurrence  of  any  of the
                  following events: (i) a Change of Control occurs; (ii) Gabriel
                  Bitton's  employment  with Buyer is  terminated by Buyer other
                  than for "Cause" or "permanent  disability"  or Gabriel Bitton
                  resigns  for "Good  Reason"  (as such terms are defined in the
                  Employment Agreement contemplated herein to be entered into by
                  Gabriel Bitton, Buyer and Parent at Closing);  (iii) if Parent
                  and Buyer fails to pay any Earn-Out  Amount within thirty (30)
                  days  of the  date  such  payment  is  required  to be made in
                  accordance  with this  SECTION  12; (iv) at any time Parent or
                  Buyer is in Breach of any material  obligation  on its part to
                  be performed  pursuant to SECTION 12.6 and such Breach has not
                  been  cured  within  thirty  (30) days of receipt by Parent of
                  notice of such Breach. For avoidance of doubt, an Acceleration
                  Event  shall  not  occur if  Gabriel  Bitton's  employment  is
                  terminated  by  Buyer  for  "Cause"  in  accordance  with  the
                  Employment Agreement contemplated hereby or as a result of the
                  death,  "permanent disability," or voluntary termination other
                  than for "Good Reason" of such employment by Gabriel Bitton.

         (c)      "ACQUIRED  BUSINESS"  means  the  business  comprised  of  the
                  combined businesses of the Acquired Entities and the Purchased
                  Assets.

         (d)      "ADJUSTED   EARNINGS"  means  the  net  income,   including  a
                  provision for all year-end accounting adjustments,  consistent
                  with  Canadian  GAAP and  accounting  policies  of the  Target
                  Companies used as of the Closing, of the Acquired Business for
                  the  relevant  Calculation  Period,  including  the  following
                  adjustments:

                  (i)      INCREASES  TO  ADJUSTED   EARNINGS.   To  the  extent
                           included  in  combined  net  income  of the  Acquired
                           Business,  Adjusted  Earnings  for  each  Calculation
                           Period shall be increased  by the  following  without
                           duplication:

                           (A)      Interest expense accrued, including, without
                                    limitation,  cash interest,  payment-in-kind
                                    interest and  amortization of original issue
                                    discount.

                           (B)      Provision  for Taxes based on or measured by
                                    income.

                           (C)      The amount of depreciation  and amortization
                                    expense,   or  impairment  of  goodwill  and
                                    intangible  assets.

                           (D)      Any expenses the Acquired  Business directly
                                    incurred in connection with the financing of
                                    the    Transactions   by   Parent   or   any
                                    refinancing of such debt.


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                           (E)      Any expenses the Acquired  Business incurred
                                    in   connection   with   the   Transactions,
                                    including  all  related   additional   costs
                                    incurred in order to conform  all  financial
                                    statements to US GAAP.

                           (F)      Direct costs,  including  professional fees,
                                    incurred in  connection  with any new credit
                                    facility  for the  Acquired  Business  which
                                    replaces  the credit  facility  in effect at
                                    the Closing.

                  (ii)     DECREASES  IN  ADJUSTED   EARNINGS.   To  the  extent
                           included  in  combined  net  income  of the  Acquired
                           Business for a Calculation Period,  Adjusted Earnings
                           for each  Calculation  Period  shall be reduced by an
                           amount equal to all charges,  expenses,  claims,  and
                           monies,  if any, Parent or its Affiliates (other than
                           the  Acquired  Entities)  pay  or  incur  during  the
                           Calculation   Period,  and  that  are  not  otherwise
                           reimbursed,   related   primarily   to  the  Acquired
                           Entities' business, assets, and operations during the
                           Calculation Period or the Purchased Assets.

                  (iii)    EXCLUSIONS  FROM  ADJUSTED  EARNINGS.  To the  extent
                           included  in, or  excluded  from,  the  combined  net
                           income of the  Acquired  Business  for a  Calculation
                           Period, Adjusted Earnings for each Calculation Period
                           shall not include the effect of the following without
                           duplication:

                           (A)      The gain or loss from any sale, exchange, or
                                    other  disposition  of assets  other than in
                                    the Ordinary Course of Business,  except for
                                    sales  of  inventory   and  sales  or  other
                                    dispositions  or  impairment  of  assets  in
                                    connection   with  the   closure  of  retail
                                    stores.

                           (B)      The  gain  or  loss  from  the  exchange  of
                                    securities,  or any increase or reduction in
                                    the carrying value of such securities.

                           (C)      Gains or losses from the condemnation of the
                                    Acquired  Entities'  assets or the Purchased
                                    Assets.  (D) Insurance proceeds in excess of
                                    basis of damaged or destroyed assets and any
                                    proceeds  of  "key-man"  life  insurance  or
                                    permanent disability insurance.

                           (E)      All  income  or  expense   relating  to  the
                                    operations   or   business   of  any  Person
                                    acquired after the date of this Agreement.

                  (iv)     If any product line or brand of the Acquired Entities
                           should be sold or otherwise transferred to, or if any
                           Acquired  Entity  is  merged  or  consolidated  with,
                           Parent  or an  Affiliate  of  Parent  that  is not an
                           Acquired  Entity  without  the prior  consent  of the
                           Sellers  after the Closing  Date,  then the  Adjusted
                           Earnings  related  to such  disposed  of asset or the
                           business  of such  merged  or  consolidated  Acquired
                           Entity  after  the  effective  date of such  disposal
                           shall  be  included  in  the  Adjusted  Earnings  for
                           purposes of determining the Earn-Out Amount.


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                  (v)      To the extent any  Acquired  Entity's  employees  are
                           provided with employee benefit programs  available to
                           Parent's employees instead of or in addition to those
                           currently provided to such employees,  any additional
                           costs  or  savings   shall  be   excluded   from  the
                           calculation of Adjusted Earnings.

                  (vi)     All inter-company revenues and inter-company expenses
                           generated between the Acquired  Entities,  on the one
                           hand, and Parent or any of its Affiliates that is not
                           an  Acquired  Entity,  on the  other  hand,  shall be
                           excluded  from the Adjusted  Earnings for purposes of
                           determining  the Earn-Out  Amount,  unless Parent and
                           Gabriel Bitton shall otherwise agree.

                  (vii)    Any other  adjustments  to which  Parent and  Sellers
                           agree  will be  taken  into  account  in  determining
                           Adjusted Earnings.

         (e)      "EARN-OUT  AMOUNT"  means  the  dollar  amount  set  forth  on
                  SCHEDULE  12, to be due and payable  upon  achievement  of the
                  Adjusted  Earnings  target set forth on SCHEDULE  12 (each,  a
                  "TARGET") for each of the applicable  twelve month periods set
                  forth on SCHEDULE  12 (each a  "CALCULATION  PERIOD").  In the
                  event of a Surplus for any Calculation Period, then (i) first,
                  if the amount of the Surplus for any Calculation Period (other
                  than the  first  Calculation  Period)  equals or  exceeds  the
                  amount  of  any  Shortfall  for  the   immediately   preceding
                  Calculation  Period,  Buyer  shall  pay to  each  Seller  such
                  Seller's  Earn-Out  Share  of the  Earn-Out  Amount  for  such
                  immediately preceding Calculation Period, and (ii) second, the
                  amount of the  Surplus,  if any,  for any  Calculation  Period
                  (other  than the final  Calculation  Period)  in excess of any
                  Shortfall for the  immediately  preceding  Calculation  Period
                  shall be  applied  and  added  to  Adjusted  Earnings  for the
                  immediately following Calculation Period.

         (f)      "EARN-OUT  SHARE"  means,  with  respect  to  a  Seller,  such
                  Seller's  proportionate  share of any  Earn-Out  Amount as set
                  forth on EXHIBIT A, which amount is based on the  consolidated
                  Adjusted  Earnings of the Acquired Business acquired from such
                  Seller over the total  consolidated  Adjusted  Earnings of the
                  Acquired  Business  for the nine months  ended  September  30,
                  2006.

         (g)      "SHORTFALL"  means, with respect to any Calculation  Period in
                  which the Adjusted  Earnings were less than the  corresponding
                  Target,  the  difference  between such Target and the Adjusted
                  Earnings attributable to such Calculation Period.

         (h)      "SURPLUS" means, with respect to any Calculation  Period,  the
                  amount, if any, by which the Adjusted Earnings for such period
                  exceeds the corresponding Target.

12.4     ACCOUNTING AND OTHER GENERAL PRINCIPLES

         For purposes of making  calculations  in this ARTICLE 12, the following
provisions will apply.

         (a)      Adjusted Earnings of the Acquired Business shall be calculated
                  in Canadian Dollars.


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         (b)      Adjusted Earnings of the Acquired Business shall be determined
                  in accordance  with Canadian GAAP and the accounting  policies
                  of the  Target  Companies  used as of the  Closing  on a basis
                  consistent with the Financial Statements.

         (c)      Inventory will be accounted for on a basis consistent with the
                  method under Canadian GAAP and the accounting  policies of the
                  Target  Companies  used as of the Closing as  reflected in the
                  Financial Statements.

         (d)      No  gain,   loss,   income,   or  expense  or  recognition  or
                  non-recognition  of  revenue  resulting  from a change  in the
                  Acquired  Entities'   accounting   methods,   principles,   or
                  practices  from those in effect as of the Closing as reflected
                  in the Financial Statements will be taken into account.

         (e)      Any account  receivable  that is not  collected in full within
                  one hundred  twenty (120) days after the date it first becomes
                  due and payable  shall be deducted  from revenue in the period
                  in  which it is  determined  to be  uncollectible,  net of any
                  allocated bad debt reserve,  and to the extent it has not been
                  treated as deferred  revenue  (and  excluded  from  earnings),
                  subject to inclusion in revenue in a later period, if, as, and
                  when collected.

12.5     RESOLUTION OF CONFLICTS

         If Parent and Sellers are unable to agree on the Adjusted  Earnings for
any Calculation  Period (the "DISPUTED  AMOUNT"),  then (A) for twenty (20) days
after the Parent receives the letter describing  Sellers' exceptions to Parent's
calculation  of  the  Disputed  Amount,   Sellers  and  Parent  will  use  their
Commercially  Reasonable  Efforts to agree on the  calculation  of the  Disputed
Amount and (B)  lacking  such  agreement,  the  matter  will be  referred  to an
independent  accounting  firm  selected  by  Parent  and the  Sellers,  who will
determine the correct  Disputed  Amount within sixty (60) days of such referral,
which  determination  will be final and binding on Buyer Parties and Sellers for
all purposes.  The  non-prevailing  party in such dispute shall be determined by
the independent  accounting firm and shall be the party whose calculation of the
Adjusted  Earnings  in  dispute  was  furthest  from the  Adjusted  Earnings  as
determined by the  independent  accounting  firm.  The Purchaser and the Sellers
shall each bear and pay 50% of the fees and other  expenses  of the  independent
accounting firm in connection with the dispute  resolution  process set forth in
this  SECTION  12.5;  provided,  however,  that if the  difference  between  the
non-prevailing  party's  calculation of the Adjusted Earnings in dispute and the
actual Adjusted  Earnings (as determined by the independent  accounting firm) is
greater than 5% of the actual Adjusted Earnings,  then the non-prevailing  party
shall  be  responsible  for  reimbursing  the  prevailing  party  for all of its
reasonable  out-of-pocket  costs and expenses  incurred in  connection  with the
resolution of the dispute,  including all reasonable attorneys' fees, accounting
fees and  experts'  fees,  and shall also be  responsible  for paying all of the
costs  associated  with the  dispute  resolution  process  provided  for by this
SECTION 12.5, including all fees and expenses of the independent accounting firm
in connection with the dispute resolution process.


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12.6     MANAGEMENT OF ACQUIRED BUSINESS

         (a)      PRESIDENT, BUFFALO DIVISION; CHIEF EXECUTIVE OFFICER. Promptly
                  following  the Closing,  Gabriel  Bitton shall be appointed as
                  the President,  Buffalo Division of Parent and Chief Executive
                  Officer of Buyer (the "SENIOR OFFICER").  Until the earlier of
                  the end of the final Calculation  Period or the termination of
                  the  Senior  Officer's  employment  with Buyer  (through  such
                  individual's voluntarily termination, due to such individual's
                  death or "permanent  disability"  or due to such  individual's
                  termination for or without  "Cause," as such terms are defined
                  in such  individual's  employment  agreement  with Buyer or an
                  Affiliate of Buyer),  Gabriel  Bitton shall have the title and
                  customary  responsibilities of President,  Buffalo Division of
                  Parent and Chief Executive Officer of Buyer and shall, subject
                  to the  control  of the  Board of  Directors  of  Parent  (the
                  "PARENT  BOARD"),  have  general  supervision,  direction  and
                  control of the  day-to-day  operations,  the  business and the
                  officers of Buyer.  Notwithstanding  anything to the  contrary
                  contained in this  Agreement,  the Parent Board shall have the
                  authority to terminate the  employment  of the Senior  Officer
                  for  "Cause"  (as such term is  defined  in such  individual's
                  employment agreement with Buyer).

         (b)      MANAGEMENT OF THE ACQUIRED BUSINESS.  From Closing through the
                  end  of  the  final   Calculation   Period,   subject  to  the
                  supervisory  and  enumerated  powers of the Parent Board,  the
                  day-to-day  management  of  Buyer  shall be  conducted  by the
                  executive officers of Buyer in accordance with the Budgets and
                  business  plans  approved  by  the  Parent  Board;   PROVIDED,
                  HOWEVER,  that  Buyer  shall at all  times be  subject  to the
                  Parent's   policies  and  procedures   relating  to  corporate
                  governance,   internal  financial  and  disclosure   controls,
                  internal   audit   policies,   documentation   of   contracts,
                  contractual  obligations  of Parent  which  affect or  involve
                  Buyer,  compensation  and  benefits and  regulatory  and legal
                  compliance.  All  officers  of Buyer  (other  than  the  Chief
                  Executive  Officer of Buyer)  shall  report to  Buyer's  Chief
                  Executive Officer.

         (c)      BOARD MEETINGS AND APPROVAL. From Closing until the end of the
                  final Calculation  Period:  (i) the Parent Board shall hold at
                  least one regularly  scheduled meeting per calendar quarter at
                  which  the   operation  of  the  Acquired   Business  will  be
                  discussed; (ii) the overall strategic direction of Buyer shall
                  at all  times  be as  contemplated  by  the  Budgets  and  the
                  business plans approved by the Parent Board in accordance with
                  the applicable  provisions of this SECTION 12.6, but otherwise
                  shall  be the  responsibility  of the  executive  officers  of
                  Buyer;  and (iii) approval of a majority of the members of the
                  Parent  Board shall be required to review and approve  actions
                  customarily  approved  by  a  board  of  directors,  including
                  ordinary course business plans and Budgets of Buyer.

         (d)      APPROVAL OF ANNUAL BUDGETS.  From Closing until the end of the
                  final  Calculation  Period,  at least sixty (60) days prior to
                  the  beginning of each  calendar  year during any  Calculation
                  Period, the Senior Officer shall provide to each member of the
                  Parent  Board a proposed  annual  budget with  respect to such
                  calendar  year and for each  calendar  month in such  calendar
                  year  for each of the  following  businesses  of the  Acquired
                  Business  (collectively,   the  "BUDGETS"):   (i)  the  retail
                  business (the "RETAIL BUDGET");  (ii) the wholesale  business,
                  (iii) the  private  label/private  brands  business,  (iv) the
                  trademark licensing business; and (v) the Acquired Business as
                  a whole (the


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                  "CONSOLIDATED  BUDGET").  The Parent Board shall meet prior to
                  the  beginning of such  calendar year to consider the proposed
                  Budgets, and approve final Budgets for such calendar year. Any
                  modifications  to the Budgets,  including any Revised Budgets,
                  must be  approved  by the Parent  Board.  Notwithstanding  the
                  foregoing,  the  Budgets  for  calendar  year  2007  shall  be
                  submitted by Senior  Officer to the Parent Board no later than
                  sixty (60) days following the Closing, and shall be considered
                  and, if acceptable, approved by the Parent Board within thirty
                  (30) days following the initial submission of such Budgets.

         (e)      QUARTERLY BUDGET UPDATES. Following each calendar quarter, the
                  Senior  Officer  shall provide each member of the Parent Board
                  with a summary of the financial and operating  results of each
                  of the businesses of the Acquired  Business for which a Budget
                  is prepared and for the  Acquired  Business as a whole for the
                  most  recently  completed  calendar  quarter and  year-to-date
                  period with a  comparison  to the Budgets for such quarter and
                  year-to-date  period  (the  "PERFORMANCE   SUMMARY").  If  the
                  Performance  Summary for such period shows a negative variance
                  to any of the  Budgets  of more  than five  percent  (5%) with
                  respect  to  earnings   before   interest   expenses,   taxes,
                  depreciation  and  amortization (or EBITDA) for the applicable
                  period or periods,  then the Senior Officer shall deliver with
                  such  Performance  Summary a revised Budget for the applicable
                  calendar year and the remaining  portion of such calendar year
                  (the "REVISED  Budgets").  The Parent Board shall meet as soon
                  as practicable  following  delivery of such Revised Budgets to
                  consider  the  proposed  Revised  Budgets,  and approve  final
                  Revised Budgets on terms acceptable to the Parent Board.

         (f)      DEVIATIONS FROM BUDGETS.

                  (i)      In  no  event  shall  the  Senior  Officer  or  other
                           officers  of Buyer  take or commit to take any of the
                           following actions unless such actions are included in
                           the  Budgets  approved  by the  Parent  Board  or are
                           otherwise  approved  by the Parent  Board:  (A) make,
                           approve or  authorize  any  capital  expenditures  in
                           excess  of  105%  of  the  amount  authorized  in the
                           Budgets; (B) incur any indebtedness in excess of 105%
                           of the amount  authorized in the Budgets  (other than
                           trade  payables  incurred in the  ordinary  course of
                           business);  (C)  open or  commit  to any  new  retail
                           locations,   by   executing  a  lease   agreement  or
                           otherwise; or (D) enter into any new line of business
                           that  does  not  constitute   part  of  the  Acquired
                           Business  as of the Closing  Date or that  previously
                           has been approved by the Parent Board.

                  (ii)     If the  Senior  Officer  is  obligated  to  deliver a
                           Revised  Budget as provided for in this SECTION 12.6,
                           then,  notwithstanding  prior approval as part of the
                           Budgets then in effect,  in no event shall the Senior
                           Officer or other  officers of Buyer take or commit to
                           take  any  of  the  actions   described   in  SECTION
                           12.6(F)(I)(A)  TO (D) unless  and until such  actions
                           are  included  in  a  Revised  Budget  submitted  and
                           approved  by the  Parent  Board  in  accordance  with
                           SECTION  12.6(E) or otherwise  approved by the Parent
                           Board;  PROVIDED,  HOWEVER,  that  Buyer may take any
                           such action to the extent  Buyer is obligated to take
                           such  action  pursuant  to  an  Enforceable  Contract
                           entered  into  with a third  party  prior to  Buyer's
                           delivery of the applicable Performance Summary.


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         (g)      EXCULPATION  AND FIDUCIARY  DUTIES.  The Sellers  hereby agree
                  that none of the  members of the Parent  Board  shall have any
                  liability  (express,  implied or  otherwise)  to any Seller or
                  other person for failure of the  Acquired  Business to achieve
                  any of the financial  results required for any Earn-Out Amount
                  to become payable to the Sellers.  Members of the Parent Board
                  shall  owe   their   fiduciary   duties  to  Parent   and  its
                  shareholders  and  not to any  employee,  creditor,  or  other
                  person.

12.7     CONTRIBUTIONS TO BUYER

         (a)      Within   five  (5)   business   days   following   the   final
                  determination  of the  Earn-Out  Amount  for  any  Calculation
                  Period,  and in any event within one hundred twenty (120) days
                  following  the end of each  Calculation  Period,  Parent shall
                  make  a  cash   contribution   to  Buyer   (each,   a  "PARENT
                  CONTRIBUTION")  in an amount equal to the Parent  Contribution
                  Amount.

         (b)      For purposes of this Agreement,  the term "PARENT CONTRIBUTION
                  AMOUNT"  means,  with  respect  to a Parent  Contribution,  an
                  amount  equal to: (i) the sum of the amount of any payments of
                  principal  due under the Buyer Notes in the calendar  year the
                  Parent Contribution is to be made plus the Earn-Out Amount, if
                  any, due for the Calculation Period ending on December 31st of
                  the  immediately  preceding  calendar year;  LESS (ii) (A) the
                  amount  of the  cumulative  after  tax  profits  of Buyer on a
                  consolidated  basis from January 1, 2007 through December 31st
                  of the  immediately  preceding  calendar  year  MINUS  (B) the
                  cumulative  amount  of any  after  tax  profits  of Buyer on a
                  consolidated    basis   applied   to   reduce   prior   Parent
                  Contributions (if any) in accordance with this definition.

                                   ARTICLE 13.
                                  MISCELLANEOUS

13.1     SCHEDULES

         (a)      The disclosures in the Schedules,  and those in any supplement
                  thereto,  relate only to the representations and warranties in
                  the  Section  or  paragraph  of the  Agreement  to which  they
                  expressly  relate  and  not to  any  other  representation  or
                  warranty in this Agreement.

         (b)      If there is any  inconsistency  between the  statements in the
                  body of this Agreement and those in the Schedules  (other than
                  an  exception  expressly  set forth as in the  Schedules  with
                  respect  to  a  specifically   identified   representation  or
                  warranty),  the  statements in the body of this Agreement will
                  control.

         (c)      Nothing in the Schedules  will be deemed  adequate to disclose
                  an  exception  to a  representation  or


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                  warranty  made  herein,  unless  the  Schedules  identify  the
                  exception  with  reasonable  particularity  and  describes the
                  relevant facts in reasonable detail.

         (d)      The mere  listing  (or  inclusion  of a copy) of a document or
                  other  item in a  Schedule  will  not be  deemed  adequate  to
                  disclose an exception to a representation  or warranty made in
                  this Agreement (unless the representation or warranty pertains
                  to the existence of the document or other item itself).

         (e)      Disclosure  of any Contract or other matter in the  Schedules,
                  whether or not in response to a requirement  contained in this
                  Agreement to schedule material matters, or matters exceeding a
                  specific  monetary  threshold,  shall  not be  deemed to be an
                  admission  that such  Contract or other  matter is or could be
                  material,  or necessarily  will exceed such  threshold  merely
                  because of such disclosure.

13.2     ENTIRE AGREEMENT

         This Agreement,  together with the Exhibits and Schedules  hereto,  the
Ancillary  Agreements,  the  confidentiality  agreement between Buffalo Inc. and
Parent dated June 1, 2006 as amended to date, and the  certificates,  documents,
instruments  and writings that are delivered  pursuant  hereto,  constitutes the
entire  agreement  and  understanding  of the  Parties in respect of its subject
matters and supersedes all prior understandings,  agreements, or representations
by or among the Parties,  written or oral,  to the extent they relate in any way
to the subject  matter  hereof or the  Transactions,  including  the term sheet,
dated May 17, 2006,  delivered by Parent to Buffalo Inc.  Except as set forth in
any of the  foregoing,  there  are no  representations,  warranties,  covenants,
conditions or other  agreements,  express or implied,  collateral,  statutory or
otherwise  among the Parties in connection with the subject matter of any of the
foregoing.  Except as expressly contemplated by herein, there are no third party
beneficiaries having rights under or with respect to this Agreement.

13.3     SUCCESSORS

         All of the terms, agreements, covenants,  representations,  warranties,
and  conditions of this  Agreement are binding upon, and inure to the benefit of
and are  enforceable  by, the Parties and their  respective  successors.  If the
principal  business,  operations  or a majority  or  substantial  portion of the
assets of Trust or a Seller  are  assigned,  conveyed,  allocated  or  otherwise
transferred, including, by sale, merger, consolidation, amalgamation, conversion
or similar  transactions,  such receiving  Person or Persons will  automatically
become bound by the subject to the  provisions of this  Agreement,  and Trust or
such Seller will cause the receiving  Person or Persons to expressly  assume its
obligations hereunder.

13.4     ASSIGNMENTS

         No  Party  may  assign  either  this  Agreement  or any of its  rights,
interests,  or obligations hereunder without the prior written approval of Buyer
Parties,  Sellers  and Trust;  PROVIDED,  HOWEVER,  that any Buyer Party may (a)
assign any or all of its rights and  interests  hereunder  to one or more of its
Affiliates,  (b)  designate  one  or  more  of its  Affiliates  to  perform  its
obligations hereunder (in any or all of which cases such Buyer Party nonetheless
shall  remain  responsible  for  the  performance  of  all  of  its  obligations
hereunder),  and (c) after the  Closing,  assign  any or all of its  rights  and
interests hereunder to Guggenheim and GMAC CF, as agent.


                                       89



13.5     NOTICES

         All  notices,  requests,   demands,  claims  and  other  communications
hereunder  will be in  writing.  Any  notice,  request,  demand,  claim or other
communication  hereunder  will be  deemed  duly  given if (and  then  three  (3)
business days after) it is sent by registered or certified mail,  return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:

                  If to any Buyer Party and after Closing to Acquired Entities:

                  Attn:    Gerard Guez
                  c/o Tarrant Apparel Group
                  3151 East Washington Boulevard
                  Los Angeles, CA 90023
                  Tel:     (323) 881-0335
                  Fax:     (323) 881-0383

                  Copy to (which will not constitute notice):

                  Stubbs, Alderton & Markiles LLP

                  Attn:    John McIlvery, Esq.
                  Stubbs, Alderton & Markiles LLP
                  15260 Ventura Blvd., 20th Floor
                  Sherman Oaks, CA 91403
                  Tel:     (818) 444-4502
                  Fax:     (818) 444-4520

                  If to Sellers, Trust and before Closing to Acquired Entities:

                  Attn:    Gabriel Bitton
                  400 Sauve West
                  Montreal, Quebec
                  H3L 1Z8
                  Tel:     (514) 388-3551
                  Fax:     (514) 388-1972

                  Copy to (which will not constitute notice):

                  Attn:    Sidney Horn and Serge Tousignant
                  Stikeman Elliott LLP
                  1155 Rene-Levesque Blvd W.
                  40th Floor
                  Montreal, Quebec
                  H3B 3V2
                  Tel:     (514) 397-3000
                  Fax:     (514) 397-3222


                                       90



         Any  Party  may send  any  notice,  request,  demand,  claim,  or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service,  telecopy,  telex,  ordinary  mail,  or electronic  mail),  but no such
notice,  request,  demand,  claim, or other communication will be deemed to have
been duly  given  unless  and until it  actually  is  received  by the  intended
recipient. Any Party may change the address to which notices, requests, demands,
claims,  and other  communications  hereunder  are to be delivered by giving the
other Parties notice in the manner herein set forth.

13.6     SPECIFIC PERFORMANCE

         Each Party  acknowledges  and agrees  that the other  Parties  would be
damaged  irreparably  if any  provision of this  Agreement  is not  performed in
accordance with its specific terms or is otherwise Breached.  Accordingly,  each
Party  agrees  that the other  Parties  will be  entitled  to an  injunction  or
injunctions  to prevent  Breaches of the  provisions  of this  Agreement  and to
enforce  specifically  this Agreement and its terms and provisions in any Action
instituted  in any court  having  jurisdiction  over the Parties and the matter,
subject to SECTIONS  13.7 and 13.11,  in  addition to any other  remedy to which
they may be entitled,  at Law or in equity.

13.7     SUBMISSION TO JURISDICTION; SERVICE OF PROCESS

         (a)      SUBMISSION  TO   JURISDICTION.   Each  Party  submits  to  the
                  exclusive  jurisdiction  of the federal  courts sitting in New
                  York City,  New York, in any Action arising out of or relating
                  to this Agreement and agrees that all claims in respect of the
                  Action shall be heard and  determined in any such court.  Each
                  Party  agrees  that a final  judgment in any Action so brought
                  shall be  conclusive  and may be  enforced  by  Action  on the
                  judgment or in any other manner  provided at Law or in equity.
                  Each Party  waives any  defense of  inconvenient  forum to the
                  maintenance  of any  Action so  brought  and  waives any bond,
                  surety,  or other security that might be required of any other
                  party with respect thereto.

         (b)      WAIVER OF JURY TRIAL.  THE PARTIES  EACH HEREBY AGREE TO WAIVE
                  THEIR  RESPECTIVE  RIGHTS TO JURY TRIAL OF ANY  DISPUTE  BASED
                  UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER  AGREEMENTS
                  RELATING  HERETO OR ANY  DEALINGS  AMONG THEM  RELATING TO THE
                  TRANSACTIONS.  The scope of this  waiver is intended to be all
                  encompassing  of any and all Actions  that may be filed in any
                  court  and  that   relate  to  the   subject   matter  of  the
                  Transactions,  including, Contract claims, tort claims, breach
                  of duty claims, and all other common Law and statutory claims.
                  Each  of  the  Parties  acknowledges  that  this  waiver  is a
                  material inducement to enter into a business  relationship and
                  that they will continue to rely on the waiver in their related
                  future  dealings.  Each Party further  represents and warrants
                  that it has reviewed this waiver with its legal  counsel,  and
                  that each  knowingly  and  voluntarily  waives  its jury trial
                  rights    following    consultation    with   legal   counsel.
                  NOTWITHSTANDING  ANYTHING TO THE CONTRARY HEREIN,  THIS WAIVER
                  IS IRREVOCABLE,  MEANING THAT IT MAY NOT BE MODIFIED ORALLY OR
                  IN  WRITING,  AND THE  WAIVER  WILL  APPLY TO ANY  AMENDMENTS,
                  RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR


                                       91



                  TO ANY OTHER DOCUMENTS OR AGREEMENTS  RELATING HERETO.  In the
                  event of an Action,  this  Agreement may be filed as a written
                  consent to trial by a court.

         (c)      SERVICE OF  PROCESS.  Any Party may make  service on any other
                  Party by sending or  delivering  a copy of the  process to the
                  Party to be served at the address  and in the manner  provided
                  for the giving of notices  in  SECTION  13.7.  Nothing in this
                  SECTION  13.7(C)  shall affect any Party's  right to bring any
                  Action  arising out of or relating  to this  Agreement  in any
                  other  court or to serve  legal  process  in any other  manner
                  permitted at Law or in equity.

13.8     TIME

         Time is of the essence in the performance of this Agreement.

13.9     COUNTERPARTS

         This  Agreement  may be executed in two or more  counterparts,  each of
which will be deemed an original but all of which  together will  constitute one
and the same instrument.

13.10    HEADINGS

         The  article and  section  headings  contained  in this  Agreement  are
inserted  for  convenience  only and will not  affect in any way the  meaning or
interpretation of this Agreement.

13.11    GOVERNING LAW

         This Agreement and the performance of the  Transactions and obligations
of the Parties  hereunder  will be governed by and construed in accordance  with
the laws of the State of New York,  without  giving  effect to any choice of Law
principles.

13.12    AMENDMENTS AND WAIVERS

         No amendment, modification, replacement, termination or cancellation of
any  provision  of this  Agreement  will be  valid,  unless  the same will be in
writing and signed by Buyer and Sellers.  No waiver by any Party of any default,
misrepresentation,   or  breach  of  warranty  or  covenant  hereunder,  whether
intentional or not, may be deemed to extend to any prior or subsequent  default,
misrepresentation,  or Breach of warranty or covenant hereunder or affect in any
way any rights arising because of any prior or subsequent such occurrence.

13.13    SEVERABILITY

         The  provisions  of this  Agreement  will be deemed  severable  and the
invalidity or  unenforceability of any provision will not affect the validity or
enforceability of the other provisions hereof; provided that if any provision of
this Agreement, as applied to any Party or to any circumstance, is adjudged by a
Governmental Body,  arbitrator,  or mediator not to be enforceable in accordance
with its terms, the Parties agree that the  Governmental  Body,  arbitrator,  or
mediator making such  determination  will have the power to modify the provision
in


                                       92



a manner  consistent with its objectives such that it is enforceable,  and/or to
delete  specific words or phrases,  and in its reduced form, such provision will
then be enforceable and will be enforced.

13.14    EXPENSES

         Buyer  Parties  will bear  their own costs  and  expenses  incurred  in
connection with the preparation, execution and performance of this Agreement and
the  Transactions  including  all fees and expenses of agents,  representatives,
financial  advisors,  legal counsel and  accountants.  Seller  Parties costs and
expenses (including any legal fees and expenses of any Seller Party) incurred in
connection with the preparation, execution and performance of this Agreement and
the Transactions shall be borne by Buffalo Inc.

13.15    CONSTRUCTION

         The Parties have  participated  jointly in the negotiation and drafting
of this  Agreement.  If an  ambiguity  or question  of intent or  interpretation
arises,  this Agreement  will be construed as if drafted  jointly by the Parties
and no presumption  or burden of proof will arise  favoring or  disfavoring  any
Party  because  of the  authorship  of any  provision  of  this  Agreement.  Any
reference to any federal,  state,  local,  or foreign Law will be deemed also to
refer to Law as amended and all rules and  regulations  promulgated  thereunder,
unless  the  context  requires  otherwise.   words  "include,"  "includes,"  and
"including" will be deemed to be followed by "without  limitation."  Pronouns in
masculine,  feminine,  and neuter genders will be construed to include any other
gender,  and words in the singular  form will be construed to include the plural
and  vice  versa,  unless  the  context  otherwise  requires.  The  words  "this
Agreement,"  "herein,"  "hereof,"  "hereby,"  "hereunder,"  and words of similar
import refer to this Agreement as a whole and not to any particular  subdivision
unless  expressly so limited.  All  references to "$" shall mean currency of the
United States of America  unless  indicated  otherwise.  The Parties intend that
each  representation,   warranty,   and  covenant  contained  herein  will  have
independent  significance.   If  any  Party  has  breached  any  representation,
warranty,  or  covenant  contained  herein in any  respect,  the fact that there
exists another representation, warranty or covenant relating to the same subject
matter  (regardless of the relative levels of  specificity)  which the Party has
not  breached  will not detract  from or mitigate  the fact that the Party is in
breach of the first representation, warranty, or covenant.

13.16    INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES

         The Exhibits,  Annexes,  Schedules, and other attachments identified in
this Agreement are incorporated herein by reference and made a part hereof.

13.17    JOINT AND SEVERAL OBLIGATIONS

         Notwithstanding  anything  to  the  contrary  in  this  Agreement,  the
covenants and obligations of, and the  representations and warranties made by or
attributable  to, any Seller Party  pursuant to this Agreement will be deemed to
be made by and  attributable  to each Seller Party,  jointly and severally,  and
each Buyer Party will have the right to pursue remedies against Trust and/or one
or more Sellers, or, before Closing, any Seller Party, without any obligation to
give  notice to or pursue all Seller  Parties or to give notice to or pursue any
individual Seller Party before pursuing any other Seller Party.


                                       93



13.18    REMEDIES

         Except as  expressly  provided  herein,  the  rights,  obligations  and
remedies  created by this  Agreement are cumulative and in addition to any other
rights, obligations, or remedies otherwise available at Law or in equity. Except
as expressly  provided herein,  nothing herein will be considered an election of
remedies.

13.19    ELECTRONIC SIGNATURES

         (a)      Notwithstanding  the  Electronic   Signatures  in  Global  and
                  National  Commerce  Act (15 U.S.C.  Sec.  7001  et.seq.),  the
                  Uniform Electronic Transactions Act, or any other Law relating
                  to  or  enabling  the  creation,   execution,   delivery,   or
                  recordation of any Contract or signature by electronic  means,
                  and  notwithstanding  any course of conduct  engaged in by the
                  Parties,   no  Party  will  be  deemed  to  have   executed  a
                  Transaction  Document or other document  contemplated  thereby
                  (including any amendment or other change  thereto)  unless and
                  until such Party shall have executed such Transaction Document
                  or other document on paper by a handwritten original signature
                  or any  other  symbol  executed  or  adopted  by a Party  with
                  current intention to authenticate such Transaction Document or
                  such other document contemplated.

         (b)      Delivery  of a copy of a  Transaction  Document  or such other
                  document   bearing  an   original   signature   by   facsimile
                  transmission  (whether  directly from one facsimile  device to
                  another by means of a dial-up  connection or whether  mediated
                  by  the  worldwide  web),  by  electronic  mail  in  "portable
                  document  format"  (".pdf")  form, or by any other  electronic
                  means intended to preserve the original  graphic and pictorial
                  appearance  of a  document,  will  have  the  same  effect  as
                  physical  delivery of the paper document  bearing the original
                  signature.  "Originally signed" or "original  signature" means
                  or refers to a  signature  that has not been  mechanically  or
                  electronically reproduced.


                    (SIGNATURES CONTINUE ON FOLLOWING PAGES)


                                       94



         IN WITNESS  WHEREOF,  the Parties have executed  this  Agreement on the
date first above written.

                                    TARRANT APPAREL GROUP

                                    By:      /s/ Gerard Guez
                                             -----------------------------------
                                    Name:    Gerard Guez
                                             -----------------------------------
                                    Title:   Chief Executive Officer
                                             -----------------------------------


                                    4366883 CANADA INC.

                                    By:      /s/ Gerard Guez
                                             -----------------------------------
                                    Name:    Gerard Guez
                                             -----------------------------------
                                    Title:   Chief Executive Officer
                                             -----------------------------------


                                    BUFFALO INTERNATIONAL INC.

                                    By:      /s/ Gilbert Bitton
                                             -----------------------------------
                                    Name:    Gilbert Bitton
                                             -----------------------------------
                                    Title:   President
                                             -----------------------------------


                                    3681441 CANADA INC.

                                    By:      /s/ Gilbert Bitton
                                             -----------------------------------
                                    Name:    Gilbert Bitton
                                             -----------------------------------
                                    Title:   President
                                             -----------------------------------


                                    BUFFALO CORPORATION

                                    By:      /s/ Gilbert Bitton
                                             -----------------------------------
                                    Name:    Gilbert Bitton
                                             -----------------------------------
                                    Title:   President
                                             -----------------------------------


                     (SIGNATURES CONTINUE ON FOLLOWING PAGE)


                                      S-1



                             (SIGNATURES CONTINUED)


                                    4183517 CANADA INC.

                                    By:      /s/ Gilbert Bitton
                                             -----------------------------------
                                    Name:    Gilbert Bitton
                                             -----------------------------------
                                    Title:   President
                                             -----------------------------------


                                    3979512 CANADA INC.

                                    By:      /s/ Gilbert Bitton
                                             -----------------------------------
                                    Name:    Gilbert Bitton
                                             -----------------------------------
                                    Title:   President
                                             -----------------------------------


                                    THE BUFFALO TRUST

                                    By:      BFL MANAGEMENT INC.
                                    Title:   TRUSTEE

                                             By:      /s/ Martin Rochwerg
                                                      --------------------------
                                             Name:    Martin Rochwerg
                                                      --------------------------
                                             Title:   Director
                                                      --------------------------


                                      S-2



                                    EXHIBIT B



                              FAIRNESS OPINION FOR
                             TARRANT APPAREL GROUP



                                      B-1



December 6, 2006                                    File Reference:  31-11-21739

Tarrant Apparel Group
3157 East Washington Blvd.
Los Angeles, CA 90023

Dear Ladies and Gentlemen:

It is our  understanding  that Tarrant  Apparel  Group  (herein  referred as the
Company or the Buyer) has offered to purchase the following  entities and assets
which  comprise The Buffalo Group from the owners  thereof:  (i) 3681441  Canada
Inc., a corporation  incorporated  under the CANADA BUSINESS  CORPORATION'S  ACT
("CBCA") ("368 Canada"); (ii) Buffalo Inc., a corporation incorporated under the
CBCA ("Buffalo  Inc.");  (iii) 3163946  Canada Inc., a corporation  incorporated
under the CBCA ("316 Canada"); (iv) Buffalo Corporation,  a Delaware corporation
("Buffalo US" and, together with 368 Canada,  Buffalo Inc., and 316 Canada, each
a "Target  Company" and collectively  the "Target  Companies"),  and (v) certain
assets of The  Buffalo  Trust  ("Trust").  The  proposed  purchase of the Target
Companies and the assets of Trust is referred to herein as the "Transaction."

As part of the Transaction you have requested Marshall & Stevens, Inc. (Marshall
Stevens) to prepare a Fairness Opinion (the Opinion) on behalf of the Company.

You have  requested  our  Opinion as to whether the  Transaction  is fair from a
financial  point of view,  pursuant to the terms and conditions set forth in the
Stock and Asset Purchase Agreement (the "Agreement"), dated December 1, 2006, by
and among Buyer, 4366883 Canada Inc., a corporation incorporated under the CBCA,
the Target  Companies,  Buffalo  Management  Inc.  in its  capacity  as the sole
trustee of Trust,  and each  stockholder  of Target  Companies  ("Sellers"  and,
together with Target  Companies and Trust,  the "Seller  Parties").  We have not
been  engaged to give  advice on whether  the  shareholders  should  approve the
Buyer's  offer,  nor  have we been  requested  to seek or  identify  alternative
business strategies and no such advice or alternative business strategy is given
or provided. The date of this Opinion is December 6, 2006.

In arriving at our Opinion,  we made such  reviews,  analyses  and  inquiries of
other  information  as we deemed  necessary  and  appropriate,  such as, but not
limited to:

         1.       The Agreement;


                                      B-2

                                                           Tarrant Apparel Group
                                                                December 6, 2006
                                                                          Page 2


         2.       Audited  financial  statements  for the  fiscal  year ends and
                  unaudited financial statements for the interim periods for all
                  three entities of Buffalo Group. We reviewed audited financial
                  statements  for the  fiscal  years  ended  December  31,  2002
                  through  the nine  months  ended  2006 for  Buffalo de France,
                  financial  statements for fiscal years ended December 31, 2003
                  through the eight  months  ended 2007 for  Buffalo  Canada and
                  financial  statements  for the fiscal years ended December 31,
                  2002 through the nine months ended 2006 for Buffalo Inc; and

         3.       Audited  combined  balance  sheets and  statements  of income,
                  changes in stockholders'  equity,  and cash flow as of and for
                  the fiscal years ended  December  31, 2003,  December 31, 2004
                  and  December 31, 2005 (the "MOST RECENT YEAR END") for Target
                  Companies    (consolidated    with   each   Target   Company's
                  Subsidiaries) and Trust; and

         4.       Unaudited  combined  balance  sheets and statements of income,
                  changes in stockholders'  equity,  and cash flow as of and for
                  the nine months ended  September 30, 2006 (the "BALANCE  SHEET
                  DATE") for Target  Companies  (consolidated  with each  Target
                  Company's  Subsidiaries)  and Trust  (the  "INTERIM  FINANCIAL
                  STATEMENTS").

         5.       Various product brochures and other literature relative to the
                  Target Companies.

In addition to reviewing the above information, we have among other things:

         1.       Considered  the  nature  of  The  Buffalo  Group's   business,
                  history,  earnings before interest and taxes, depreciation and
                  amortization  (EBITDA),  earnings  before  interest  and taxes
                  (EBIT),  revenue,  book  capital,  and  total  assets  for the
                  inclusive  fiscal  years  2002  through  2005  and the  latest
                  interim periods;

         2.       Analyzed  financial  statements,  prices  and other  materials
                  regarding  guideline  publicly traded  companies in the retail
                  and  apparel  industry;  required  rates of return on debt and
                  equity capital;  materials discussing the economic outlook, in
                  general;  and the specific  outlook for the retail and apparel
                  industry; and such other material as we deemed appropriate;

         3.       Analyzed  the  financial  terms  and  operating   results  and
                  financial  condition  of  companies,  to the  extent  publicly
                  available, involved in certain recent business combinations in
                  the retail and apparel industry;


                                      B-3

                                                           Tarrant Apparel Group
                                                                December 6, 2006
                                                                          Page 3


         4.       Compared certain statistical and financial  information of The
                  Buffalo Group with similar  information for certain  guideline
                  publicly traded companies in the retail and apparel industry;

         5.       Compared certain statistical and financial  information of The
                  Buffalo  Group  with  similar   information  for  mergers  and
                  acquisitions transactions in the retail and apparel industry;

         6.       Visited The Buffalo Group's headquarters in Montreal,  Canada,
                  and conducted interviews with management and relied upon their
                  representations    concerning   the   operations,    financial
                  condition,  future  prospects,  and projected  operations  and
                  performance of The Buffalo Group;

         7.       Visited  the  Buyer's  headquarters  in Los  Angeles,  CA, and
                  conducted  interviews  with  management  and relied upon their
                  representations    concerning   the   operations,    financial
                  condition,  future  prospects,  and projected  operations  and
                  performance of The Buffalo Group; and

         8.       Conducted   such  other   financial   studies,   analyses  and
                  inquiries,  and  considered  such  other  matters as we deemed
                  necessary and appropriate for our Opinion.

In rendering our Opinion,  we have not  independently  verified the accuracy and
completeness of the financial  information or other information furnished by The
Buffalo Group orally or in writing, or other information  obtained from publicly
available  sources.  We reviewed most current and best  available  estimates and
judgments of the  management  of The Buffalo  Group,  as to the expected  future
financial and operating  performance of The Buffalo Group, and did not undertake
any  obligation to assess  whether such  forecasts,  estimates or judgments were
reasonable or were likely to be accurate,  nor did we undertake  any  obligation
independently to verify the underlying  assumptions made in connection with such
forecasts,  estimates or judgments.  In addition, we did not make an independent
valuation or appraisal of any  particular  assets or  liabilities of The Buffalo
Group. Our Opinion is based on business,  economic,  market and other conditions
as they exist as of the date of this  Opinion.  We have assumed that the factual
circumstances  agreements and terms,  as they exist at the date of this Opinion,
will  remain  substantially  unchanged  through  the  time  the  Transaction  is
completed.  Marshall  Stevens  did not  (i)  opine  as to the tax or  accounting
treatment of the  Transaction  or any related  matter  thereto,  (ii) assess the
impact of compliance with any labor laws,  including  without  limitations,  the
federal Warn Act, or (iii) rely upon any third party  appraisals  in arriving at
this Opinion.


                                      B-4

                                                           Tarrant Apparel Group
                                                                December 6, 2006
                                                                          Page 4


This Opinion has been prepared solely for the benefit of the Buyer in connection
with the  Transaction and may not be quoted,  published,  used or referred to in
whole or in part, in connection  with the  Transaction  or for any other purpose
without Marshall Stevens' prior written consent; provided that, this Opinion may
be  included  in the proxy  statement  sent by the  Company to its  shareholders
concerning the  Transaction so long as the Opinion is reproduced in full in such
proxy  statement  and any  summary  of the  Opinion  in the proxy  statement  is
reasonably  acceptable  to  Marshall  Stevens.  Our fee for this  Opinion is not
contingent  upon our  conclusion  regarding  the  fairness of the  consideration
received by the public shareholders.


Based  upon the  foregoing  and upon such  other  factors  as  deemed  relevant,
including the attached  assumptions and limiting  conditions,  it is our Opinion
that, as of the date of this Opinion, the transaction is fair to the Buyer, from
a financial  point of view,  pursuant to the terms and subject to the conditions
set forth in the Agreement.


Very truly yours,

/s/ Marshall & Stevens Incorporated
-----------------------------------
MARSHALL & STEVENS INCORPORATED

31-11-21739


                                      B-5



                       ASSUMPTIONS AND LIMITING CONDITIONS


TITLE
No  investigation  of legal  title was made,  and we  render  no  opinion  as to
ownership of The Buffalo Group (the Seller) or the underlying assets.

DATE OF VALUE
The date of this  Opinion is December  6, 2006.  The dollar  amount  reported is
based on the  purchasing  power of the U.S.  dollar as of that date. The analyst
assumes no responsibility for economic or physical factors occurring  subsequent
to the date of this Opinion that may affect the Opinion reported.

VISITATION
The Buffalo Group was visited by senior analysts of Marshall  Stevens.  When the
date of our visit  differs from the date of our  Opinion,  we assume no material
change in the  operations of The Buffalo Group or the  underlying  assets unless
otherwise noted in the report.

NON-VALUATION EXPERTISE
No opinion is  intended  to be  expressed  for  matters  that  require  legal or
specialized  expertise,  investigation,  or  knowledge  beyond that  customarily
employed by financial analysts.

INFORMATION AND DATA
Information  supplied by others  that was  considered  in this  analysis is from
sources believed to be reliable,  and no further  responsibility  is assumed for
its  accuracy.  We reserve  the right to make such  adjustments  to the  Opinion
herein  reported  based upon  consideration  of additional or more reliable data
that may become available subsequent to the issuance of this Opinion.

LITIGATION SUPPORT
Depositions, expert testimony, attendance in court, and all preparations/support
for same arising from this Opinion shall not be required unless arrangements for
such services have been previously made.

MANAGEMENT
The Opinion  expressed  herein assumes the  continuation  of prudent  management
policies  over  whatever  period of time is deemed  reasonable  and necessary to
maintain the  character  and  integrity of The Buffalo  Group or the  underlying
assets.

PURPOSE
We have presented  Marshall Stevens'  considered  Opinion based on the facts and
data  obtained  during the course of this  investigation.  This Opinion has been
prepared for the sole purpose  stated herein and shall not be used for any other
purpose.


                                      B-6



UNEXPECTED CONDITIONS
We  assume  there are no hidden or  unexpected  conditions  associated  with The
Buffalo Group or the underlying  assets that might  adversely  affect value.  We
also assume no  responsibility  for changes in market condition that may require
an adjustment to our Opinion.

HAZARDOUS SUBSTANCES
Hazardous substances,  if present within a business,  can introduce an actual or
potential liability that may adversely affect the marketability and value of The
Buffalo Group or the underlying  assets.  In this Opinion,  no consideration has
been given to such liability or its impact on value.

CONTINGENT LIABILITIES
Our conclusions do not consider the impact of any contingent  liabilities of The
Buffalo  Group,  either  known or unknown.  According to the  Management  of the
Buyer, as of the date of this Opinion, there were no contingent liabilities that
were considered material.

FUTURE EVENTS/PROJECTIONS
The reader is advised that this Opinion is heavily  dependent upon future events
with respect to industry  performance,  economic conditions,  and the ability of
The Buffalo Group to meet certain operating  projections.  In this Opinion,  the
operating  projections  have been  developed  from  information  supplied by the
Management  of  the  Buyer.  The  operating   projections   incorporate  various
assumptions  including,  but not limited to, net sales, net sales growth, profit
margins,  income taxes,  depreciation,  capital  expenditures,  working  capital
levels,  and  discount  rates,  all of which are  critical to the  Opinion.  The
operating  projections are deemed to be reasonable and valid at the date of this
Opinion;  however,  there is no assurance or implied  guarantee that the assumed
facts will be  validated  or that the  circumstances  will  actually  occur.  We
reserve the right to make  adjustments to this Opinion herein reported as may be
required by any  modifications in the prospective  outlook for the economy,  the
industry, and/or the operations of The Buffalo Group.


                                      B-7



                                    EXHIBIT C


                         CHAPTER 13. DISSENTERS' RIGHTS

1300. Reorganization or short-form merger; dissenting shares; corporate purchase
at fair market value; definitions

   (a) If the approval of the outstanding  shares (Section 152) of a corporation
is required for a reorganization  under  subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the  transaction  and  each  shareholder  of a  subsidiary  corporation  in a
short-form  merger may, by complying with this chapter,  require the corporation
in which the shareholder  holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in  subdivision  (b).  The fair market value shall be  determined  as of the day
before the first  announcement  of the terms of the proposed  reorganization  or
short-form merger,  excluding any appreciation or depreciation in consequence of
the proposed action,  but adjusted for any stock split,  reverse stock split, or
share dividend which becomes effective thereafter.

   (b) As used in this  chapter,  "dissenting  shares"  means  shares which come
within all of the following descriptions:

     (1) Which were not immediately  prior to the  reorganization  or short-form
merger either (A) listed on any national  securities  exchange  certified by the
Commissioner  of  Corporations  under  subdivision  (o) of Section  25100 or (B)
listed on the list of OTC margin  stocks issued by the Board of Governors of the
Federal  Reserve  System,  and the notice of meeting of shareholders to act upon
the  reorganization  summarizes  this section and Sections 1301,  1302, 1303 and
1304; provided,  however,  that this provision does not apply to any shares with
respect  to which  there  exists  any  restriction  on  transfer  imposed by the
corporation  or by any law or  regulation;  and  provided,  further,  that  this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for  payment  are filed with  respect to 5 percent or more of the
outstanding shares of that class.

     (2)  Which  were   outstanding  on  the  date  for  the   determination  of
shareholders  entitled to vote on the  reorganization  and (A) were not voted in
favor of the  reorganization  or, (B) if described in subparagraph (A) or (B) of
paragraph  (1) (without  regard to the provisos in that  paragraph),  were voted
against the  reorganization,  or which were held of record on the effective date
of a short-form merger;  provided,  however,  that sub-paragraph (A) rather than
subparagraph  (B) of this  paragraph  applies  in any case  where  the  approval
required by Section 1201 is sought by written consent rather than at a meeting.

     (3) Which the  dissenting  shareholder  has demanded  that the  corporation
purchase at their fair market value, in accordance with Section 1301.

     (4) Which the  dissenting  shareholder  has submitted for  endorsement,  in
accordance with Section 1302.

   (c) As used in this chapter,  "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.

1301.  Notice to holders of  dissenting  shares in  reorganizations;  demand for
purchase; time; contents

   (a) If, in the case of a  reorganization,  any  shareholders of a corporation
have a right under Section 1300,  subject to compliance  with paragraphs (3) and
(4) of  subdivision  (b) thereof,  to require the  corporation to purchase their
shares for cash, such  corporation  shall mail to each such shareholder a notice
of the approval of the  reorganization  by its outstanding  shares (Section 152)
within  10  days  after  the  date of such  approval,  accompanied  by a copy of
Sections  1300,  1302,  1303,  1304 and this  section,  a statement of the price
determined  by the  corporation  to  represent  the  fair  market  value  of the
dissenting  shares,  and a brief  description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price  constitutes  an offer by the  corporation to purchase at
the price stated any dissenting  shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.

   (b) Any  shareholder  who has a right to require the  corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs  (3)  and  (4) of  subdivision  (b)  thereof,  and  who  desires  the
corporation  to  purchase  such  shares  shall  make  written  demand  upon  the
corporation  for the purchase of such shares and payment to the  shareholder  in
cash of their fair market  value.  The demand is not  effective  for any purpose
unless it is received by the  corporation  or any transfer  agent thereof (1) in
the  case  of  shares  described  in  clause  (i) or (ii)  of  paragraph  (1) of
subdivision  (b) of  Section  1300  (without  regard  to the  provisos  in  that
paragraph),  not later than the date of the  shareholders'  meeting to vote upon
the  reorganization,  or (2) in any other case  within 30 days after the date on


                                      C-1



which  the  notice  of  the  approval  by the  outstanding  shares  pursuant  to
subdivision  (a) or the notice  pursuant to subdivision  (i) of Section 1110 was
mailed to the shareholder.

   (c) The demand  shall state the number and class of the shares held of record
by the shareholder which the shareholder  demands that the corporation  purchase
and shall  contain a statement  of what such  shareholder  claims to be the fair
market  value of those  shares  as of the day  before  the  announcement  of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.

1302.   Submission  of  share   certificates  for  endorsement;   uncertificated
securities

   Within  30 days  after  the  date on  which  notice  of the  approval  by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the  shareholder,  the shareholder  shall submit to the corporation at
its principal office or at the office of any transfer agent thereof,  (a) if the
shares are certificated securities,  the shareholder's certificates representing
any shares which the shareholder  demands that the corporation  purchase,  to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the  shareholder  demands that the  corporation  purchase.  Upon
subsequent  transfers of the dissenting  shares on the books of the corporation,
the  new  certificates,   initial  transaction  statement,   and  other  written
statements  issued therefor shall bear a like statement,  together with the name
of the original dissenting holder of the shares.

1303. Payment of agreed price with interest; agreement fixing fair market value;
filing; time of payment

   (a) If the  corporation  and  the  shareholder  agree  that  the  shares  are
dissenting  shares  and  agree  upon the  price of the  shares,  the  dissenting
shareholder  is entitled to the agreed price with interest  thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.

   (b) Subject to the  provisions  of Section  1306,  payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual  conditions
to the  reorganization  are  satisfied,  whichever is later,  and in the case of
certificated  securities,  subject to  surrender of the  certificates  therefor,
unless provided otherwise by agreement.

1304.  Action to determine  whether shares are dissenting  shares or fair market
value; limitation; joinder; consolidation;  determination of issues; appointment
of appraisers

   (a) If the corporation  denies that the shares are dissenting  shares, or the
corporation and the shareholder  fail to agree upon the fair market value of the
shares,  then the  shareholder  demanding  purchase of such shares as dissenting
shares or any interested corporation,  within six months after the date on which
notice  of the  approval  by the  outstanding  shares  (Section  152) or  notice
pursuant to subdivision (i) of Section 1110 was mailed to the  shareholder,  but
not thereafter,  may file a complaint in the superior court of the proper county
praying the court to determine  whether the shares are dissenting  shares or the
fair  market  value of the  dissenting  shares or both or may  intervene  in any
action pending on such a complaint.

   (b) Two or more dissenting  shareholders  may join as plaintiffs or be joined
as  defendants  in  any  such  action  and  two  or  more  such  actions  may be
consolidated.

   (c) On the trial of the action,  the court shall determine the issues. If the
status of the shares as  dissenting  shares is in issue,  the court  shall first
determine that issue.  If the fair market value of the  dissenting  shares is in
issue,  the  court  shall  determine,  or shall  appoint  one or more  impartial
appraisers to determine, the fair market value of the shares.

1305.  Report of appraisers;  confirmation;  determination  by court;  judgment;
payment; appeal; costs

   (a) If the court  appoints an appraiser  or  appraisers,  they shall  proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court,  the appraisers,  or a majority of them, shall make and file a report
in the office of the clerk of the court.  Thereupon, on the motion of any party,
the report shall be submitted to the court and  considered  on such  evidence as
the court  considers  relevant.  If the court finds the report  reasonable,  the
court may confirm it.

   (b) If a majority of the appraisers  appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be  allowed by the court or the report is not  confirmed  by the court,  the
court shall determine the fair market value of the dissenting shares.


                                       C-2



   (c) Subject to the  provisions  of Section 1306,  judgment  shall be rendered
against the  corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting  shareholder who is a party,  or who has  intervened,  is entitled to
require the  corporation  to purchase,  with interest  thereon at the legal rate
from the date on which judgment was entered.

   (d)  Any  such  judgment   shall  be  payable   forthwith   with  respect  to
uncertificated  securities  and, with respect to certificated  securities,  only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.

   (e)  The  costs  of the  action,  including  reasonable  compensation  to the
appraisers  to be fixed by the court,  shall be assessed or  apportioned  as the
court considers  equitable,  but, if the appraisal  exceeds the price offered by
the  corporation,  the  corporation  shall  pay  the  costs  (including  in  the
discretion of the court  attorneys'  fees, fees of expert witnesses and interest
at the legal rate on judgments  from the date of compliance  with Sections 1300,
1301 and 1302 if the value  awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).

1306. Prevention of immediate payment; status as creditors; interest

   To the extent  that the  provisions  of Chapter 5 prevent  the payment to any
holders of  dissenting  shares of their fair  market  value,  they shall  become
creditors of the  corporation  for the amount thereof  together with interest at
the legal rate on judgments  until the date of payment,  but  subordinate to all
other  creditors  in any  liquidation  proceeding,  such debt to be payable when
permissible under the provisions of Chapter 5.

1307. Dividends on dissenting shares

   Cash  dividends  declared  and paid by the  corporation  upon the  dissenting
shares  after the date of  approval  of the  reorganization  by the  outstanding
shares  (Section  152) and prior to payment  for the  shares by the  corporation
shall  be  credited  against  the  total  amount  to be paid by the  corporation
therefor.

1308. Rights of dissenting shareholders pending valuation;  withdrawal of demand
for payment

   Except as expressly  limited in this chapter,  holders of  dissenting  shares
continue to have all the rights and privileges  incident to their shares,  until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder  may not  withdraw  a demand  for  payment  unless  the  corporation
consents thereto.

1309. Termination of dissenting share and shareholder status

   Dissenting  shares  lose their  status as  dissenting  shares and the holders
thereof cease to be dissenting  shareholders and cease to be entitled to require
the  corporation  to  purchase  their  shares upon the  happening  of any of the
following:

   (a) The  corporation  abandons the  reorganization.  Upon  abandonment of the
reorganization,   the  corporation   shall  pay  on  demand  to  any  dissenting
shareholder  who has initiated  proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.

   (b) The shares are transferred  prior to their  submission for endorsement in
accordance  with Section 1302 or are  surrendered  for conversion into shares of
another class in accordance with the articles.

   (c) The  dissenting  shareholder  and the  corporation  do not agree upon the
status of the  shares as  dissenting  shares or upon the  purchase  price of the
shares,  and neither  files a complaint  or  intervenes  in a pending  action as
provided in Section  1304,  within six months  after the date on which notice of
the approval by the outstanding  shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.

   (d)  The  dissenting  shareholder,  with  the  consent  of  the  corporation,
withdraws the shareholder's demand for purchase of dissenting shares.

1310. Suspension of right to compensation or valuation  proceedings;  litigation
of shareholder's approval

   If  litigation is  instituted  to test the  sufficiency  or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections  1304 and 1305 shall be  suspended  until final  determination  of such
litigation.

1311. Exempt shares


                                       C-3



   This chapter,  except Section 1312, does not apply to classes of shares whose
terms and provisions  specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.

1312. Right of dissenting  shareholder to attack, set aside or rescind merger or
reorganization; restraining order or injunction; conditions

   (a) No  shareholder  of a  corporation  who has a right under this chapter to
demand  payment of cash for the shares  held by the  shareholder  shall have any
right at law or in  equity to  attach  the  validity  of the  reorganization  or
short-form  merger, or to have the reorganization or short-form merger set aside
or rescinded,  except in an action to test whether the number of shares required
to authorize  or approve the  reorganization  have been  legally  voted in favor
thereof;  but any  holder  of  shares  of a class  whose  terms  and  provisions
specifically  set forth the amount to be paid in respect to them in the event of
a reorganization  or short-form merger is entitled to payment in accordance with
those terms and provisions,  or if the principal terms of the reorganization are
approved  pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.

   (b) If one of  the  parties  to a  reorganization  or  short-form  merger  is
directly or indirectly  controlled  by, or under common  control  with,  another
party to the  reorganization  or short-form  merger,  subdivision  (a) shall not
apply to any shareholder of such party who has not demanded  payment of cash for
such  shareholder's  shares  pursuant to this  chapter;  but if the  shareholder
institutes any action to attack the validity of the reorganization or short-form
merger  or to  have  the  reorganization  or  short-form  merger  set  aside  or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's  shares pursuant to this chapter. The court in any
action attacking the validity of the  reorganization  or short-form merger or to
have the  reorganization or short-form set aside or rescinded shall not restrain
or enjoin the consummation of the transaction  except upon 10 days' prior notice
to the corporation  and upon a determination  by the court that clearly no other
remedy will  adequately  protect  the  complaining  shareholder  or the class of
shareholders of which such shareholder is a member.

   (c) If one of  the  parties  to a  reorganization  or  short-form  merger  is
directly or indirectly  controlled  by, or under common  control  with,  another
party to the  reorganization  or short-form  merger, in any action to attack the
validity  of  the   reorganization   or   short-form   merger  or  to  have  the
reorganization  or short-form  merger set aside or  rescinded,  (1) a party to a
reorganization  or  short-form  merger  which  controls  another  party  to  the
reorganization  or  short-form  merger shall have the burden of proving that the
transaction  is just and  reasonable as to the  shareholders  of the  controlled
party,  and (2) a person who controls  two or more  parties to a  reorganization
shall have the burden of proving that the  transaction is just and reasonable as
to the shareholders of any party so controlled.


                                      C-4



                                    EXHIBIT D



THE BUFFALO GROUP

COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)


                                      D-1



THE BUFFALO GROUP


COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)


CONTENTS


Report of Independent Registered Public Accounting Firm .......................1

Combined Balance Sheets .......................................................2

Combined Statements of Shareholders' Equity ...................................3

Combined Statements of Earnings ...............................................4

Combined Statements of Cash Flows .........................................5 - 6

Notes to Combined Financial Statements ...................................7 - 28


                                      D-2



                                         RSM RICHTER S.E.N.C.R.L.
                                         COMPTABLES AGREES
                                         CHARTERED ACCOUNTANTS
                                         2, Place Alexis Nihon
                                         Montreal (Quebec) H3Z 3C2
                                         Telephone / Telephone : (514)934-3400
                                         Telecopieur / Facsimile : (514)934-3408
                                         www.rsmrichter.com


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Directors of
THE BUFFALO GROUP

We have audited the accompanying combined balance sheets of The Buffalo Group as
at  December  31,  2005  and  2004  and the  combined  statements  of  earnings,
shareholders'  equity  and cash  flows for the three  years  then  ended.  These
combined   financial   statements  are  the  responsibility  of  the  Companies'
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audit in accordance with Canadian  generally  accepted auditing
standards and the  standards of the Public  Accounting  Oversight  Board (United
States).  Those  standards  require  that we plan and perform an audit to obtain
reasonable  assurance  whether  the  financial  statements  are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  these combined  financial  statements  present  fairly,  in all
material  respects,  the financial  position of The Buffalo Group as at December
31, 2005 and 2004 and the results of their  operations  and their cash flows for
the three  years then  ended in  accordance  with  Canadian  generally  accepted
accounting principles.

Generally accepted accounting principles in Canada vary in certain respects from
generally accepted  accounting  principles in the United States of America.  The
Buffalo Group has disclosed the effect of the  significant  differences  between
the  Buffalo  Group's  accounting  policies  and the  application  of  generally
accepted  accounting  principles  in the  United  States  of  America  on  Other
Comprehensive  Income  for each of the  years  in the  three-year  period  ended
December 31, 2005 and on the liabilities and shareholders' equity as of December
31, 2005 and 2004 in note 16 to the combined financial statements.


CHARTERED ACCOUNTANTS

Montreal, Quebec
April 6, 2006
(Except for note 17, which is dated December 6, 2006)


                                      D-3




THE BUFFALO GROUP
COMBINED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)

                                                 AS AT
                                             SEPTEMBER 30,         AS AT DECEMBER 31,
                                                 2006        ----------------------------
                                             (UNAUDITED)         2005            2004
                                             ------------    ------------    ------------
                                                                    
ASSETS
CURRENT
  Cash ...................................   $  1,277,044    $    485,093    $    692,432
  Accounts receivable ....................     16,835,117      19,357,147      14,462,464
  Inventory ..............................     22,100,036      16,656,830      16,524,677
  Royalties receivable ...................      1,852,711         679,603         876,855
  Prepaid expenses .......................        444,369         191,549          56,291
  Income taxes receivable ................        442,835            --              --
                                             ------------    ------------    ------------

                                               42,952,112      37,370,222      32,612,719
PROPERTY AND EQUIPMENT (note 3) ..........      9,944,087       7,393,340       7,016,807
LOANS RECEIVABLE (note 4) ................      1,743,413       2,346,235       3,180,192
LICENSES (note 5) ........................     18,948,340      20,148,383      21,837,075
FUTURE INCOME TAXES ......................      1,306,000         448,000         194,000
                                             ------------    ------------    ------------

                                             $ 74,893,952    $ 67,706,180    $ 64,840,793
                                             ============    ============    ============
LIABILITIES
CURRENT
  Bank indebtedness (note 6) .............     17,938,768      10,519,592      12,396,905
  Accounts payable and accrued liabilities      8,439,563       9,741,317      10,067,334
  Income taxes payable ...................           --         1,747,664         909,571
  Royalties payable ......................           --              --         1,614,255
  Interest payable .......................        671,021       5,159,072       2,495,840
                                             ------------    ------------    ------------

                                               27,049,352      27,167,645      27,483,905
LOANS PAYABLE (note 7) ...................     31,527,719      26,492,226      31,206,688
DEFERRED LEASE INDUCEMENTS ...............        386,726         463,211         452,414
DEFERRED LEASE OBLIGATION ................        491,500         482,977         385,949
DEFERRED TENANT ALLOWANCES ...............        907,145         673,333         570,261
RETRACTABLE SHARES (note 9) ..............      5,232,607       5,028,527       4,865,354
                                             ------------    ------------    ------------

TOTAL LIABILITIES ........................     65,595,049      60,307,919      64,964,571
                                             ============    ============    ============

COMMITMENTS AND CONTINGENCIES (note 8)
SHAREHOLDERS' EQUITY

CUMULATIVE TRANSLATION ADJUSTMENT ........     (4,337,658)     (3,856,135)     (3,471,913)

CAPITAL STOCK (note 10) ..................      5,472,721       5,472,715             352

RETAINED EARNINGS ........................      8,163,840       5,781,681       3,347,783
                                             ------------    ------------    ------------
                                                9,298,903       7,398,261        (123,778)
                                             ------------    ------------    ------------
                                             $ 74,893,952    $ 67,706,180    $ 64,840,793
                                             ============    ============    ============


See accompanying notes

APPROVED ON BEHALF OF THE BOARD:

                               Director
-------------------------------


                                       D-4




THE BUFFALO GROUP
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIODS ENDED
(EXPRESSED IN U.S. DOLLARS)

                                               Retained     Cumulative
                                 Capital       Earnings     Translation
                                  Stock       (Deficit)      Adjustment       TOTAL
                               -----------   -----------    -----------    -----------
                                                               
BALANCE - JANUARY 1, 2003 ..   $       227   $  (933,047)   $  (126,493)   $(1,059,313)

Net earnings for the year
  ended December 31, 2003 ..          --       2,763,159           --        2,763,159
Currency translation .......            29          --       (2,309,372)    (2,309,343)
Issuance of common stock ...            77          --             --               77
                               -----------   -----------    -----------    -----------

BALANCE - DECEMBER 31, 2003            333     1,830,112     (2,435,865)      (605,420)

Net earnings for the year
  ended December 31, 2004 ..          --       1,517,671           --        1,517,671
Currency translation .......            19          --       (1,036,048)    (1,036,029)
                               -----------   -----------    -----------    -----------

BALANCE - DECEMBER 31, 2004            352     3,347,783     (3,471,913)      (123,778)

Net earnings for the year
  ended December 31, 2005 ..          --       2,433,898           --        2,433,898
Currency translation .......          --            --         (384,222)      (384,222)
Issuance of common stock ...     5,472,363          --             --        5,472,363
                               -----------   -----------    -----------    -----------

BALANCE - DECEMBER 31, 2005      5,472,715     5,781,681     (3,856,135)     7,398,261

Net earnings for the period
  ended September 30, 2006 .          --       2,382,159           --        2,382,159
Currency translation .......             6          --         (481,523)      (481,517)
                               -----------   -----------    -----------    -----------

BALANCE - SEPTEMBER 30, 2006   $ 5,472,721   $ 8,163,840    $(4,337,658)   $ 9,298,903
                               ===========   ===========    ===========    ===========


See accompanying notes


                                       D-5




THE BUFFALO GROUP
COMBINED STATEMENT OF EARNINGS
(EXPRESSED IN U.S. DOLLARS)


                                     NINE MONTH
                                    PERIOD ENDED                  YEARS ENDED DECEMBER 31,
                                    SEPTEMBER 30,   -----------------------------------------------
                                        2006            2005             2004              2003
                                    (Unaudited)
                                   -------------    -------------    -------------    -------------

                                                                          
SALES ..........................   $  74,792,601    $ 104,071,846    $  87,788,920    $  75,248,392

COST OF SALES ..................      38,770,338       61,155,418       50,222,074       44,746,624
                                   -------------    -------------    -------------    -------------
GROSS PROFIT ...................      36,022,263       42,916,428       37,566,846       30,501,768
                                   -------------    -------------    -------------    -------------

EXPENSES

      Stores ...................       9,012,911       12,256,741       11,471,058        9,366,474
      Selling ..................       9,547,549        9,761,281        8,136,118        8,490,919
      Administrative and general       7,208,633        8,013,285        7,854,156        6,506,071
      Amortization .............       3,465,993        4,291,084        3,713,405        1,638,130
      Interest .................         934,368        1,101,864        1,017,993        1,769,457
      Interest on loan payable .       1,987,147        2,476,474        2,305,445           18,558
      Foreign exchange .........         118,832          216,561             --               --
      Write-off of property and
        equipment ..............          38,671          510,240             --               --
                                   -------------    -------------    -------------    -------------
                                      32,314,104       38,627,530       34,498,175       27,789,609
                                   -------------    -------------    -------------    -------------

EARNINGS BEFORE INCOME TAXES ...       3,708,159        4,288,898        3,068,671        2,712,159

Income taxes
      Current (note 11) ........       2,184,000        2,109,000        1,344,000          350,000
      Future ...................        (858,000)        (254,000)         207,000         (401,000)
                                   -------------    -------------    -------------    -------------
                                       1,326,000        1,855,000        1,551,000          (51,000)
                                   -------------    -------------    -------------    -------------

NET EARNINGS ...................   $   2,382,159    $   2,433,898    $   1,517,671    $   2,763,159
                                   =============    =============    =============    =============


See accompanying notes


                                       D-6




THE BUFFALO GROUP
COMBINED STATEMENT OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)



                                       NINE MONTH
                                      PERIOD ENDED              YEARS ENDED DECEMBER 31,
                                      SEPTEMBER 30,   --------------------------------------------
                                          2006            2005            2004            2003
                                      (Unaudited)
                                      ------------    ------------    ------------    ------------
                                                                          
FUNDS PROVIDED (USED) -

    OPERATING ACTIVITIES
        Net earnings ..............   $  2,382,159    $  2,433,898    $  1,517,671    $  2,763,159
        Future income tax .........       (858,000)       (254,000)        207,000        (401,000)
        Amortization of property
         and equipment ............      1,481,808       1,822,545       1,409,407       1,100,197
        Amortization of licenses ..      1,984,185       2,468,539       2,303,998         537,933
        Amortization of deferred
         lease inducements ........        (90,245)       (131,445)       (100,983)       (103,018)
        Amortization of deferred
         tenant allowances ........        (79,232)        (81,940)        (45,349)        (31,472)
        Loss on disposal of
         property and equipment ...           --              --              --            42,069
        Write-off of property and
         equipment ................         38,671         510,240            --              --
        Write-off of deferred lease
         inducements ..............           --           (24,915)           --           (27,696)
        Deferred tenant allowances         314,114         188,422         321,681         171,585
        Deferred lease obligation .        (10,930)         81,175          62,178         273,394
                                      ------------    ------------    ------------    ------------
                                         5,162,530       7,012,519       5,675,603       4,325,151
        Changes in non-cash
         operating elements of
         working capital (note 13)     (12,327,408)     (3,403,789)     (4,515,998)      2,417,605
                                      ------------    ------------    ------------    ------------
        NET CASH PROVIDED (USED) BY
         OPERATING ACTIVITIES .....     (7,164,878)      3,608,730       1,159,605       6,742,756
                                      ------------    ------------    ------------    ------------
    FINANCING ACTIVITIES
        Bank indebtedness .........      7,419,176      (1,877,313)      2,968,376      (1,255,191)
        Increase in deferred lease
         inducements ..............           --           155,194          17,279         174,433
        Increase (decrease) in
         loans payable ............      4,187,535         (57,867)       (456,234)     22,407,424
                                      ------------    ------------    ------------    ------------
        NET CASH PROVIDED (USED) BY
         FINANCING ACTIVITIEs .....     11,606,711      (1,779,986)      2,529,421      21,326,666
                                      ------------    ------------    ------------    ------------
    INVESTING ACTIVITIES
        Loans receivable ..........        685,271         938,495        (750,541)       (389,240)
        Additions to property and
         equipment ................     (3,706,180)     (2,662,364)     (1,488,713)     (2,703,583)
        Disposal of property and
         equipment ................           --              --              --            42,827
        Additions to trademarks ...           --              --              --       (23,095,863)
                                      ------------    ------------    ------------    ------------
        NET CASH USED IN INVESTING
         ACTIVITIES ...............     (3,020,909)     (1,723,869)     (2,239,254)    (26,145,859)
                                      ------------    ------------    ------------    ------------

    FOREIGN CURRENCY TRANSLATION ..       (628,973)       (312,214)     (1,057,499)     (1,769,773)
                                      ------------    ------------    ------------    ------------



                                       D-7




THE BUFFALO GROUP
COMBINED STATEMENT OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)


                                       NINE MONTH
                                      PERIOD ENDED              YEARS ENDED DECEMBER 31,
                                      SEPTEMBER 30,  --------------------------------------------
                                          2006           2005            2004           2003
                                      (Unaudited)
                                      ------------   ------------    ------------   ------------
                                                                        
INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS ................   $    791,951   $   (207,339)   $    392,273   $    153,790

CASH AND CASH EQUIVALENTS
    BEGINNING OF YEAR .............        485,093        692,432         300,159        146,369
                                      ------------   ------------    ------------   ------------


    END OF YEAR ...................   $  1,277,044   $    485,093    $    692,432   $    300,159
                                      ============   ============    ============   ============


See accompanying notes


                                       D-8



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS AT SEPTEMBER 30, 2006 AND FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


1.       NATURE OF BUSINESS

         The Buffalo Group  consists of the following  companies:  Buffalo Inc.,
         Buffalo  Corporation,  3163946 Canada Inc., 3681441 Canada Inc. and The
         Buffalo Trust.

         The  Buffalo  Group  (the  "Group")  are  importers,   wholesalers  and
         retailers  of casual wear selling to  customers  across  Canada and the
         United States and is a licensor of various trademarks across Canada and
         the United States.


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         These combined  financial  statements  have been prepared in accordance
         with  accounting  principles  generally  accepted in Canada  ("Canadian
         GAAP"). There are certain measurement differences between Canadian GAAP
         and United States generally accepted accounting policies ("U.S. GAAP").
         Differences  which relate to the Buffalo  Group are  summarized in note
         16.

         BASIS OF PRESENTATION

         The combined  financial  statements  reflect the  historical  financial
         position,  results of  operation  and cash flows of the  entities to be
         acquired by Tarrant  Apparel Group ("The Buffalo  Group") and therefore
         these financial  statements comprise of the businesses of Buffalo Inc.,
         Buffalo  Corporation,  3681441 Canada Inc. and The Buffalo  Trust,  who
         have a December 31 year end and 3163946  Canada Inc.  whose fiscal year
         ends on the  Saturday  closest  to January  31st.  On  combination  all
         significant   intercompany   transactions   and   balances   have  been
         eliminated,  except for the balance resulting from the  non-coterminous
         year ends which are  included  in the  combined  accounts  payable  and
         accrued  liabilities in the amount of approximately $Nil, $ 474,000 and
         $157,000 for the period ended  September 30, 2006,  and the years ended
         December 31, 2005 and 2004, respectively.

         INTERIM FINANCIAL STATEMENTS

         The accompanying  unaudited combined financial  statements for the nine
         month period  ended  September  30, 2006 of the Buffalo  Group has been
         prepared in accordance with generally  accepted  accounting  principles
         for interim  financial  reporting  and do not  include all  disclosures
         required by  Canadian  generally  accepted  accounting  principles  for
         annual financial reporting.

         The accompanying  unaudited combined financial  statements of the Group
         reflect all adjustments,  consisting only of normal recurring accruals,
         which  management  considers  necessary  for a  fair  statement  of the
         results of operations for the interim period and is subject to year end
         adjustments.  The results of operations  for the interim  period is not
         necessarily indicative of the results for the full year.

         The  interim  combined  financial  statements  include  the  results of
         operations of the combined  entities for nine months except for 3163946
         Canada Inc. which includes only eight months.


                                       D-9



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS AT SEPTEMBER 30, 2006 AND FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

         USES OF ESTIMATES

         In preparing the Group's financial  statements,  management is required
         to make estimates and assumptions  that affect the reported  amounts of
         assets  and  liabilities,  the  disclosure  of  contingent  assets  and
         liabilities  at the  date  of the  combined  financial  statements  and
         reported  amounts of revenues and expenses during the reporting  period
         because of the use of  estimates  inherent in the  financial  reporting
         process.  Actual results may differ from these  estimates.  Significant
         estimates  in these  financial  statements  include the  allowance  for
         doubtful  accounts,  recovery of future income taxes,  useful lives and
         impairment of long-lived assets and fair value for disclosure purposes.

         CASH AND CASH EQUIVALENTS

         Cash  and cash  equivalents  include  highly  liquid  investments  with
         original maturities of three months or less when purchased.

         REVENUE RECOGNITION

         Revenue  from  wholesale  product  sales is  recognized  at the time of
         shipment of goods to customers,  when title passes,  the sales price is
         fixed or determinable and  collectibility  is reasonably  assured.  The
         Group accrues for estimated  sales returns and other  allowances in the
         period in which the related revenue is recognized.

         Sales of products from the Group's  stores are  recognized at the point
         of sale.

         Sales of product to licensees are  recognized  in  accordance  with the
         specific terms of agreement with each licensee.

         VALUATION OF INVENTORY

         Inventory is stated at the lower of cost (first-in,  first-out  method)
         and net realizable value.

         The  valuation of retail  inventory in the stores is  determined by the
         retail inventory method which approximates the lower of cost (first-in,
         first-out method) and net realizable value.  Under the retail inventory
         method,  inventory  is converted to a cost basis by applying an average
         cost to selling ratio.  Inventory  includes items that have been marked
         down to management's best estimate of their net realizable value.


                                      D-10



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS AT SEPTEMBER 30, 2006 AND FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

         AMORTIZATION

         Property and equipment are amortized over the estimated useful lives of
         the respective assets as follows:

         On the declining balance method -

                  Furniture and fixtures ...................20%
                  Data processing equipment ................30%
                  Machinery and equipment ..................30%

         On the straight-line method -

                  Leasehold improvements ...................Base, non-cancelable
                                                              term of leases
                  In store furniture and fixtures ..........three years
                  Licenses .................................ten years

         IMPAIRMENT OF LONG-LIVED ASSETS

         In fiscal 2005,  the Group adopted the Canadian  Institute of Chartered
         Accountants'  ("CICA")  Handbook Section 3036 "Impairment of Long-Lived
         Assets".  The new standards require an impairment loss to be recognized
         when the  carrying  amount of a  long-lived  asset to be held and used,
         such as property  and  equipment  and  licenses  exceeds the sum of the
         undiscounted cash flows expected from its use and eventual disposition.
         The impairment recognized should be measured as the amount by which the
         carrying  amount of the asset exceeds its fair value.  The standard has
         been applied  prospectively  and had no impact on the Group's  combined
         financial statements.

         OPERATING LEASES

         The Group  recognizes  rental  expense and  inducements  received  from
         landlords on a straight-line basis over the base,  non-cancelable lease
         terms.  Any difference  between the calculated  expense and the amounts
         actually  paid is reflected as a liability  in the  Companies'  balance
         sheet.  The  Group  recognizes   contingent  rental  expense  when  the
         achievement of specified sales targets are considered probable.

         FUNCTIONAL CURRENCY

         The Group's  functional  currency  for its  operations  is the Canadian
         dollar except for Buffalo  Corporation whose functional currency is the
         U.S.  dollar.  However,  the  Group's  reporting  currency  is the U.S.
         dollar.  Therefore,  the financial statements for all periods presented
         have  been  translated  into the U.S.  dollar  using the  current  rate
         method.  Under this  method,  the income  statement  and the cash flows
         statement  items for each period have been  translated into U.S. dollar
         using the rates in effect at the date of the  transactions,  and assets
         and liabilities have been translated using the exchange rate at the end
         of the period. All resulting  exchange  differences are reported in the
         cumulative  translation  adjustment  account as a separate component of
         shareholder's equity.


                                      D-11



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS AT SEPTEMBER 30, 2006 AND FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

         LICENSES

         The  licenses  are  intangible  assets which have a finite life and are
         recorded  at cost  less  accumulated  amortization.  The  licenses  are
         assessed for  impairment  loss  annually and any  necessary  write-down
         arising from  impairment  value is recorded in the period for which the
         impairment is identified.

         FOREIGN CURRENCY TRANSLATION

         Transactions concluded in currencies other than the functional currency
         have been translated as follows:  monetary assets and liabilities  have
         been  translated  at the exchange  rate in effect at the balance  sheet
         date and  revenues  and expenses  have been  translated  at the average
         exchange rate for each period; non-monetary assets and liabilities have
         been translated at the rates  prevailing at the dates of the respective
         transactions.  Exchange gains and losses arising from such transactions
         are included in net earnings for the period.

         INCOME TAXES

         The Group  provides for income taxes using the liability  method of tax
         allocation. Under this method, future income tax assets and liabilities
         are  determined  based on deductible or taxable  temporary  differences
         between  financial  statements  values  and tax  values of  assets  and
         liabilities using substantively enacted income tax rates expected to be
         in  effect  for the year in  which  the  differences  are  expected  to
         reverse.

         The Group  establishes a valuation  allowance against future income tax
         assets if, based upon available information, it is more likely than not
         that some or all of the future income tax assets will not be realized.

         The  net  earnings  of the  Buffalo  Trust,  if  any,  for  the  period
         constitute  income of the  trust's  beneficiaries  and are  subject  to
         income tax in their  hands and  accordingly,  no  provision  for income
         taxes on the income of the Trust has been made.

         PREFERRED SHARES RETRACTABLE AT THE OPTION OF THE HOLDER

         The  Group  applied  the  guidelines  of  the  CICA's  Emerging  Issues
         Committee  which has issued  Abstract 149  ("EIC-149"),  Accounting for
         Retractable or Mandatorily  Redeemable Shares, to provide guidelines on
         the classification of retractable or mandatorily redeemable shares, and
         their  subsequent  valuation when they are  classified as  liabilities.
         Under EIC-149,  retractable or mandatorily  redeemable shares should be
         classified as liabilities  unless specific  criteria are met. If all of
         these  criteria are not met, these shares are classified as liabilities
         and valued at their  redemption  value at each closing  date.  Gains or
         losses  resulting from the  remeasurement  of the instrument  should be
         recognized in income.


                                      D-12



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS AT SEPTEMBER 30, 2006 AND FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


3.       PROPERTY AND EQUIPMENT

                                                 AS AT SEPTEMBER 30, 2006
                                      ------------------------------------------
                                                      Accumulated   Net Carrying
                                          Cost       Amortization      Amount
                                      ------------   ------------   ------------
Furniture and fixtures ............   $  4,186,571   $  2,399,653   $  1,786,918
Data processing equipment .........      3,073,782      1,961,578      1,112,204
Machinery and equipment ...........        223,883        206,171         17,712
In store furniture and fixtures ...        635,691        232,462        403,229
Leasehold improvements ............     11,826,724      5,202,700      6,624,024
                                      ------------   ------------   ------------
                                      $ 19,946,651   $ 10,002,564   $  9,944,087
                                      ============   ============   ============


                                                  AS AT DECEMBER 31, 2005
                                      ------------------------------------------
                                                      Accumulated   Net Carrying
                                          Cost       Amortization      Amount
                                      ------------   ------------   ------------
Furniture and fixtures ............      3,922,506      2,095,428      1,827,078
Data processing equipment .........      2,430,331      1,680,324        750,007
Machinery and equipment ...........        210,687        194,919         15,768
In store furniture and fixtures ...        384,307         88,137        296,170
Leasehold improvements ............      8,965,332      4,461,015      4,504,317
                                      ------------   ------------   ------------
                                        15,913,163      8,519,823      7,393,340
                                      ============   ============   ============


                                                  AS AT DECEMBER 31, 2004
                                      ------------------------------------------
                                                      Accumulated   Net Carrying
                                          Cost       Amortization      Amount
                                      ------------   ------------   ------------
Furniture and fixtures ............      3,846,481      1,796,733      2,049,748
Data processing equipment .........      2,203,862      1,482,605        721,257
Machinery and equipment ...........        201,493        182,473         19,020
In store furniture and fixtures ...           --             --             --
Leasehold improvements ............      8,242,216      4,015,434      4,226,782
                                      ------------   ------------   ------------
                                        14,494,052      7,477,245      7,016,807
                                      ============   ============   ============


                                      D-13



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS AT SEPTEMBER 30, 2006 AND FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


4.       LOANS RECEIVABLE



                                                                DECEMBER 31,
                                            SEPTEMBER 30, -------------------------
                                                2006         2005           2004
                                            (unaudited)
                                            -----------   -----------   -----------
                                                               
Loans receivable, employees .............   $   173,193   $   438,927   $ 1,062,326
Loans receivable, indirect shareholders .       554,497       708,796       412,533
Loans receivable, companies controlled by
  indirect shareholders .................     1,015,723     1,198,512     1,705,333
                                            -----------   -----------   -----------
                                            $ 1,743,413   $ 2,346,235   $ 3,180,192
                                            ===========   ===========   ===========


         Loans receivable are  non-interest  bearing and have no specified terms
         of repayment.


5.       LICENSES

         Licenses consist of the following:



                                                                       DECEMBER 31,
                                               SEPTEMBER 30,   -------------------------
                                                   2006            2005            2004
                                               (unaudited)
                                               ------------    ------------    ------------
                                                                      
Licenses ...................................   $ 26,901,364    $ 25,859,372    $ 24,875,208
Option to purchase the Buffalo and
  Request trademarks .......................         89,469          85,986          83,195
                                               ------------    ------------    ------------
                                                 26,990,833      25,945,358      24,958,403
Accumulated amortization ...................     (8,042,493)     (5,796,975)     (3,121,328)
                                               ------------    ------------    ------------
                                               $ 18,948,340    $ 20,148,383    $ 21,837,075
                                               ------------    ------------    ------------


         The option to purchase  the Buffalo  and Request  trademarks  gives the
         Buffalo  Trust  the  right to  purchase  the  licensed  trademarks  for
         $1,000,000  Canadian  (approximately  U.S.$895,000)  at  anytime  up to
         December 31, 2013.


6.       BANK INDEBTEDNESS

         The Group's $40,000,000 Canadian (approximately U.S.$35,788,000) credit
         facility is subject to review  annually  and  consists of an  operating
         demand  line  of  credit,   letters  of  credit  facility,  a  banker's
         acceptance facility and a Libor loan facility.  Borrowings can be drawn
         down in Canadian or U.S. funds.  Borrowings  under the operating demand
         line of credit bear  interest  at either  prime plus 0.25% per annum or
         Libor plus 2% per annum and the  letters of credit  facility is limited
         to $20,000,000 Canadian (approximately U.S.$17,894,000).


                                      D-14



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS AT SEPTEMBER 30, 2006 AND FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


6.       BANK INDEBTEDNESS (CONT'D)

         The    Group    has   an    additional    $15,000,000    (approximately
         (U.S.$13,420,000) credit facility which is subject to annual review and
         consists of foreign exchange contracts.

         The credit  facilities are secured by the Group's  accounts  receivable
         and inventories.  The terms of the banking  agreement require the Group
         to comply with certain financial covenants.


7.       LOANS PAYABLE



                                                 SEPTEMBER 30,
                                                     2006
                                                 (unaudited)        2005           2004
                                                 ------------   ------------   ------------
                                                                      
7.5 % loan from company controlled by indirect
  shareholders ...............................   $ 26,840,833   $ 25,795,357   $ 24,958,403
Loan payable, indirect shareholder ...........        557,168        535,583        518,059
Loans payable, company controlled by indirect
  shareholder ................................      4,129,718        161,286           --
Loan payable, repaid in 2005 .................           --             --        5,730,226
                                                 ------------   ------------   ------------
                                                 $ 31,527,719   $ 26,492,226   $ 31,206,688
                                                 ============   ============   ============


         Except as noted  above,  loans  are  non-interest  bearing  and have no
         specified  terms of repayment and will not be repaid before  October 1,
         2007.


8.       COMMITMENTS AND CONTINGENCIES

         LETTERS OF CREDIT

         The Group's  letters of credit  outstanding and the amounts in accounts
         payable and accrued liabilities are approximately as follows:

                                                                 INCLUDED IN
                                    OUTSTANDING LETTERS     ACCOUNTS PAYABLE AND
                                         OF CREDIT          ACCRUED LIABILITIES
                                    -------------------     --------------------
September 30, 2006 (unaudited)       $    1,973,000           $      398,000
December 31, 2005                         2,685,000                  558,000
December 31, 2004                         3,027,000                1,299,000


                                      D-15



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


8.       COMMITMENTS AND CONTINGENCIES (CONT'D)

         GUARANTEES

         The  Group  has  furnished  a 25%  guarantee  of a  loan  of a  company
         controlled by the ultimate shareholders.  As at September 30, 2006, the
         loan  amounted  to  $3,460,000  Canadian  (2005 - $Nil)  (approximately
         U.S.$3,096,000).

         CLAIM

         Legal proceedings have been instituted against 3163946 Canada Inc. by a
         former  employee,  claiming  involuntary  resignation  in the amount of
         approximately  $400,000.  It is not  possible at this time to determine
         the outcome of this matter and accordingly,  no provision has been made
         in the accounts for this claim.

         OPERATING LEASES

         As at September 30, 2006, there were contractual obligations for leases
         amounting to approximately $33,186,000.  The leases extend over various
         periods up to the year 2017 and is expected  that in the normal  course
         of  operations  most will be renewed  under  option  clauses or will be
         renegotiated.

         The aggregate minimum rentals, exclusive of other occupancy charges and
         additional  rental  based  on a  percentage  of  sales,  for  the  five
         succeeding  years and the total lease  payments for the duration of the
         leases for the Group's premises are approximately as follows:

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

         2007                                          $   5,280,000
         2008                                              4,695,000
         2009                                              4,419,000
         2010                                              4,092,000
         2011                                              3,699,000
         Thereafter                                       11,001,000

         The rent for store,  warehouse  showroom,  design  office and corporate
         headquarters'  operating leases included in the  accompanying  combined
         statements of earnings are as follows:

                         NINE MONTH
                        PERIOD ENDED             YEARS ENDED DECEMBER 31,
                        SEPTEMBER 30,   ----------------------------------------
                            2006           2005           2004           2003
                        (Unaudited)
                         ----------     ----------     ----------     ----------

Basic rent .........     $5,582,525     $7,705,816     $7,025,651     $5,608,530


                                      D-16



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


9.       RETRACTABLE PREFERRED SHARES

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

         BUFFALO INC.

         Authorized without limit as to number
            and without par value -

         Class "D" voting, retractable (at the
            amount paid thereon) preferred
            shares with the right to a non-
            cumulative dividend of the prime
            lending rate less 1%
         Class "E" retractable (at fair value
            calculated based on a formula)
            preferred shares with the right to
            a non-cumulative monthly dividend
            of 1%
         Class "F" retractable (at fair value
            calculated based on a formula)
            preferred shares with the right to
            a non-cumulative monthly dividend
            of 1%
         Class "G" retractable (at fair value
            calculated based on a formula)
            preferred shares with the right to
            a non-cumulative monthly dividend
            of half of 1%
         Class "H" retractable (at the amount
            paid thereon) preferred shares
            with the right to a non-cumulative
            yearly dividend of 8%

         3163946 CANADA INC.:

         Authorized without limit as to number
            and without par value -

         Class "D" redeemable and retractable
            (at the amount paid thereon)
            preferred shares with the right to
            a non-cumulative monthly dividend
            of 1%
         Class "E" redeemable and retractable
            (at the amount paid thereon)
            preferred shares with the right to
            a non-cumulative monthly dividend
            of 1%
         Class "F" redeemable and retractable
            (at the amount paid thereon)
            preferred shares with the right to
            a non-cumulative yearly dividend
            of $1 per share
         Class "G" redeemable and retractable
            (at the amount paid thereon)
            preferred shares with the right to
            a non-cumulative yearly dividend
            of $1 per share


                                      D-17



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


9.       RETRACTABLE PREFERRED SHARES (CONT'D)



                                                 SEPTEMBER 30,       DECEMBER 31,
                                                     2006      -----------------------
                                                  (unaudited)     2005         2004
                                                  ----------   ----------   ----------
                                                                   
         3681441 CANADA INC.:

         Authorized without limit as to number and
            without par value -

         Class "D" voting, redeemable and
            retractable (at the amount paid
            thereon) preferred shares with a
            right to a non-cumulative annual
            dividend of the prime lending rate
            less 1%
         Class "E" redeemable and retractable
            (at fair value calculated based on
            a formula) preferred shares with a
            right to a non-cumulative  monthly
            dividend of 1%
         Class "F" redeemable and retractable
            (at fair value calculated based on
            a formula) preferred shares with a
            right to a non-cumulative  monthly
            dividend of 1%
         Class "G" redeemable and retractable
            (at fair value calculated based on
            a formula) preferred shares with a
            right to a non-cumulative  monthly
            dividend of the prime lending rate
            plus 1%
         Class "H" redeemable and retractable
            (at the amount paid thereon)
            preferred shares with a right to a
            non-cumulative annual dividend of 8%
--------------------------------------------------------------------------------

         Issued -

         BUFFALO INC.

         4,731,301   Class "E" preferred shares   $4,233,069   $4,067,972   $3,935,969
         1,117,184   Class "F" preferred shares      999,538      960,555      929,385
                                                  ----------   ----------   ----------

                                                  $5,232,607   $5,028,527   $4,865,354
                                                  ==========   ==========   ==========



                                      D-18



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


10.      CAPITAL STOCK

         The  authorized   capital  stock,  in  addition  to  those  retractable
         preferred shares described in note 9, is as follows:

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

         BUFFALO INC.

         Authorized without limit as to number
            and without par value -

         Class "A" common shares
         Class "B" non-voting common shares
         Class "C" voting preferred shares
         Class "I" redeemable (at the amount
            paid thereon) preferred shares with
            the right to a non-cumulative yearly
            dividend of 8%

         BUFFALO CORPORATION

         Authorized without par value -

         10,000 common shares

         3163946 CANADA INC.

         Authorized without limit as to number
            and without par value -

         Class "C" redeemable (at the amount
            paid thereon), voting preferred
            shares
         Class "A" common shares, convertible
            into Class "D" preferred shares on a
            one-for-one basis
         Class "B" common shares

         3681441 CANADA INC.

         Authorized without limit as to number
            and without par value -

         Class "C" voting, redeemable (at the
            amount paid thereon) preferred shares
         Class "I"  redeemable (at the amount
            paid thereon)  preferred  shares with
            the right to a non-cumulative annual
            dividend of 8%
         Class "A" common shares
         Class "B" common shares, convertible
            into class "E" preferred shares on a
            one-for-one basis


                                      D-19



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


10.      CAPITAL STOCK (CONT'D)

                                          SEPTEMBER 30,       DECEMBER 31,
                                             2006       ------------------------
                                          (Unaudited)      2005          2004
                                          ----------    ----------    ----------
BUFFALO INC

Issued -

100 Class "A" common shares ..........    $       90    $       90    $       86
                                          ----------    ----------    ----------

BUFFALO CORPORATION

Issued -

110 (2004 - 100) common shares .......    $5,472,453    $5,472,453    $      100
                                          ----------    ----------    ----------

3163946 CANADA INC

Issued -

100 Class "A" common shares ..........    $       89    $       86    $       83
                                          ----------    ----------    ----------

3681441 CANADA INC

Issued -

100 Class "A" common shares ..........            89            86            83
                                          ----------    ----------    ----------

TOTAL ................................    $5,472,721    $5,472,715    $      352
                                          ==========    ==========    ==========

         During  fiscal 2005,  Buffalo  Corporation  issued 10 common  shares in
         exchange for the repayment of $5,472,363 of their loan payable.


                                      D-20



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


11.      INCOME TAXES

         Significant  components of future income tax assets and liabilities are
         approximately as follows:

                                 AS AT               AS AT DECEMBER 31,
                              SEPTEMBER 30,-------------------------------------
                                 2006         2005          2004         2003
                              (Unaudited)
                              ----------   ----------    ----------   ----------
Future income tax assets:
  Property and equipment ..   $  100,000   $   90,000    $  119,000   $   86,000
  Losses carry forward ....    1,201,000      395,000        46,000      315,000
  Other ...................        5,000      (37,000)       29,000         --
                              ----------   ----------    ----------   ----------
                              $1,306,000   $  448,000    $  194,000   $  401,000
                              ==========   ==========    ==========   ==========

         The Group's tax losses that may be applied  against  earnings of future
         years, not later than as follows:

                                                  DECEMBER 31,
                                ------------------------------------------------
                                   2005               2004               2003
                                ----------         ----------         ----------
         2008 ............      $     --           $     --           $   71,000
         2009 ............         178,000            178,000          1,081,000
         2015 ............         861,000               --                 --
                                ----------         ----------         ----------
                                $1,039,000         $  178,000         $1,152,000
                                ==========         ==========         ==========


                                      D-21



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


11.      INCOME TAXES (CONT'D)

         Income taxes reported  differ from the amount  computed by applying the
         statutory  rates to  earnings  before  income  taxes.  The  reasons are
         approximately as follows:



                            NINE MONTH
                           PERIOD ENDED             YEARS ENDED DECEMBER 31,
                           SEPTEMBER 30,  -----------------------------------------
                               2006           2005           2004           2003
                           (Unaudited)
                           -----------    -----------    -----------    -----------
                                                            
INCOME TAXES

Statutory income taxes .   $ 1,335,000    $ 1,544,000    $ 1,105,000    $   976,000
Non-deductible expenses         24,000         21,000         78,000         31,000
Timing differences .....        14,000         56,000        (15,000)       (13,000)
Losses of an entity that
  cannot be deducted
  against the income of
  the Group ............          --          285,000        102,000        206,000
Losses carried forward .          --             --         (311,000)      (172,000)
Unrealized foreign
  exchange .............          --             --             --       (1,079,000)
Tax reassessment .......          --             --          726,000           --
Other ..................       (47,000)       (51,000)      (134,000)          --
                           -----------    -----------    -----------    -----------
Effective income taxes .   $ 1,326,000    $ 1,855,000    $ 1,551,000    $   (51,000)
                           ===========    ===========    ===========    ===========



12.      SEGMENT DISCLOSURE

         The Group's reportable segments are strategic business units that offer
         different  products and  services.  Each segment is managed  separately
         because it is subject to different marketing strategies. The operations
         of the  Group  and  its  combined  companies  are  comprised  of  three
         reportable operating segments: wholesale, retail and licensing.

         The  following  information  is  provided  with  respect to the Group's
         operating segments:



                                   NINE MONTHS ENDED SEPTEMBER 30, 2006
                   --------------------------------------------------------------------
                                                            Consolidation
                    Wholesale       Retail      Licensing       Entry          TOTAL
                   -----------   -----------   -----------   -----------    -----------
                                                             
Revenues .......   $57,556,171   $15,158,765   $ 4,701,379   $(2,623,714)   $74,792,601
Operating costs     46,132,213    14,717,627     2,146,356    (2,623,714)    60,372,482
                   -----------   -----------   -----------   -----------    -----------
Operating income   $11,423,958   $   441,138   $ 2,555,023   $      --      $14,420,119
                   ===========   ===========   ===========   ===========    ===========



                                      D-22



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


12.      SEGMENT DISCLOSURE (CONT'D)



                                         YEAR ENDED DECEMBER 31, 2005
                   -------------------------------------------------------------------------
                                                               Consolidation
                     Wholesale       Retail       Licensing        Entry            TOTAL
                   ------------   ------------   ------------   ------------    ------------
                                                                 
Revenues .......   $ 78,959,767   $ 23,165,194   $  4,902,523   $ (2,955,638)   $104,071,846
Operating costs      68,519,605     20,811,609      2,777,100     (2,955,638)     89,152,676
                   ------------   ------------   ------------   ------------    ------------

Operating income   $ 10,440,162   $  2,353,585   $  2,125,423   $       --      $ 14,919,170
                   ============   ============   ============   ============    ============



                                         YEAR ENDED DECEMBER 31, 2004
                   -------------------------------------------------------------------------
                                                               Consolidation
                     Wholesale       Retail       Licensing        Entry            TOTAL
                   ------------   ------------   ------------   ------------    ------------
                                                                 
Revenues .......   $ 62,726,854   $ 22,819,722   $  4,850,261   $ (2,607,917)   $ 87,788,920
Operating costs      56,160,329     19,237,306      2,305,387     (2,607,917)     75,095,105
                   ------------   ------------   ------------   ------------    ------------

Operating income   $  6,566,525   $  3,582,416   $  2,544,874   $       --      $ 12,693,815
                   ============   ============   ============   ============    ============



                                         YEAR ENDED DECEMBER 31, 2003
                   -------------------------------------------------------------------------
                                                               Consolidation
                     Wholesale       Retail       Licensing        Entry            TOTAL
                   ------------   ------------   ------------   ------------    ------------
                                                                 
Revenues .......   $ 58,130,702   $ 17,862,096   $    196,958   $   (941,364)   $ 75,248,392
Operating costs      50,194,914     15,133,459        131,916       (941,364)     64,518,925
                   ------------   ------------   ------------   ------------    ------------

Operating income   $  7,935,788   $  2,728,637   $     65,042   $       --      $ 10,729,467
                   ============   ============   ============   ============    ============



                      NINE MONTH
                     PERIOD ENDED              YEARS ENDED DECEMBER 31,
                     SEPTEMBER 30,  --------------------------------------------
Geographical             2006           2005            2004            2003
Information          (Unaudited)
----------------    ------------    ------------    ------------    ------------
REVENUES
   Canada ......    $ 43,663,439    $ 61,717,299    $ 61,108,625    $ 51,823,578
   U.S.A .......      30,746,756      41,899,337      26,326,664      23,424,814
   Other .......         382,406         455,210         353,631            --
                    ------------    ------------    ------------    ------------

                    $ 74,792,601    $104,071,846    $ 87,788,920    $ 75,248,392
                    ============    ============    ============    ============


                                      D-23



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


13.      STATEMENT OF CASH FLOWS INFORMATION

         Net change in non-cash working capital components are as follows:



                                 NINE MONTH
                                PERIOD ENDED              YEARS ENDED DECEMBER 31,
                                SEPTEMBER 30,  --------------------------------------------
                                    2006           2005            2004            2003
                                (Unaudited)
                               ------------    ------------    ------------    ------------
                                                                   
Accounts receivable ........   $  2,522,030    $ (4,894,683)   $ (4,048,555)   $   (403,285)
Prepaid expenses ...........       (252,820)       (135,258)         24,826         (41,205)
Inventory ..................     (5,443,206)       (132,153)       (573,642)       (424,075)
Royalties receivable .......     (1,173,108)        197,252        (876,855)           --
Accounts payable and accrued
  liabilities ..............     (1,301,754)       (326,017)        118,832       1,963,106
Income taxes ...............     (2,190,499)        838,093         525,758          24,140
Interest payable ...........     (4,488,051)      2,663,232       2,495,840            --
Royalties payable ..........           --        (1,614,255)     (2,182,202)      1,298,924
                               ------------    ------------    ------------    ------------

                               $(12,327,408)   $ (3,403,789)   $ (4,515,998)   $  2,417,605
                               ============    ============    ============    ============


      ADDITIONAL CASH FLOW INFORMATION:



                                 NINE MONTH
                                PERIOD ENDED              YEARS ENDED DECEMBER 31,
                                SEPTEMBER 30,  --------------------------------------------
                                    2006           2005            2004            2003
                                (Unaudited)
                               ------------    ------------    ------------    ------------
                                                                   
Interest paid ..............   $  7,482,415    $  1,271,000    $    818,000    $    326,000
Income taxes paid ..........      4,374,425         929,000         860,000         976,000



                                      D-24



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


14.      RELATED PARTY TRANSACTIONS

         The  Group has  engaged  in  transactions  with the  following  related
         entities:

         COMPANY                   RELATIONSHIP

         Angel Garment Limited     Company owned 50% by an indirect shareholder
         3296776 Canada Inc.       Company controlled by an indirect shareholder
         155671 Canada Inc.        Company owned by indirect shareholders
         Buffalo Promenade Inc.    Company owned by an indirect shareholder
         6144195 Canada Inc.       Company owned by indirect shareholders

         The  following   transactions   occurred  between  the  Group  and  the
         afore-noted entities:

                              Angel
                             Garment
NINE MONTH PERIOD            Limited       3296776       155671
SEPTEMBER 30, 2006            Agency     Canada Inc.   Canada Inc.      TOTAL
------------------------    ----------    ----------    ----------    ----------
Expenses
   Commissions .........    $1,177,000    $     --      $     --      $1,177,000
   Rent ................          --         234,000        27,000       261,000
                            ----------    ----------    ----------    ----------

                            $1,177,000    $  234,000    $   27,000    $1,438,000
                            ==========    ==========    ==========    ==========


                              Angel
                             Garment
YEAR ENDED                   Limited       3296776       155671
DECEMBER 31, 2005             Agency     Canada Inc.   Canada Inc.      TOTAL
------------------------    ----------    ----------    ----------    ----------
Expenses
   Commissions .........    $1,637,000    $     --      $     --      $1,637,000
   Rent ................          --         149,000        38,000       187,000
                            ----------    ----------    ----------    ----------

                            $1,637,000    $  149,000    $   38,000    $1,824,000
                            ==========    ==========    ==========    ==========


                              Angel
                             Garment
YEAR ENDED                   Limited       3296776       155671
DECEMBER 31, 2004             Agency     Canada Inc.   Canada Inc.      TOTAL
------------------------    ----------    ----------    ----------    ----------
Expenses
   Commissions .........    $1,326,000    $     --      $     --      $1,326,000
   Rent ................          --         134,000        35,000       169,000
                            ----------    ----------    ----------    ----------

                            $1,326,000    $  134,000    $   35,000    $1,495,000
                            ==========    ==========    ==========    ==========


                                      D-25



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


14.      RELATED PARTY TRANSACTIONS (CONT'D)


                              Angel
                             Garment
YEAR ENDED                   Limited       3296776       155671
DECEMBER 31, 2003             Agency     Canada Inc.   Canada Inc.      TOTAL
------------------------    ----------    ----------    ----------    ----------
Expenses
   Commissions .........    $1,179,000    $     --      $     --      $1,179,000
   Rent ................          --         122,000        22,000       144,000
                            ----------    ----------    ----------    ----------

                            $1,179,000    $  122,000    $   22,000    $1,323,000
                            ==========    ==========    ==========    ==========


         Included in accounts  receivable are the following  approximate amounts
         due from 6144195 Canada Inc.:

         September 30, 2006 (unaudited) ..............       $4,139,000
         December 31, 2005 ...........................        4,113,000
         December 31, 2004 ...........................        1,970,000
         December 31, 2003 ...........................             --

         Included in accounts payable and accrued  liabilities are the following
         approximate amounts due to Angel Garmet Limited Agency for the period:

         September 30, 2006 (unaudited) ..............       $  354,000
         December 31, 2005 ...........................          343,000
         December 31, 2004 ...........................          290,000
         December 31, 2003 ...........................          228,000

         Interest payable is due to 6144195 Canada Inc.

         These  transactions  were measured at the exchange  amount which is the
         amount  of  consideration  established  and  agreed  to by the  related
         parties.


15.      FINANCIAL INSTRUMENTS

         FAIR VALUE

         Cash, accounts receivable,  royalties receivable,  interest receivable,
         bank indebtedness,  accounts payable and accrued liabilities, royalties
         payable and interest  payable are all short-term in nature and as such,
         their carrying values approximate fair values.

         It is not  practical to determine  the fair value of the amounts due to
         and from  related  parties due to their  related  party  nature and the
         absence of a market for such instruments.


                                      D-26



THE BUFFALO GROUP


NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)

15.      FINANCIAL INSTRUMENTS (CONT'D)

         The fair value of a financial instrument is the price at which an asset
         could be  exchanged,  or a liability  settled,  between  knowledgeable,
         willing parties in an arm's length transaction.

         CREDIT RISK

         The Company,  in the normal course of business,  monitors the financial
         condition of its customers  and reviews the credit  history of each new
         customer.  The  Company  does not have a  significant  exposure  to any
         individual  customer  or counter  party.  The  Company  establishes  an
         allowance for doubtful  accounts that corresponds to the credit risk of
         its specific customers,  historical trends and economic  circumstances.
         The Company does not believe that it is exposed to an unusual  level of
         customer credit risk.

         INTEREST RATE RISK

         The  Company  is  exposed  to  interest  rate  risk  in  the  event  of
         fluctuations  in the bank's prime rate as the interest rate on the line
         of credit is dependent on the bank's prime rate.


16.      RECONCILIATION OF ACCOUNTING  PRINCIPLES  GENERALLY  ACCEPTED IN CANADA
         AND IN THE UNITED STATES

         The Group prepares its financial statements in accordance with Canadian
         generally accepted accounting principles (Canadian GAAP), which conform
         in all  material  respects  to those in the  Unites  States  (U.S.GAAP)
         except for the following:

         RETRACTABLE PREFERRED SHARES

         (a)  Under  Canadian  GAAP,  the  retractable   preferred  shares  were
         accounted  for as a  liability.  Under  U.S.  GAAP,  these  retractable
         preferred  shares  should be presented as a component of  shareholders'
         equity.

         (b) Under U.S. GAAP the  retractable  preferred  shares are recorded at
         the  historical  foreign  exchange  rate as opposed to the current rate
         under Canadian GAAP.

         OTHER COMPREHENSIVE INCOME

         (c) Under Canadian GAAP, cumulative translation adjustment is presented
         as a component of shareholders' equity. Under U.S. GAAP, the cumulative
         translation  adjustment  should  be  included  in  other  comprehensive
         income.

         (d) Under U.S. GAAP, a statement of comprehensive income is required.

         The  above   adjustments  have  no  material  impact  on  the  combined
         statements of earnings and the combined statement of cash flows.


                                      D-27



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


16.      RECONCILIATION OF ACCOUNTING  PRINCIPLES  GENERALLY  ACCEPTED IN CANADA
         AND IN THE UNITED STATES (CONT'D)

         The effect of the above  adjustments on the combined balance sheets are
         as follows:


AS AT SEPTEMBER 30, 2006

                                   CANADIAN GAAP     ADJUSTMENTS            U.S. GAAP
                                    ------------    ------------          ------------
                                                                 
LIABILITIES

Current liabilities .............   $ 27,049,352    $       --            $ 27,049,352
Loans payable ...................     31,527,719            --              31,527,719
Deferred lease inducements ......        386,726            --                 386,726
Deferred lease obligations ......        491,500            --                 491,500
Deferred tenant allowances ......        907,145            --                 907,145
Retractable shares ..............      5,232,607      (5,232,607)(a)              --
                                    ------------    ------------          ------------

                                    $ 65,595,049    $ (5,232,607)         $ 60,362,442
                                    ============    ============          ============

SHAREHOLDERS' EQUITY

Cumulative translation adjustment   $ (4,337,658)   $  4,337,658 (c)      $       --
Capital stock ...................      5,472,721       3,814,382 (a),(b)     9,287,103
Retained earnings ...............      8,163,840            --               8,163,840
Other comprehensive income ......           --        (2,919,433)(b),(c)    (2,919,433)
                                    ------------    ------------          ------------

                                    $  9,298,903    $  5,232,607          $ 14,531,510
                                    ============    ============          ============


AS AT DECEMBER 31, 2005
                                CANADIAN GAAP     ADJUSTMENTS         U.S. GAAP
                                 ------------    ------------       ------------

LIABILITIES

Current liabilities ..........   $ 27,167,645    $       --         $ 27,167,645
Loans payable ................     26,492,226            --           26,492,226
Deferred lease inducements ...        463,211            --              463,211
Deferred lease obligations ...        482,977            --              482,977
Deferred tenant allowances ...        673,333            --              673,333
Retractable shares ...........      5,028,527      (5,028,527)(a)           --
                                 ------------    ------------       ------------

                                 $ 60,307,919    $ (5,028,527)      $ 55,279,392
                                 ============    ============       ============


                                      D-28



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


16.      RECONCILIATION OF ACCOUNTING  PRINCIPLES  GENERALLY  ACCEPTED IN CANADA
         AND IN THE UNITED STATES (CONT'D)



                                   Canadian GAAP     Adjustments            U.S. GAAP
                                    ------------    ------------          ------------
                                                                 
SHAREHOLDERS' EQUITY

Cumulative translation adjustment   $ (3,856,135)   $  3,856,135 (c)      $       --
Capital stock ...................      5,472,715       3,814,382 (a),(b)     9,287,097
Retained earnings ...............      5,781,681            --               5,781,681
Other comprehensive income ......           --        (2,641,990)(b),(c)    (2,641,990)
                                    ------------    ------------          ------------

                                    $  7,398,261    $  5,028,527          $ 12,426,788
                                    ============    ============          ============



AS AT DECEMBER 31, 2004

                                   Canadian GAAP     Adjustments            U.S. GAAP
                                    ------------    ------------          ------------
                                                                 
LIABILITIES

Current liabilities .............   $ 27,483,905    $       --            $ 27,483,905
Loans payable ...................     31,206,688            --              31,206,688
Deferred lease inducements ......        452,414            --                 452,414
Deferred lease obligations ......        385,949            --                 385,949
Deferred tenant allowances ......        570,261            --                 570,261
Retractable shares ..............      4,865,354      (4,865,354)(a)              --
                                    ------------    ------------          ------------

                                    $ 64,964,571    $ (4,865,354)         $ 60,099,217
                                    ============    ============          ============

SHAREHOLDERS' EQUITY

Cumulative translation adjustment   $ (3,471,913)   $  3,471,913 (c)       $       --
Capital stock ...................            352       3,814,382 (a),(b)     3,814,734
Retained earnings ...............      3,347,783            --               3,347,783
Other comprehensive income ......           --        (2,420,941)(b),(c)    (2,420,941)
                                    ------------    ------------          ------------

                                    $   (123,778)   $  4,865,354          $  4,741,576
                                    ============    ============          ============



                                      D-29



THE BUFFALO GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION  AS AT  SEPTEMBER  30,  2006 AND FOR THE NINE  MONTH  PERIOD  ENDED
  SEPTEMBER 30, 2006 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)


16.      RECONCILIATION OF ACCOUNTING  PRINCIPLES  GENERALLY  ACCEPTED IN CANADA
         AND IN THE UNITED STATES (CONT'D)


STATEMENT OF COMPREHENSIVE INCOME

                                           SEPTEMBER 30,   December 31,   December 31,   December 31,
                                               2006            2005           2004           2003
                                            (Unaudited)
                                            -----------    -----------    -----------    -----------
                                                                             
Foreign currency translation adjustment     $  (277,443)   $  (221,049)   $  (681,631)   $(1,505,790)
Net earnings ............................     2,382,159      2,433,898      1,517,671      2,763,159
                                            -----------    -----------    -----------    -----------

TOTAL COMPREHENSIVE INCOME ..............   $ 2,104,716    $ 2,212,849    $   836,040    $ 1,257,369
                                            ===========    ===========    ===========    ===========



17.      SUBSEQUENT EVENT

         Subsequent  to September  30,  2006,  the Group's  shareholders  are in
         negotiation  with Tarrant  Apparel Group for the sales of its shares in
         Buffalo Inc., Buffalo Corporation,  3163946 Canada Inc., 3681441 Canada
         Inc.  and the assets of the Buffalo  Trust.  As  consideration  for the
         purchase,  the Group's  shareholders will receive cash consideration of
         $40,000,000,  $15,000,000 in promissory  notes and shares  exchangeable
         into 13,000,000 shares of Tarrant Apparel Group.


                                      D-30



                                   EXHIBIT E






                                   EXHIBIT F