Document:

Exhibit 10.1

 

ASSET PURCHASE AGREEMENT

DATED AS OF NOVEMBER 22, 2006

BY AND BETWEEN

MUSICIAN’S FRIEND, INC.

AND

DENNIS BAMBER, INC., D/B/A THE
WOODWIND & THE BRASSWIND,

AND

ITS CHAPTER 11 ESTATE

 

 

TABLE
OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
  Article 1 Definitions

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  Article 2 Purchase and Sale of Transferred Assets;
  Closing

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.1

  	
   

  	
  Purchase of Transferred Assets

  	
   

  	
  11

  
	
   

  	
   

  	
  2.2

  	
   

  	
  Consideration

  	
   

  	
  12

  
	
   

  	
   

  	
  2.3

  	
   

  	
  Closing

  	
   

  	
  14

  
	
   

  	
   

  	
  2.4

  	
   

  	
  Purchase Price Adjustment

  	
   

  	
  15

  
	
   

  	
   

  	
  2.5

  	
   

  	
  Calculation of Closing Date Qualified Accounts
  Receivable and Assumed Accrued Liabilities

  	
   

  	
  16

  
	
   

  	
   

  	
  2.6

  	
   

  	
  Inventory.   OPEN
  ISSUE

  	
   

  	
  16

  
	
   

  	
   

  	
  2.7

  	
   

  	
  Allocation

  	
   

  	
  17

  
	
   

  	
   

  	
   

  
	
  Article 3 Representations and Warranties of Seller

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.1

  	
   

  	
  Organization and Good Standing; Shareholders

  	
   

  	
  18

  
	
   

  	
   

  	
  3.2

  	
   

  	
  Authorization

  	
   

  	
  18

  
	
   

  	
   

  	
  3.3

  	
   

  	
  Real Property

  	
   

  	
  18

  
	
   

  	
   

  	
  3.4

  	
   

  	
  Personal Property.

  	
   

  	
  19

  
	
   

  	
   

  	
  3.5

  	
   

  	
  Environmental Matters

  	
   

  	
  19

  
	
   

  	
   

  	
  3.6

  	
   

  	
  Contracts

  	
   

  	
  20

  
	
   

  	
   

  	
  3.7

  	
   

  	
  No Conflict or Violation; Consents

  	
   

  	
  21

  
	
   

  	
   

  	
  3.8

  	
   

  	
  Permits

  	
   

  	
  22

  
	
   

  	
   

  	
  3.9

  	
   

  	
  Financial Information; Books and Records

  	
   

  	
  22

  
	
   

  	
   

  	
  3.10

  	
   

  	
  Liabilities

  	
   

  	
  22

  
	
   

  	
   

  	
  3.11

  	
   

  	
  Litigation

  	
   

  	
  23

  
	
   

  	
   

  	
  3.12

  	
   

  	
  Labor Matters

  	
   

  	
  23

  
	
   

  	
   

  	
  3.13

  	
   

  	
  Purchase Commitments and Outstanding Bids

  	
   

  	
  23

  
	
   

  	
   

  	
  3.14

  	
   

  	
  Employee Benefit Plans

  	
   

  	
  24

  
	
   

  	
   

  	
  3.15

  	
   

  	
  Transactions with Related Parties

  	
   

  	
  24

  
	
   

  	
   

  	
  3.16

  	
   

  	
  Compliance with Legal Requirements

  	
   

  	
  24

  
	
   

  	
   

  	
  3.17

  	
   

  	
  Intellectual Property

  	
   

  	
  24

  
	
   

  	
   

  	
  3.18

  	
   

  	
  Assets Necessary to Continue to Conduct Business

  	
   

  	
  25

  
	
   

  	
   

  	
  3.19

  	
   

  	
  Brokers; Transactions Costs

  	
   

  	
  26

  
	
   

  	
   

  	
  3.20

  	
   

  	
  No Other Agreements to Sell the Transferred Assets

  	
   

  	
  26

  
	
   

  	
   

  	
  3.21

  	
   

  	
  Product Liability

  	
   

  	
  26

  
	
   

  	
   

  	
  3.22

  	
   

  	
  Approvals

  	
   

  	
  26

  
	
   

  	
   

  	
   

  
	
  Article 4 Purchaser’s Representations and Warranties

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.1

  	
   

  	
  Organization

  	
   

  	
  26

  
	
   

  	
   

  	
  4.2

  	
   

  	
  Authorization

  	
   

  	
  26

  
	
   

  	
   

  	
  4.3

  	
   

  	
  Brokers; Transactions Costs

  	
   

  	
  27

  

 

 i
 

 

 

	
  

  	
   

  	
  4.4

  	
   

  	
  Transferred Assets “AS IS”; Purchaser’s
  Acknowledgment Regarding Same

  	
   

  	
  27

  
	
   

  	
   

  	
  4.5

  	
   

  	
  Availability of Funds

  	
   

  	
  27

  
	
   

  	
   

  	
   

  
	
  Article 5 Covenants

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  5.1

  	
   

  	
  Access and Availability

  	
   

  	
  27

  
	
   

  	
   

  	
  5.2

  	
   

  	
  Operation of the Business

  	
   

  	
  27

  
	
   

  	
   

  	
  5.3

  	
   

  	
  Notices and Consents

  	
   

  	
  29

  
	
   

  	
   

  	
  5.4

  	
   

  	
  Commercially Reasonable Efforts

  	
   

  	
  29

  
	
   

  	
   

  	
  5.5

  	
   

  	
  Notice of Developments

  	
   

  	
  30

  
	
   

  	
   

  	
  5.6

  	
   

  	
  Bankruptcy Proceedings

  	
   

  	
  30

  
	
   

  	
   

  	
  5.7

  	
   

  	
  Expense Reimbursement Amount and Termination Fee

  	
   

  	
  30

  
	
   

  	
   

  	
  5.8

  	
   

  	
  Notice of Bids

  	
   

  	
  31

  
	
   

  	
   

  	
  5.9

  	
   

  	
  No Credit Bid

  	
   

  	
  31

  
	
   

  	
   

  	
  5.10

  	
   

  	
  Employee Matters

  	
   

  	
  31

  
	
   

  	
   

  	
  5.11

  	
   

  	
  Confidentiality

  	
   

  	
  32

  
	
   

  	
   

  	
  5.12

  	
   

  	
  Change of Name

  	
   

  	
  32

  
	
   

  	
   

  	
  5.13

  	
   

  	
  Transfer of Assets

  	
   

  	
  32

  
	
   

  	
   

  	
  5.14

  	
   

  	
  Cure Costs

  	
   

  	
  32

  
	
   

  	
   

  	
   

  
	
  Article 6 Conditions Precedent to the Parties’
  Respective Obligation to Close

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  6.1

  	
   

  	
  No Restraints

  	
   

  	
  32

  
	
   

  	
   

  	
  6.2

  	
   

  	
  Governmental Authorizations

  	
   

  	
  32

  
	
   

  	
   

  	
   

  
	
  Article 7 Conditions Precedent to Purchaser’s
  Obligation to Close

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  7.1

  	
   

  	
  Accuracy of Representations

  	
   

  	
  33

  
	
   

  	
   

  	
  7.2

  	
   

  	
  Performance of Obligations

  	
   

  	
  33

  
	
   

  	
   

  	
  7.3

  	
   

  	
  Deliveries

  	
   

  	
  33

  
	
   

  	
   

  	
  7.4

  	
   

  	
  No Material Adverse Effect

  	
   

  	
  33

  
	
   

  	
   

  	
  7.5

  	
   

  	
  Orders

  	
   

  	
  33

  
	
   

  	
   

  	
  7.6

  	
   

  	
  Executory Contracts

  	
   

  	
  33

  
	
   

  	
   

  	
  7.7

  	
   

  	
  No Proceedings

  	
   

  	
  33

  
	
   

  	
   

  	
  7.8

  	
   

  	
  Governmental Approvals

  	
   

  	
  34

  
	
   

  	
   

  	
  7.9

  	
   

  	
  Accounts Receivable and Inventory

  	
   

  	
  34

  
	
   

  	
   

  	
   

  
	
  Article 8 Conditions Precedent to Seller’s
  Obligation to Close

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  8.1

  	
   

  	
  Accuracy of Representations

  	
   

  	
  34

  
	
   

  	
   

  	
  8.2

  	
   

  	
  Performance of Obligations

  	
   

  	
  34

  
	
   

  	
   

  	
  8.3

  	
   

  	
  Deliveries

  	
   

  	
  34

  
	
   

  	
   

  	
  8.4

  	
   

  	
  No Proceedings

  	
   

  	
  34

  
	
   

  	
   

  	
  8.5

  	
   

  	
  Orders

  	
   

  	
  34

  

 

 ii
 

 

 

	
  Article 9 Termination

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  9.1

  	
   

  	
  Termination Events

  	
   

  	
  34

  
	
   

  	
   

  	
  9.2

  	
   

  	
  Termination Procedures

  	
   

  	
  35

  
	
   

  	
   

  	
  9.3

  	
   

  	
  Expenses; Termination Fees

  	
   

  	
  36

  
	
   

  	
   

  	
  9.4

  	
   

  	
  Effect of Termination

  	
   

  	
  36

  
	
   

  	
   

  	
   

  
	
  Article 10 Post-Closing Covenants

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  10.1

  	
   

  	
  General

  	
   

  	
  36

  
	
   

  	
   

  	
  10.2

  	
   

  	
  Leases

  	
   

  	
  36

  
	
   

  	
   

  	
  10.3

  	
   

  	
  Certain Tax Matters.

  	
   

  	
  37

  
	
   

  	
   

  	
  10.4

  	
   

  	
  Access to Books, Records, Etc.; Further Action.

  	
   

  	
  37

  
	
   

  	
   

  	
   

  
	
  Article 11 General Provisions

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  11.1

  	
   

  	
  Applicable Law

  	
   

  	
  38

  
	
   

  	
   

  	
  11.2

  	
   

  	
  Jurisdiction; WAIVER OF JURY TRIAL

  	
   

  	
  38

  
	
   

  	
   

  	
  11.3

  	
   

  	
  Termination of Representations and Warranties

  	
   

  	
  38

  
	
   

  	
   

  	
  11.4

  	
   

  	
  Notices

  	
   

  	
  38

  
	
   

  	
   

  	
  11.5

  	
   

  	
  Confidentiality

  	
   

  	
  38

  
	
   

  	
   

  	
  11.6

  	
   

  	
  Public Announcements

  	
   

  	
  39

  
	
   

  	
   

  	
  11.7

  	
   

  	
  Binding Effect; Assignment

  	
   

  	
  39

  
	
   

  	
   

  	
  11.8

  	
   

  	
  Modification

  	
   

  	
  39

  
	
   

  	
   

  	
  11.9

  	
   

  	
  Counterparts

  	
   

  	
  39

  
	
   

  	
   

  	
  11.10

  	
   

  	
  Severability

  	
   

  	
  39

  
	
   

  	
   

  	
  11.11

  	
   

  	
  Entire Agreement

  	
   

  	
  39

  
	
   

  	
   

  	
  11.12

  	
   

  	
  Interpretation of Agreement

  	
   

  	
  39

  

 

	
  Exhibits

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  -

  	
   

  	
  Bidding Procedures

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  -

  	
   

  	
  Bidding Procedures Order

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  -

  	
   

  	
  Sale Order (To be attached per Section 5.6(g))

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  -

  	
   

  	
  Escrow Agreement (To be attached per Section 2.2(a))

  	
   

  	
   

  
	
  Exhibit E

  	
   

  	
  -

  	
   

  	
  Form of Assignment Agreement

  	
   

  	
   

  
	
  Exhibit F

  	
   

  	
  -

  	
   

  	
  Form of Bill of Sale

  	
   

  	
   

  
	
  Exhibit G

  	
   

  	
  -

  	
   

  	
  Material Terms of Amendments to Real Estate Leases

  	
   

  	
   

  
	
  Exhibit H

  	
   

  	
  -

  	
   

  	
  Forms of Noncompetition Agreement

  	
   

  	
   

  
	
  Exhibit I

  	
   

  	
   

  	
   

  	
  Material Terms of Barrington/LA Sax Agreement

  	
   

  	
   

  

 

 iii

 

ASSET PURCHASE
AGREEMENT

THIS ASSET PURCHASE
AGREEMENT (this “Agreement”) is made as of November 22, 2006, by and
between Musician’s Friend, Inc., a Delaware corporation (“Purchaser”),
and Dennis Bamber, Inc., d/b/a The Woodwind & The Brasswind, an Indiana
corporation, and its chapter 11 estate (“Seller”), pursuant to the
following terms and conditions.

Recitals:

A.            Seller has
filed a voluntary petition (the “Petition”) for reorganization relief
pursuant to Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§
101-1330 (as amended, the “Bankruptcy Code”), in the United States
Bankruptcy Court for the Northern District of Indiana (the “Bankruptcy Court”),
which case shall be administered pursuant to order of the Bankruptcy Court (the
“Bankruptcy Case”).

B.            Purchaser desires to purchase
substantially all of the assets, contracts and properties of Seller related to
the Business and to assume certain specified liabilities from Seller (the “Acquisition”),
and Seller desires to sell, convey, assign, and transfer to Purchaser, such
assets, contracts and properties together with such specified liabilities.

C.            The Parties intend to effectuate the
transactions contemplated by this Agreement through a sale of substantially all
of Seller’s assets pursuant to Section 363 of the Bankruptcy Code.

D.            The execution and delivery of this Agreement and Seller’s
ability to consummate the transactions set forth in this Agreement are subject,
among other things, to the entry of an order of the Bankruptcy Court under, inter
alia, Sections 363 and 365 of the Bankruptcy Code.

E.             Seller and Purchaser have each approved the Acquisition.

Agreement:

NOW, THEREFORE, in
consideration of the foregoing premises, the mutual covenants and agreements
contained herein and other good and valuable consideration, the adequacy of
which is hereby acknowledged, Purchaser and Seller hereby agree as follows:

Article
1

Definitions

“Accounts Receivable
Adjustment Amount” shall have the meaning set forth in Section 2.4(a).

“Acquisition” shall
have the meaning set forth in Recital B.

“Action” means any
action, order, writ, injunction, judgment or decree outstanding or claim, suit,
litigation, proceeding, investigation or dispute.

“Adjustment Payment”
shall have the meaning set forth in Section 2.2(b)(iii).

“Affiliate” of a
Person means a Person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
the first-mentioned Person.  For purposes
of this definition, “control,” when used with respect to any specified Person,
means the power to direct or cause the direction of the management and policies
of such Person, directly or

 1
 

 

indirectly, whether through
ownership of voting securities or by contract or otherwise, and the terms “controlling”
and “controlled by” have meanings correlative to the foregoing.

“Allocation” shall
have the meaning set forth in Section 2.7.

“Alternative
Transaction” shall mean the sale of substantially all of the assets of
Seller outside the ordinary course of Seller’s business other than the
Acquisition, including any Successful Bid by any Person other than Purchaser.

“Ancillary Agreements”
means the Option Agreement, the Assumption Agreement, the Bill of Sale, the
Noncompetition Agreements and each other agreement entered into in connection
herewith.

“Assumed Accrued
Liabilities” shall have the meaning set forth in Section 2.2(c).

“Assumed Liabilities”
shall have the meaning set forth in Section 2.2(c).

“Assumption Agreement”
shall have the meaning set forth in Section 2.3(b).

“Auction” means an
auction to sell the Transferred Assets and the Assumed Liabilities.

“Bankruptcy Case”
shall have the meaning ascribed to such term in Recital A.

“Bankruptcy Code”
shall have the meaning ascribed to such term in Recital A.

“Bankruptcy Court”
shall have the meaning ascribed to such term in Recital A.

“Bankruptcy Rules”
shall mean the Federal Rules of Bankruptcy Procedure.

“Barrington/LA Sax
Agreement” shall have the meaning set forth in Section 10.2(b).

“Benefit Arrangement”
means any employment, consulting, severance or other similar contract,
arrangement or policy (written or oral) and each plan, arrangement, program,
agreement or commitment (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers’ compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, life, health or accident benefits (including any “voluntary employees’
beneficiary association” as defined in Section 501(c)(9) of the Code providing
for the same or other benefits) or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation rights, stock purchases or other
forms of incentive compensation or post-retirement insurance, compensation or
benefits which (a) is not a Welfare Plan, Pension Plan or Multiemployer Plan
and (b) is entered into, maintained, contributed to or required to be
contributed to or has been entered into, maintained, contributed to or required
to be contributed to, by any Seller or any ERISA Affiliate or under which any
Seller or any ERISA Affiliate has or may have any Liability.

“Bidding Procedures”
means the procedures in form and substance substantially identical to the
procedures attached hereto as Exhibit A, with any subsequent changes
reasonably acceptable to Purchaser.

“Bidding Procedures
Motion” means the motion, in form and substance reasonably acceptable to
Seller and Purchaser, filed by Seller pursuant to, inter  alia,
Sections 363 and 365 of the Bankruptcy Code, to obtain the Bidding Procedures
Order.

 2
 

 

“Bidding Procedures Order”
means an order of the Bankruptcy Court containing overbid procedures,
protections and findings, in accordance with the Bidding Procedures, in form
and substance substantially identical to the order attached hereto as Exhibit
B, with any subsequent changes reasonably acceptable to Purchaser.

“Bill of Sale” shall
have the meaning set forth in Section 2.3(b).

“Business” means
Seller’s businesses of marketing, selling, refurbishing or repairing or otherwise
providing musical instruments, as well as all other products, parts,
accessories, print materials, supplies and services related to such instruments
to consumers, students, schools and other educational institutions, whether
through the Store / Headquarters, the internet, catalog, mail order, direct
response sales or otherwise.

“Business Day” means
any day other than a Saturday or Sunday or a legal holiday on which banks in
Los Angeles, California or New York, New York are closed.

“Cash” means cash and
cash equivalents, including marketable securities and short-term investments.

“CERCLA” shall have
the meaning set forth in the definition of “Environmental Laws.”

“Closing” shall have
the meaning set forth in Section 2.3(a).

“Closing Date” shall
have the meaning set forth in Section 2.3(a).

“Closing Date Payment”
means an amount in cash equal to $32,100,000.

“Closing Date Qualified
Accounts Receivable” shall have the meaning set forth in Section 2.5(a).

“Closing
Inventory” shall have the meaning set forth in Section 2.6(a).

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

“Contracts” means all
agreements, contracts, leases (whether for real or personal property), purchase
orders, undertakings, covenants not to compete, employment agreements, confidentiality
agreements, licenses, instruments, obligations and commitments relating to the
Business or any of the Transferred Assets, whether written or oral.

“Court Order” means
any judgment, decision, consent decree, injunction, ruling or order of any
foreign, federal, state or local court or governmental agency, department or
authority that is binding on any Person or its property under applicable law.

“Cure Costs” means
all liabilities, obligations and commitments of Seller for all cure,
compensation and reinstatement costs or expenses of or relating to the
assumption and assignment of any Contracts to be assumed and assigned as part
of the Transferred Assets that are payable or necessary to cure any defaults pursuant to Section 365 of
the Bankruptcy Code on account of any obligation or default arising on or
before the Closing Date.

“Default” means (a) a
breach of or default under any Contract, (b) the occurrence of an event that
with or without the passage of time or the giving of notice or both would
constitute a breach of or default under any Contract or (c) the occurrence of
an event that with or without the passage of time or the giving

 3
 

 

of notice or both would give
rise to a right of termination, renegotiation or acceleration, or the
modification of the terms or conditions, under any Contract.

“Defective Merchandise”
means any item of Inventory that is damaged, defective and not saleable as “new.”

“Deposit” shall have
the meaning set forth in Section 2.2(a).

“Designated Employees”
shall have the meaning set forth in Section 5.10(b).

“Disclosure Schedule”
means the written disclosure schedule of Seller delivered to Purchaser prior to
the date hereof, a copy of which is attached hereto.

“Display, Return and
Obsolete Merchandise” means any item of Inventory that (a) has been removed
from its packaging, or installed, affixed or modified for purposes of a sample,
display or of demonstrating its function or design and is not salable as “new”
under Seller’s historic sales practices, (b) has been returned by a customer
and is not resalable as “new,” under Seller’s historic sales practices, or (c)
has been discontinued by the applicable vendor.

“Distribution Center”
means the distribution center of Seller located at 4955 Ameritech Drive, South
Bend, Indiana 46628.

“Employee Plans”
means all Benefit Arrangements, Multiemployer Plans, Pension Plans and Welfare
Plans.

“Employee Plan
Liabilities” means any Liability under, relating to or with respect to any
Employee Plans, including any Liability of any Employee Plan, Seller or any
ERISA Affiliate.

“Employees” means all
officers and directors of Seller and all other Persons employed by Seller in
connection with the Business on a full or part-time basis together with all
persons retained as “independent contractors” in connection with the Business
as of the relevant date.

“Encumbrance” means
any claim, lien, pledge, option, charge, easement, Tax assessment, security
interest, deed of trust, mortgage, right-of-way, encroachment, building or use
restriction, conditional sales agreement, encumbrance or other right of third
parties of any sort whatsoever, whether voluntarily incurred or arising by
operation of law, and includes any agreement to give any of the foregoing in
the future, and any contingent sale or other title retention agreement or lease
in the nature thereof, other than Permitted Encumbrances.

“Entity” means any
corporation (including any non-profit corporation), general partnership,
limited partnership, limited liability partnership, joint venture, estate, trust,
cooperative, foundation, society, political party, union, company (including
any limited liability company or joint stock company), firm or other
enterprise, association, organization or entity.

“Environmental Condition”
means the state of the environment, including natural resources (e.g., flora
and fauna), soil, surface water, ground water, any present or potential
drinking water supply, subsurface strata or ambient air, relating to or arising
out of the use, handing, storage, treatment, recycling, generation,
transportation, release, spilling, leaking, pumping, pouring, emptying,
discharging, injecting, escaping, leaching, disposal, dumping or threatened
release of Hazardous Substances by Seller or any of its predecessors or
successors in interest, or by any of its agents, Representatives, employees or
independent contractors when acting in such capacity on behalf of Seller.

 4
 

 

“Environmental Laws”
means all applicable federal, state, district and local laws, all rules or
regulations promulgated thereunder, and all orders, consent orders, judgments,
notices, permits or demand letters issued, promulgated or entered pursuant
thereto, relating to pollution or protection of the environment (including
ambient air, surface water, ground water, land surface or subsurface strata),
including (a) laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals, industrial materials, wastes
or other substances into the environment and (b) laws relating to the identification,
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, recovery, transport or other handling of pollutants, contaminants,
chemicals, industrial materials, wastes or other substances.  Environmental Laws shall include the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (“CERCLA”), the Toxic Substances Control Act, as amended, the
Hazardous Materials Transportation Act, as amended, the Resource Conservation
and Recovery Act, as amended, the Clean Water Act, as amended, the Safe
Drinking Water Act, as amended, the Clean Air Act, as amended, the Occupational
Safety and Health Act, as amended, and all analogous laws promulgated or issued
by any Governmental Body.

“Environmental, Health
and Safety Liability” means any cost, damage, Liability or other
responsibility of Seller arising from or under Environmental Law or
Occupational Safety and Health Law and consisting of or relating to: (a) any
environmental, health, or safety matters or conditions (including on-site or
off-site contamination, occupational safety and health, and regulation of
chemical substances or products); (b) fines, penalties, judgments, awards,
settlements, legal or administrative proceedings, damages, losses, claims, demands
and response, investigative, remedial, or inspection costs and expenses arising
under Environmental Law or Occupational Safety and Health Law; (c) financial
responsibility under Environmental Law or Occupational Safety and Health Law
for cleanup costs or corrective action, including any investigation, cleanup,
removal, containment, or other remediation or response actions (“Cleanup”)
required by applicable Environmental Law or Occupational Safety and Health Law
(whether or not such Cleanup has been required or requested by any governmental
body or any other Person) and for any natural resource damages; or (d) any
other compliance, corrective, investigative, or remedial measures required
under Environmental Law or Occupational Safety and Health Law.  The terms “removal,” “remedial,” and “response
action,” include the types of activities covered by CERCLA.

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate”
means any Entity which is (or at any relevant time was) a member of a “controlled
group of corporations” with, under “common control” with, or a member of an “affiliated
service group” with, or otherwise required to be aggregated with, Seller as set
forth in Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.

“Escrow Agent” means
LaSalle Bank, N.A. or an alternative independent banking institution reasonably
acceptable to Purchaser and Seller or otherwise appointed by the Bankruptcy
Court.

“Escrow Agreement”
shall have the meaning set forth in Section 2.2(a).

“Excluded Assets”
means Seller’s (a) rights under this Agreement, (b) Cash, (c) avoidance and
other bankruptcy estate causes of action under the Bankruptcy Code to which
Seller is, or becomes, a party, (d) all claims and causes of action of any kind
or nature relating to (i) the Excluded Assets, or (ii) any shareholder of
Seller (as such) or any agreements between Seller and any or all of its
shareholders, (e) retainers and prepayments for Professional Fees, (f) all
claims for refunds (together with interest accrued thereon) of Seller related
to Taxes in respect of periods ending on or prior to the Closing, (g) all
rights in connection with and the assets of any Employee Plans, (h) Seller’s
minute books and stock records and other documents relating to the
organization, maintenance and existence of Seller, (i) Seller’s prepaid
business, group and other insurance policies, Contracts of insurance, all
coverage, proceeds and

 5
 

 

recoveries thereunder and
all rights in connection therewith to the extent unrelated to the Transferred
Assets, (j) the capital stock or other ownership interest held by Seller in any
Subsidiary (it being understood, however, that any assets of a Subsidiary shall
nonetheless constitute Transferred Assets hereunder unless any such asset shall
be in the nature of an Excluded Asset), and (k) the assets identified in
Section 1.1(a) of the Disclosure Schedule.

“Excluded Liabilities”
shall have the meaning set forth in Section 2.2(d).

“Expense Reimbursement
Amount” means all reasonable out-of-pocket costs and expenses actually
incurred by Purchaser (including expenses of counsel, accountants, experts and
other outside consultants and legal expenses related to negotiating this
Agreement and investigating Seller or the Transferred Assets), not to exceed
$250,000, which shall, subject to Bankruptcy Court approval, constitute a
priority administrative expense under Section 503(b)(1) of the Bankruptcy Code
and shall be paid as set forth in Sections 5.7 and 9.3.

“Facilities”
means all offices, stores, warehouses, administration buildings, plants, other
facilities and all real property and related facilities owned or leased by
Seller, including the Store / Headquarters and the Distribution Center.

“Facilities
Leases” shall have the meaning set forth in Section 3.3(b).

“Final
Order” means an order of the Bankruptcy Court or other court of competent
jurisdiction as to which no appeal, notice of appeal or motion for rehearing or
new trial has been timely filed or, if any of the foregoing has been timely
filed, no stay shall have issued.

“Fixtures and Equipment”
means all of the (a) furniture, office equipment, fixtures, and furnishings of
Seller, (b) machinery, computer hardware, automobiles, trucks, trailers,
vehicles, spare parts, supplies, equipment, tools, supplies, molds, jigs,
patterns, dies, Refurbishment Equipment and other tangible personal property
owned or leased by Seller that is used in connection with the Business,
wherever located, and (c) all warranty rights associated with the foregoing.

“Governmental
Authorization” means any approval, consent, license, permit, waiver, or
other authorization issued, granted or otherwise made available by or under the
authority of any Governmental Body.

“Governmental Body”
means any: (a) nation, principality, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature; (b)
federal, state, local, municipal, foreign or other government; (c) governmental
or quasi-governmental authority of any nature (including any governmental
division, subdivision, department, agency, bureau, branch, office, commission,
council, board, instrumentality, officer, official, representative,
organization, unit, body or Entity and any court or other tribunal); (d) multi-national
organization or body; or (e) individual, Entity or body exercising, or entitled
to exercise, any executive, legislative, judicial, administrative, regulatory,
police, military or Taxing authority or power of any nature.

“Hazardous Substances”
means all pollutants, contaminants, chemicals, wastes and any other
carcinogenic, ignitable, corrosive, reactive, toxic or otherwise hazardous
substances or materials (whether solids, liquids or gases) subject to
regulation, control or remediation under Environmental Laws.

“Holdback Amount”
means $3,000,000.

 6
 

 

“Indebtedness” means
(a) any obligation for borrowed money, including any obligation for accrued and
unpaid interest thereon and any prepayment or other penalties or premiums, (b)
any capitalized lease obligations, (c) any obligation evidenced by a note,
deed, mortgage or secured by any property of Seller, (d) any reimbursement
obligations in respect of letters of credit, (e) any and all obligations of
Seller pursuant to the terms of the LaSalle Equipment Lease, including without
limitation all amounts necessary to exercise the purchase option thereunder,
and (f) all guarantees issued in respect of obligations of any other Person of
the type described in clauses (a) through (e).

“Intangible Assets”
means an asset, such as goodwill, Intellectual Property rights or similar
assets, with no physical properties.

“Intellectual Property”
means (a) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto and all patents, patent
applications and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions and reexaminations
thereof, (b) all United States or foreign trademarks, service marks, trade
dress, logos, trade names and corporate names, together with all translations,
adaptations, derivations and combinations thereof and including all goodwill
associated therewith and all applications, registrations and renewals in
connection therewith, (c) all copyrightable works, all copyrights and all
applications, registrations and renewals in connection therewith, (d) all mask
works and all applications, registrations and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, techniques, designs, drawings,
specifications, customer and supplier lists and databases, sales literature,
promotional literature, lists of distributors, artwork, purchasing records,
pricing and cost information, business and marketing plans and proposals, and
related documentation), (f) all computer software (excluding software commonly
available through licenses on standard commercial terms, such as software “shrink-wrap”
licenses, it being understood that such licenses nonetheless constitute
Transferred Assets), including data and related documentation and all software
necessary to maintain the operation of the Business, URLs, web sites, web
portals, and other forms of technology, (g) all other proprietary rights
related to the Business or the Transferred Assets, (h) all copies and tangible
embodiments thereof (in whatever form or medium) and (i) all rights to use
telephone and facsimile numbers related to the Business or the Transferred
Assets.

“Inventory” means all
merchandise owned and intended for resale in connection with the Business, all
manufactured and purchased parts, goods in process, raw materials, supply and
packing materials and finished goods and other tangible personal property that
is used in connection with the Business, including all instruments on hand at
the Store / Headquarters, loan, consignment and approval instruments, all
Defective Merchandise and all Display and Return Merchandise, in each case
wherever located.

“Inventory Adjustment
Amount” shall have the meaning set forth in Section 2.4(b).

“Inventory Value”
shall have the meaning set forth in Section 2.6(a).

“Key Software Licenses”
shall have the meaning set forth in Section 3.17(d).

“LaSalle Equipment Lease”
shall mean the Master Lease Agreement between Seller and LaSalle National
Leasing Corporation dated June 27, 2005.

“Leased Real Property”
shall have the meaning set forth in Section 3.3(b).

“Legal Requirement”
means any applicable federal, state, local, municipal, foreign or other law,
statute, legislation, constitution, principle of common law, resolution,
ordinance, code, edict, decree,

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proclamation, treaty,
convention, rule, regulation, ruling, directive, pronouncement, requirement,
notice requirement, guideline, Court Order, specification, determination,
decision, opinion or interpretation issued, enacted, adopted, passed, approved,
promulgated, made, implemented or otherwise put into effect by or under the
authority of any Governmental Body.

“Liabilities Adjustment
Amount” shall have the meaning set forth in Section 2.4(b).

“Liability” means any
direct or indirect liability, Indebtedness, obligation, commitment, expense,
claim, deficiency, guaranty or endorsement of any type whatsoever, whether
accrued or unaccrued, absolute or contingent, matured or unmatured, liquidated
or unliquidated, known or unknown, asserted or unasserted, due or to become
due.

“Material Adverse Effect”
means any material adverse effect on or change with respect to the business,
operations, assets, Liabilities, financial condition, results of operations,
properties or prospects of Seller or the Business taken as a whole that (a)
results in the inability of Seller to convey to Purchaser all of the material
elements necessary to conduct the Business, including the Intellectual Property
used in the Business, accounts receivable, Facilities, Inventory and other
assets as contemplated by this Agreement, or (b) results in the Facilities
ceasing to materially operate in their current condition; provided, however,
that any effect or change arising out of or resulting from any of the following
shall not be deemed (either alone or in combination) a Material Adverse Effect:
(i) the filing of the Bankruptcy Case or the announcement or pendency of the
Acquisition or (ii) conditions affecting the industry or industry sector in
which Seller participates or the United States economy as a whole.

“Material Contracts”
shall have the meaning ascribed to such term in Section 3.6(a).

“Multiemployer Plan”
means any “multiemployer plan,” as defined in Section 3(37) or 4001(a)(3) of
ERISA, which any Seller or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or maintained, administered,
contributed to or was required to contribute to, or under which any Seller or
any ERISA Affiliate has or may have any Liability.

“Noncompetition Agreement”
shall have the meaning set forth in Section 2.3(b).

“Nonqualifying
Closing Inventory” shall have the meaning set forth in Section 2.6(a).

“Occupational Safety and
Health Law” means any applicable Legal Requirement designed to provide safe
and healthful working conditions and to reduce occupational safety and health
hazards.

“Owned Real Property”
means any real property owned in fee by Seller.

“Party” shall mean
any Person who is a party to this Agreement.

“PBGC” shall mean the
Pension Benefit Guaranty Corporation.

“Pension Plan” means
any “employee pension benefit plan” as defined in Section 3(2) of ERISA (other
than a Multiemployer Plan) which Seller or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or maintained,
administered, contributed to or was required to contribute to, or under which
Seller or any ERISA Affiliate has or may have any Liability.

“Permits” means all
licenses, permits, franchises, approvals, authorizations, consents or orders
of, or filings with, any Governmental Body, necessary or customary for the
present conduct or operation of the Business or ownership of the Transferred
Assets.

 8
 

 

“Permitted Encumbrances”
means the Encumbrances identified in Section 1.1(b) of the Disclosure Schedule.

“Person” means an
individual, Entity or Governmental Body.

“Personal Property
Transferred Assets” shall have the meaning set forth in Section 3.4(a).

“Petition”
shall have the meaning ascribed to such term in the recitals hereof.

“Petition
Date” shall mean the date that Seller commence the Bankruptcy Case before
the Bankruptcy Court.

“Pre-Closing
Period” means the period from the date of the Agreement through the Closing
Date.

“Preliminary
Estimate” shall have the meaning set forth in Section 2.6(a).

“Proceeding”
means any action, suit, litigation, arbitration, proceeding (including any
civil, criminal, administrative, investigative or appellate proceeding and any
informal proceeding), prosecution, contest, hearing, inquiry, inquest, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any Governmental Body or any arbitrator or
arbitration panel.

“Professional
Fees” shall mean compensation for fees or reimbursement of expenses of any
Person in the Bankruptcy Case under Sections 327, 328, 329, 330, 331, 364, 503
or 506 of the Bankruptcy Code or otherwise.

“Purchaser” shall
have the meaning set forth in the preamble.

“Purchase Price”
means (a) the Deposit, plus (b) the Closing Date Payment, plus (c) the
Adjustment Payment, plus (d) the Assumed Liabilities.

“Qualified Bid” means
a written proposal provided to Seller for the purchase of substantially all of
its assets by a potential bidder, as more fully described in the Bidding
Procedures.

“Qualified Bidder”
means a person or entity who/that has delivered a Qualified Bid to Seller and
that Seller in good faith determines is reasonably likely (based on the
availability of financing and proof of financial ability, experience and other
relevant considerations) to be able to consummate a transaction based on such
proposal, if selected as the successful bidder. 
Purchaser shall be deemed to be a Qualified Bidder.

“Refurbishment Equipment”
means any tools, supplies, inventory and spare parts used primarily in Seller’s
repair or refurbishment of instruments.

“Related Party” means
(a) any officer, director or shareholder of Seller, and any officer, director,
partner, manager, or relative of such officers, directors and shareholders, and
(b) any Person in which Seller or any Affiliate or relative of any such Person
has any direct or indirect interest.

“Representative”
means, with respect to any Person, any officer, director, principal, attorney,
accountant, agent, employee, financing source or other representative of such
Person.

“Sale Hearing” means
the hearing conducted by the Bankruptcy Court to approve the transactions
contemplated by this Agreement.

 9
 

 

“Sale Motion” means
the motion, in form and substance reasonably acceptable to Seller and
Purchaser, filed by Seller pursuant to, inter  alia, Sections 363
and 365 of the Bankruptcy Code to obtain the Sale Order and approve the
transactions contemplated by this Agreement.

“Sale Order” means an
order of the Bankruptcy Court, in form and substance substantially identical to
the sale order attached hereto as Exhibit C, with such subsequent
changes reasonably acceptable to Purchaser.

“Seller” shall have
the meaning set forth in the preamble.

“Seller’s
Cost” shall have the meaning set forth in Section 2.6(b).

“Store / Headquarters”
mean Seller’s retail store and headquarters located at 4004 Technology Drive, South Bend, Indiana 46628.

“Subsidiary” means,
with respect to any Person, (a) any corporation of which at least 50% of the
securities or interests having, by their terms, ordinary voting power to elect
members of the board of directors, or other persons performing similar
functions with respect to such corporation, is held, directly or indirectly by
such Person and (b) any partnership or limited liability company of which (i)
such Person is a general partner or managing member or (ii) such Person
possesses a 50% or greater interest in the total capitalization or total income
of such partnership or limited liability company.

“Successful
Bid” shall mean the highest and best binding offer to acquire the
Transferred Assets and assume the Assumed Liabilities.

“Tax” means any
federal, state, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise, profits, withholding,
social security, unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.

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

“Termination Fee”
shall have the meaning set forth in Section 5.7.

“Transferred Assets”
shall have the meaning set forth in Section 2.1.

“Transferred Employees”
means Persons who were Employees of Seller immediately prior to the Closing who
become employees of Purchaser or one of its Affiliates at the Closing.

“Welfare Plan” means
any “employee welfare benefit plan” as defined in Section 3(1) of ERISA, which
Seller or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or maintained, administered, contributed to or was
required to contribute to, or under which Seller or any ERISA Affiliate has or
may have any Liability.

 10

 

ARTICLE 2

PURCHASE AND SALE OF TRANSFERRED ASSETS; CLOSING

2.1           Purchase of
Transferred Assets.  At the Closing,
Seller shall cause to be sold, assigned, transferred, conveyed and delivered to
Purchaser good and valid title to the Transferred Assets, free of any
Encumbrances, on the terms and subject to the conditions set forth in this
Agreement and in accordance with Sections 363 and 365 of the Bankruptcy
Code.  For purposes of this Agreement, “Transferred
Assets” means and includes substantially all of the properties, rights,
interests and other tangible and intangible assets of Seller and its
Subsidiaries relating to the Business (wherever located and whether or not
required to be reflected on a balance sheet prepared in accordance with
generally accepted accounting principles) and all Intellectual Property of
Seller including any assets acquired by Seller during the Pre-Closing Period; provided,
however, that the
Transferred Assets shall not include any Excluded Assets.  Without limiting the generality of the
foregoing and except for the Excluded Assets, the Transferred Assets shall
include:

(a)           Receivables.  All accounts receivable (including all
Closing Date Qualified Accounts Receivable), notes receivable and other
receivables of Seller relating to the Business, and all rights to collect from
customers (and to retain) all fees and other amounts payable, or that may
become payable, to Seller with respect to products sold or services performed
by or on behalf of Seller in connection with the Business on or prior to the
Closing Date;

(b)           Inventory.  All Inventory;

(c)           Contracts.  All rights of Seller under (i) purchase
orders or similar agreements (A) for branded product, and (B) for the
proprietary products identified in Section 2.1(c) of the Disclosure Schedule,
and (ii) the other executory Contracts relating to the Business identified in
Section 2.1(c) of the Disclosure Schedule, including all confidentiality,
non-disclosure and non-solicitation agreements to which Seller is a party; provided,
however, that Purchaser may add or remove Contracts from Section 2.1(c)
of the Disclosure Schedule at any time or from time to time up to the close of
business on the Business Day before the Sale Hearing;

(d)           Intellectual Property.  All Intellectual Property of Seller used in
the Business, including the items set forth in Sections 2.1(d) and 3.17(c) of
the Disclosure Schedule and software commonly available through licenses on
standard commercial terms, such as software “shrink-wrap” licenses;

(e)           Books and Records.  All books, papers, records, files, data (in
paper or electronic format) of Seller, including all purchasing and sales
records, customer lists, vendor lists and accounting and financial records;

(f)
           Permits.  All Permits, to the extent transfer is
permitted under applicable law;

(g)           Prepaid Expenses and Deposits.  All right, title and interest in and to all
prepaid expenses and deposits relating to the Business, including all security
or other deposits held by any third party with respect to the Store / Headquarters
and Distribution Center;

(h)           Causes of Actions.  All claims, deposits, prepayments, refunds,
causes of action, choses in action, rights of recovery, rights of setoff and
rights of recoupment arising out of or relating to the Business or the Transferred
Assets;

 11
 

 

(i)            Personal and Other Property.  Any other assets, including Fixtures and
Equipment, owned by Seller used in the operation of the Business as well as all
property presently subject to the LaSalle Equipment Lease (including any
pending but not received merchandise returns from customers);

(j)            Goodwill.  Any and all goodwill related to the Business
or any of the foregoing;

(k)           Facilities Leases.  All of Seller’s right, title and interest in,
to and under Leases relating to the Store / Headquarters and the Distribution
Center, subject to Section 10.2;

(l)            Insurance Proceeds.  Proceeds under any insurance policy of Seller
received or receivable with respect to any Transferred Asset; and

(m)          Warranty and Similar Rights.  All rights and claims of Seller pursuant to
warranties, representations, guarantees and indemnities made by suppliers in
connection with the Transferred Assets or service furnished to Seller
pertaining to or affecting the Transferred Assets.

2.2           Consideration.

(a)           Deposit.  Purchaser, Seller and the Escrow Agent will
execute an escrow agreement in form reasonably satisfactory to Purchaser and
Seller to be attached hereto as Exhibit D (the “Escrow Agreement”),
pursuant to which Purchaser shall promptly upon entry of the Bidding Procedures
Order deposit $2,000,000 (the “Deposit”) in an escrow account held by
the Escrow Agent.  At the Closing Date,
the Deposit shall be paid to Seller as part of the Purchase Price in accordance
with the Escrow Agreement and this Agreement; provided, however:

(i)            If the Agreement is
terminated solely as a result of a material breach by Purchaser of its
obligations under this Agreement (and Seller has not materially breached any of
its obligations under this Agreement), the Escrow Agent shall, promptly after
the termination of this Agreement, pay the Deposit (less any fees and expenses
owed to the Escrow Agent), to Seller pursuant to the terms of the Escrow
Agreement.  Seller’s receipt of the
Deposit shall be liquidated damages for, and in full settlement and
satisfaction of, any damages of any kind that Seller may suffer as a result of
a breach by Purchaser of its obligations hereunder prior to Closing and shall
be Seller’s sole and exclusive remedy for Purchaser’s breach of its obligations
hereunder prior to Closing.

(ii)           If the Agreement is
terminated for any reason other than as a result of a material breach by
Purchaser of its obligations under this Agreement, the Escrow Agent shall,
promptly after the termination of this Agreement, pay the Deposit (less any
fees and expenses owed to the Escrow Agent), to Purchaser pursuant to the terms
of the Escrow Agreement.  Purchaser’s
receipt of the Deposit and the Termination Fee or the Expense Reimbursement
Amount immediately upon termination shall be Purchaser’s sole and exclusive
remedy for any damages of any kind that Purchaser may suffer as a result of the
Closing not being consummated with Purchaser as the buyer in accordance with
this Agreement.

(b)           Cash Consideration.  As consideration for the sale of the Transferred
Assets to Purchaser:

(i)            Purchaser shall pay
to Seller the Closing Date Payment on the Closing Date in accordance with
Section 2.3(b)(i);

(ii)           Purchaser shall
assume the Assumed Liabilities on the Closing Date in accordance with Section
2.2(c); and

 12
 

 

(iii)          Purchaser shall pay
to Seller the Holdback Amount, minus the
Accounts Receivable Adjustment Amount and the Inventory Adjustment Amount, and plus
or minus the Liabilities Adjustment Amount (collectively, the “Adjustment
Payment”), no later than two (2) Business Days after the later to occur of
the final determination of each of (1) the Closing Date Qualified Accounts
Receivable and the Liabilities Adjustment Amount and (2) reconciliation and
verification of the Inventory Value.

(c)           Assumed Liabilities.  For purposes of this Agreement, “Assumed
Liabilities” means only the following Liabilities of Seller: (i)
Liabilities first arising after the Closing Date that relate solely to the
operation of the Business by Purchaser; (ii) all obligations and liabilities of
Seller first arising after the Closing Date under Contracts specifically
described in Section 2.1(c) to the extent such obligations and
liabilities do not arise from or relate to any act or omission by Seller
under any of such Contracts; (iii) an amount equal to the accrued payroll and
vacation liabilities (which Purchaser may fund or, in the case of vacation
liabilities, elect to assume in the form of vacation time credit under its
policies, at its sole election) for Transferred Employees as of Closing, such
amount shall not exceed $1,500,000 in the aggregate under any circumstances;
(iv) employee benefits for Transferred Employees arising after the Closing
Date, in form and amount consistent with those provided by Purchaser to its
employees; and (v) an amount equal
to the value of accrued liabilities related to customer credits and other
amounts due to customers of Seller.  The
accrued Liabilities described in Section 2.2(c)(iii) and (v) are herein
referred to as the “Assumed Accrued Liabilities.”  Notwithstanding anything to the contrary
contained in this Agreement, payments of amounts due pursuant to Section
2.2(c)(iii) (up to the $1,500,000 cap) and (v) shall not constitute an
assumption of the obligations and liabilities underlying or related to such
amounts unless Purchaser expressly elects to assume vacation time credits in
writing and then solely to the extent of the hours of credit it elects to
assume whether or not sufficient to extinguish the liability of Seller to such
employee.  No Transferred Employee shall
have any claim against Purchaser pursuant to this Section 2.2(c) or otherwise
under this Agreement except pursuant to a written offer of employment delivered
directly by Purchaser to such individual Transferred Employee.

(d)           Excluded Liabilities.  Notwithstanding anything to the contrary
contained in this Agreement, Purchaser shall not be obligated to assume or to
perform or discharge any Liability of Seller, any ERISA Affiliate or any
Employee Plan (such other Liabilities being referred to as “Excluded
Liabilities”) other than the Assumed Liabilities.  Without limiting the foregoing, Seller shall
retain and be responsible for, and Purchaser shall not be obligated to assume
or to perform or discharge, and does not assume or perform or discharge, any
Liability of Seller, any ERISA Affiliate or any Employee Plan at any time
arising from or otherwise attributable to:

(i)            any Liability of
Seller relating to the Business that arises on or before the Closing Date and
is not specifically assumed by Purchaser;

(ii)           any Liability of
Seller relating to real property leases or Facilities not specifically assumed
by Purchaser pursuant to Section 10.2;

(iii)          any Liability
relating to the Excluded Assets;

(iv)          any Liability of
Seller relating to Seller’s execution, delivery or performance of this
Agreement or any document contemplated by this Agreement;

(v)           all Liabilities of
Seller for all Cure Costs;

(vi)          any outstanding
bids, purchase orders, customer credits, customer deposits or lay away
purchases to the extent not included in Section 2.1;

 13
 

 

(vii)         any transfer Taxes
with respect to the transactions contemplated by this Agreement;

(viii)        any Environmental,
Health and Safety Liability of Seller;

(ix)           any Employee Plan
Liability; and

(x)            any Professional
Fees or brokerage fees of Seller.

2.3           Closing.

(a)           The consummation of the purchase of
the Transferred Assets by Purchaser provided for in this Agreement (the “Closing”)
shall occur at the offices of Barnes & Thornburg LLP, 100 N. Michigan
Street, South Bend, Indiana 46601, at 10:00 A.M. on the first Business Day
after the day on which all conditions to Closing that must be satisfied prior
to Closing have been satisfied or, to the extent permitted, waived (other than
conditions that are intended to be satisfied or, to the extent permitted,
waived, at the Closing), or at such other date, time or place as the parties
may agree (the “Closing Date”). 
The Transferred Assets shall be transferred to Purchaser at the Closing
on the Closing Date, and Seller shall do all things that are deemed necessary
by Purchaser for the valid transfer of the Transferred Assets.

(b)           At the Closing:

(i)            Purchaser shall pay
to Seller, in cash by wire transfer of immediately available funds, an amount
equal to the Closing Date Payment;

(ii)           The Escrow Agent
shall pay to Seller, in cash by wire transfer of immediately available funds,
an amount equal to the Deposit;

(iii)          Purchaser and
Seller shall execute and deliver to one another, as applicable:

(1)           an assignment and assumption agreement
in the form attached hereto as Exhibit E (the “Assumption Agreement”);

(2)           a bill of sale in the form attached
hereto as Exhibit F (the “Bill of Sale”); and

(3)           amendments to the Facilities Leases
in the forms attached hereto as Exhibit G and duly countersigned by the
owner of such properties

(4)           the Barrington/LA Sax Agreement in
the form attached hereto as Exhibit I and duly countersigned by Barrington,
Inc.;

(iv)          Seller shall deliver
or cause to be delivered to Purchaser:

(1)           a certificate executed on behalf of
Seller by its president or chief executive officer (the “Seller Closing
Certificate”) confirming that, except as expressly set forth in the Seller
Closing Certificate, each of the conditions set forth in Sections 7.1, 7.2,
7.4, 7.6 and 7.9 has been satisfied in all respects;

 14
 

 

(2)           all necessary forms and certificates
complying with applicable Legal Requirements, duly executed and acknowledged by
Seller, certifying that the transactions contemplated hereby are exempt from
withholding under Section 1445 of the Code;

(3)           assignments (including Intellectual
Property, personal property, lease and Contract transfer documents) and such
other instruments of sale, transfer, conveyance and assignment as Purchaser and
its counsel may reasonably request;

(4)           properly endorsed certificates of
title for each vehicle that is an Transferred Asset (and each other Transferred
Asset where ownership is established through a certificate of title);

(5)           a certificate of the secretary of
Seller in customary form;

(6)           a Certificate of Existence, dated as
of a date within five days of the Closing Date, of Seller issued by the
Secretary of State of the state of organization of Seller;

(7)           a noncompetition agreement in the
forms attached hereto as Exhibit H (the “Noncompetition Agreement”),
executed by Dennis Bamber; and

(8)           such other documents as Purchaser or
its counsel may reasonably request in connection with the transactions
contemplated by this Agreement.

(v)           Purchaser shall deliver or cause to be delivered to Seller
a certificate executed on behalf of Purchaser by its president or chief
executive officer (the “Purchaser Closing Certificate”) confirming that,
except as expressly set forth in the Purchaser Closing Certificate, each of the
conditions set forth in Sections 8.1 and 8.2 has been satisfied in all
respects.

2.4           Purchase Price
Adjustment.  The Purchase Price is
premised on (x) the aggregate Closing Date Qualified Accounts Receivable of
Seller being not less than $3,000,000 on the Closing Date, (y) the aggregate Assumed
Accrued Liabilities being $2,100,000, and (z) the aggregate Inventory Value
being not less than $33,000,000 on
the Closing Date.

(a)           In the event that the Closing Date
Qualified Accounts Receivable, as determined pursuant to Section 2.5, is less
than $3,000,000, the Purchase Price shall be decreased by one dollar for each
dollar of such deficiency (collectively, the “Accounts Receivable Adjustment
Amount”).

(b)           In the event that the aggregate
Assumed Accrued Liabilities, as determined pursuant to Section 2.5, is more or
less than $2,100,000 on the Closing Date, the Purchase Price shall be increased
or decreased, as applicable, by one dollar for each dollar of such excess or
deficiency (collectively, the “Liabilities Adjustment Amount”).

(c)           In the event that the aggregate
Inventory Value, as determined pursuant to Section 2.6, is less than
$33,000,000 on the Closing Date, the Purchase Price shall be decreased by one
dollar for each dollar of such deficiency (collectively, the “Inventory
Adjustment Amount”).

(d)           To the extent that after final
determination of the Closing Date Qualified Accounts Receivable and the Assumed
Accrued Liabilities and the final reconciliation of the Inventory Value, it is
determined that the Closing Date Payment exceeded the amount that was due
Seller under this Agreement, any overpayment shall be immediately refunded to
Purchaser from Seller’s estate.

 15
 

 

2.5           Calculation of
Closing Date Qualified Accounts Receivable and Assumed Accrued Liabilities.

(a)           As soon as reasonably practicable
following the Closing Date, and in any event within ten (10) days thereof,
Seller shall cause to be prepared and delivered to Purchaser calculations of
(i) the aggregate accounts receivable of Seller due from unrelated third
parties, net of a reserve consistent with past practice under valid orders that
have been fully performed by Seller and that are not more than 365 days old at
Closing (“Closing Date Qualified Accounts Receivable”) and (ii) the
aggregate Assumed Accrued Liabilities. 
The Closing Date Qualified Accounts Receivable and the Assumed Accrued
Liabilities amount shall be prepared in accordance with generally accepted
accounting principles consistently applied. 
If reasonably requested by Seller, Purchaser will provide Seller with
access to the records of the Business in order to determine the Closing Date
Qualified Accounts Receivable and the Assumed Accrued Liabilities.  The parties also acknowledge and agree that
accounting staff previously employed by Seller shall assist Seller, at no cost
to Seller, in determining the Closing Date Qualified Accounts Receivable and
the Assumed Accrued Liabilities on behalf of Seller even though such employees
may be employed by Purchaser after the Closing.

(b)           Upon delivery of the calculation of
Closing Date Qualified Accounts Receivable and/or the Assumed Accrued
Liabilities, Seller will provide Purchaser and its Representatives full access
to Seller’s records to the extent reasonably related to Purchaser’s evaluation
of the calculation of such amounts.  If
Purchaser shall disagree with the calculation of either the Closing Date
Qualified Accounts Receivable or the Assumed Accrued Liabilities, it shall
notify Seller of such disagreement in writing, setting forth in reasonable
detail the particulars of such disagreement, within twenty (20) days after
receipt of the respective calculation of Closing Date Qualified Accounts
Receivable or Assumed Accrued Liabilities (subject to extension for any period
of inadequate access to the underlying records).  In the event that Purchaser does not provide
such a notice of disagreement within such twenty (20) day period (as may be so
extended), Purchaser shall be deemed to have accepted the calculation of
Closing Date Qualified Accounts Receivable and Assumed Accrued Liabilities
delivered by Seller, which shall be final, binding and conclusive on the
Parties for the purposes of determining the Accounts Receivable Adjustment
Amount and the Liabilities Adjustment Amount. 
In the event any such notice of disagreement is timely provided,
Purchaser and Seller shall use commercially reasonable efforts for a period of
twenty (20) days (or such longer period as they may mutually agree) to resolve
any disagreements with respect to the calculation of Closing Date Qualified
Accounts Receivable and/or the Assumed Accrued Liabilities.  If, at the end of such period, they are
unable to resolve such disagreements, then the Bankruptcy Court shall resolve
any remaining matters in dispute.

2.6           Inventory.

(a)           Inventory Valuation.

(i)            In accordance with
Section 2.6(b) of this Agreement, and prior to the Closing, Seller shall
deliver to Purchaser a preliminary estimate (the “Preliminary Estimate”)
of the aggregate value of the Inventory (“Inventory Value”) to be
acquired by Purchaser hereunder (the “Closing Inventory”), which
preliminary aggregate value estimate shall be based on the Seller’s Cost
information supplied to Purchaser for each Inventory item.

(ii)           Purchaser and
Seller shall jointly conduct an actual physical inspection of the Inventory in
order to (A) verify the Seller’s Cost information provided by the Seller on the
Closing Inventory and (B) examine the Closing Inventory to identify items of
Closing Inventory, if any, that constitute Defective Merchandise or Display,
Return or Obsolete Inventory (the “Nonqualifying Closing Inventory”).
The physical inventory shall commence on the Closing Date and be completed
within five

 16
 

 

(5)
Business Days after the Closing Date (unless extended by mutual agreement of
the parties).  Purchaser shall prepare,
and submit to Seller, for Seller’s review and approval, a proposed final
valuation of the Closing Inventory within twenty (20) Business Days after the
completion of the physical inventory. 
Purchaser will provide Seller with access to its records and the
Facilities to the extent reasonably related to its review of Purchaser’s
proposed final valuation of the Closing Inventory.  All items of Closing Inventory that are not
Nonqualifying Closing Inventory shall be valued at Seller’s Cost, as verified
by Purchaser.  All Nonqualifying Closing
Inventory shall be reviewed for appropriate lower of cost or market valuation
adjustment as mutually agreed upon by Purchaser and Seller, it being expressly
understood that the calculation of market value shall be determined by using
the expected selling price reduced by (X) normal selling costs and (Y) a
reasonable selling margin representative of the historical selling margin of
Seller in the product category.

(b)           Inventory Valuation Methodology.  The following conventions shall apply to the
identification and valuation of the Inventory, the Closing Inventory and the
Nonqualifying Closing Inventory:  (i) the
Preliminary Estimate shall be based on Seller’s customary Inventory report
prepared by Seller as of two business days or less of Closing and delivered to
Purchaser prior to Closing, the value for which shall be based on Seller’s Cost
as contained in such report; (ii) the Closing Inventory and Nonqualifying
Closing Inventory shall be based on the joint physical inspection of the
Inventory by Purchaser and Seller, (iii) 
Purchaser’s proposed final valuation shall include verified Seller’s
Cost information for each item of Inventory and also shall include Inventory
which has been prepaid by Seller and received after the Closing; (iv) the
Closing Inventory shall not include “return to vendor” or repair items; (v) the
value of any Inventory acquired by Purchaser following the Closing Date
(including customer returns) shall not be included in the Inventory Value; and
(vi) Inventory value, other than Nonqualifying Closing Inventory, shall be
based on Seller’s historical costing method as verified by Purchaser (“Seller’s
Cost”), unless Seller, in its sole discretion, agrees to a lesser value, in
which event the lesser value shall become the “Seller’s Cost.”  The parties shall bear their own expenses in
the valuation of the Inventory, the Nonqualifying Closing Inventory and Closing
Inventory.

(c)           Inventory Valuation Disputes.  If Seller shall disagree with the Purchaser’s
final calculation of the value of the Closing Inventory that Seller received
from Purchaser pursuant to Section 2.6(a), it shall notify Purchaser of such
disagreement in writing, setting forth in reasonable detail the particulars of
such disagreement, within twenty (20) days after receipt of the calculation of
the valuation of the Closing Inventory, accompanied by reasonable supporting
documentation.  In the event that Seller
does not provide such a notice of disagreement within such twenty (20) day
period, Seller shall be deemed to have accepted the calculation of Closing
Inventory.  In the event any such notice
of disagreement is timely provided, Purchaser and Seller shall use commercially
reasonable efforts for a period of twenty (20) days following receipt of the
calculation of the valuation of the Closing Inventory (or such longer period as
they may mutually agree) to resolve any disagreements with respect to the
calculation of the Closing Inventory. 
If, at the end of such period, they are unable to resolve such
disagreements, the Bankruptcy Court shall resolve any remaining matters in
dispute.

2.7           Allocation.  Purchaser shall use its commercially
reasonable efforts to deliver to Seller, within ninety (90) days following the
Closing Date, the allocation of the Purchase Price, among the Transferred
Assets (the “Allocation”).  The Allocation will be made by Purchaser in
good faith and in accordance with Section 1060 of the Code and the Treasury
regulations promulgated thereunder (it being understood that an allocation
provided by an independent third party shall be deemed to be in good
faith).  Seller and Purchaser agree to (a) be bound by the Allocation,
(b) act in accordance with the Allocation in the preparation of financial
statements and filing of all Tax Returns (including filing Form 8594 with their
United States federal income Tax Return for the taxable year that includes the
date of the Closing) and in the course of any Tax audit, Tax review or Tax
litigation relating thereto and (c) take no position and cause their
Affiliates to take no position inconsistent with the Allocation for income Tax
purposes,

 17
 

 

including United States federal and state income Tax and foreign income
Tax.  Not later than thirty (30) days
prior to the filing of their respective Forms 8594 (and analogous state law
forms) relating to the Acquisition, each party shall deliver to the other party
a copy of its Form 8594 (and any analogous state law forms).

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF SELLER

As an inducement of
Purchaser to enter into this Agreement, Seller hereby makes the following
representations and warranties to Purchaser, except as otherwise set forth in
the Disclosure Schedule.  The sections of
the Disclosure Schedule are numbered to correspond to the various subsections
of this Article 3 setting forth certain exceptions to the representations and
warranties contained in this Article 3 and certain other information called for
by this Agreement.  No disclosure made in
any particular section of the Disclosure Schedule shall be deemed made in any
other section of the Disclosure Schedule unless (a) expressly made therein (by
cross-reference or otherwise) or (b) it is reasonably apparent on its face that
such disclosure applies to such other section of the Disclosure Schedule.  As used in this Agreement, references to the “knowledge”
or “awareness” means with respect to any matter in question, in the case of
Seller, if the president or vice president of Seller has actual knowledge or
knowledge that such person would reasonably be expected to have in the ordinary
course of his employment duties.

3.1           Organization
and Good Standing; Shareholders.  Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Indiana,
with full corporate power and authority to conduct its business as presently
conducted, to own or use the properties and assets that it purports to own or
use and to perform all its obligation under this Agreement.  Indiana is the only state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires Seller to
be qualified to do business as a corporation (foreign or domestic).  Section 3.1(a) of the Disclosure Schedule
contains a complete and accurate list of all states or other jurisdictions in
which Seller is qualified to do business as a foreign corporation. Except as
set forth in Section 3.1(b) of the Disclosure Schedule, Seller currently has
no, and has never had, any Subsidiaries.

3.2           Authorization.  Seller has all necessary corporate power and
authority to enter into this Agreement and the Ancillary Agreements to which it
is a party and has taken all corporate action necessary to consummate the
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder, subject to requisite Bankruptcy Court approval.  This Agreement has been duly executed and
delivered by Seller, and subject to requisite Bankruptcy Court approval, this
Agreement is, and upon execution and delivery thereof each Ancillary Agreement
will be, a valid and binding obligation of Seller, enforceable against Seller
in accordance with its terms, except that enforceability may be limited by the
effect of (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors or (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).

3.3           Real Property.

(a)           Each Facility is in such operating
condition and repair, subject to normal wear and tear, as is necessary for the
conduct of the Business in material compliance with applicable Legal
Requirements.

(b)           Seller has no Owned Real
Property.  The Store / Headquarters and
the Distribution Center are the only Facilities of Seller, both of which are
leased by Seller.  Seller has delivered a
true and correct copy of the leases for the Store / Headquarters and the
Distribution Center (the “Facilities Leases”) to Purchaser.  The Facilities Leases constitute all Leases,
subleases or other

 18
 

 

occupancy agreements
pursuant to which Seller occupies or uses the Facilities.  Section 3.3 of the Disclosure Schedule sets
forth a true, correct and complete list of each parcel of real property leased,
subleased or occupied by Seller in the operation of the Business (the “Leased
Real Property”).  The Leased Real
Property constitutes all of the real property leased, subleased or occupied by
Seller as of the date hereof in the operation of the Store / Headquarters and
the Distribution Center.

3.4           Personal Property.

(a)           Seller owns or leases all Transferred
Assets that constitute personal property (“Personal Property Transferred
Assets”) necessary for the conduct of the Business as presently conducted,
and the Personal Property Transferred Assets are in such operating condition
and repair, subject to normal wear and tear, as is necessary for the conduct of
the Business in material compliance with applicable Legal Requirements.  There is no material deferred maintenance,
nor any significant pending maintenance requirements, with respect to any
Personal Property Transferred Assets.  As
of the Closing, each item of personal property that constitutes a Transferred
Asset will be located solely at a Facility.

(b)           Seller has good and marketable title
to all such Personal Property Transferred Assets owned by it, free and clear of
any and all Encumbrances.  With respect
to each such item of Personal Property Transferred Assets: (i) there are no
Leases, subleases, licenses, options, rights, concessions or other agreements,
written or oral, granting to any party or parties the right of use of any
portion of such item of personal property, (ii) there are no outstanding
options or rights of first refusal in favor of any other party to purchase any
such item of personal property or any portion thereof or interest therein and
(iii) there are no parties other than Seller who are in possession of or who
are using any such item of personal property.

(c)           Section 3.4(c) of the Disclosure
Schedule sets forth all leases for personal property that constitute
Transferred Assets involving annual payments in excess of $25,000, true and
correct copies of which have been delivered to Purchaser.  Seller has good and valid leasehold title to
all Fixtures and Equipment and other tangible Personal Property Transferred
Assets leased by it from third parties, free and clear of any and all
Encumbrances.

(d)           With respect to each lease listed in
Section 3.4(c) of the Disclosure Schedule and except as set forth in Section
3.4(d) of the Disclosure Schedule, (i) there has been no material Default under
such lease by Seller, or, to Seller’s knowledge, by any other Person, (ii) to
the knowledge of Seller, the execution, delivery and performance of this
Agreement and the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby will not cause (with or without notice and with
or without the passage of time) a material Default under any such lease, (iii)
to Seller’s knowledge, such lease is a valid and binding obligation of the
lessor, is in full force and effect and is enforceable by Seller in accordance
with its terms, (iv) no action has been taken by Seller and, to Seller’s
knowledge, no event has occurred which, with notice or lapse of time or both,
would permit termination, modification or acceleration by a party thereto other
than by Seller without Seller’s consent under any such lease, (v) to the
knowledge of Seller, no Person has repudiated any term thereof or threatened to
terminate, cancel or not renew any such lease and (vi) Seller has not assigned,
transferred, conveyed, mortgaged or encumbered any interest therein or in any
leased personal property subject thereto (or any portion thereof).

3.5           Environmental
Matters.  Except as set forth in
Section 3.5 of the Disclosure Schedule, Seller is, and at all times has been,
in material compliance with, and has not been and is not in material violation
of or liable under, any Environmental Law. 
Seller has no basis to expect, nor has any other Person for whose
conduct Seller is or may be held to be responsible received, any actual or
threatened

 19
 

 

order, notice,
or other communication from (a) any Person or private citizen acting in the
public interest or (b) the current or prior owner or operator of any Facility,
of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or threatened obligation to undertake or
bear the cost of any Environmental, Health and Safety Liability with respect to
such Facility or any other properties or assets (whether real, personal or
mixed) in which Seller has had an interest. 
No underground tank or other underground storage receptacle for
Hazardous Substances is currently located on any Facility, and there have been
no releases of any Hazardous Substances from any such underground tank or
related piping and there have been no releases of Hazardous Substances in
quantities exceeding the reportable quantities as defined under federal or
state law on, upon or into any Facility other than those authorized by
Environmental Laws.  In addition, to the
knowledge of Seller, there have been no such releases by predecessors of Seller
and no releases in quantities exceeding the reportable quantities as defined
under federal or state law on, upon or into any real property in the immediate
vicinity of any of the Facilities other than those authorized by Environmental
Laws which, through soil or ground water contamination, may have come to be
located on any Facility.  Seller is not a
party, whether as a direct signatory or as successor, assign or third-party
beneficiary, or otherwise bound, to any lease or any Contract under which
Seller is obligated by or entitled to the benefits of, directly or indirectly,
any representation, warranty, indemnification, covenant, restriction or other
undertaking concerning any Environmental Condition.  Seller has not released any other Person from
any claim under any Environmental Law or waived any rights concerning any
Environmental Condition.

3.6           Contracts.

(a)           Disclosure.  Section 3.6(a) of the Disclosure Schedule
sets forth a list of Material Contracts as of the date hereof.  Seller agrees to update Section 3.6(a) of the
Disclosure Schedule for the purpose of delivering to Purchaser, no later than
December 8, 2006, an updated Section 3.6(a) of the Disclosure Schedule which
list shall be complete and accurate as of such date.  For purposes of this Agreement, “Material
Contracts” refer to the following Contracts, which shall be included in the
Transferred Assets:

(i)            Contracts not made
in the ordinary course of business, other than any Contracts included in the
Excluded Assets;

(ii)           license agreements
or royalty agreements involving any form of Intellectual Property, whether Seller
is the licensor or licensee thereunder (excluding licenses that are commonly
available on standard commercial terms, such as software “shrink-wrap”
licenses);

(iii)          confidentiality and
non-disclosure agreements (whether Seller is the beneficiary or the obligated
party thereunder);

(iv)          Contracts or
commitments involving future expenditures or Liabilities in excess of $50,000 after the date hereof;

(v)           Contracts or
commitments relating to commission arrangements with others that are material
to the Business or the Transferred Assets;

(vi)          written employment
contracts, consulting contracts, severance agreements, “stay-bonus” agreements
and similar written arrangements relating to employees, including written
Contracts (A) to employ or terminate executive officers or other personnel and
other contracts with present or former officers or directors of Seller or (B)
that will result in the payment by, or the creation of any Liability of
Purchaser to pay any severance, termination, “golden parachute,” or other

 20
 

 

similar
payments to any present or former personnel following termination of employment
or otherwise as a result of the consummation of the transactions contemplated
by this Agreement;

(vii)         indemnification
agreements;

(viii)        promissory notes,
loans, agreements, indentures, evidences of indebtedness, letters of credit,
guarantees, or other instruments relating to an obligation to pay money,
whether Seller shall be the borrower, lender or guarantor thereunder and
related to any lien on any Transferred Assets (excluding credit provided by
Seller in the ordinary course of business to buyers of its products and
obligations to pay vendors in the ordinary course of business consistent with
past practice);

(ix)           Contracts
containing covenants limiting the freedom of Seller or Affiliate of Seller to
engage in any line of business or compete with any Person that relates directly
or indirectly to the Business or the Transferred Assets;

(x)            any Contract with
the federal, state or local government or any agency or department thereof;

(xi)           any Contract or
other arrangement with a Related Party (excluding payments to shareholders as
such);

(xii)          Leases of real or
personal property involving annual payments of more than $25,000; and

(xiii)         any other Contract
under which the consequences of a Default or termination would reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate.

Complete and accurate copies
of all of the Contracts listed in Section 3.6(a) of the Disclosure Schedule,
including all amendments and supplements thereto, have been, or will no later
than December 8, 2006 be, delivered to Purchaser, with the exception of
Contracts the existence of which cannot be disclosed without a waiver of a
confidentiality agreement, consisting of three contracts for goods or services
that are generally commercially available without the payment of a significant
advance license or set-up fee.  Seller
shall use it reasonable best efforts to obtain consent to disclose such
contracts to Purchaser as soon as practicable after the execution of this
Agreement.

(b)           Absence of Defaults.  Except as set forth in Section 3.6(b) of the
Disclosure Schedule (which may be updated up to December 8, 2006), all of the
Material Contracts are valid and binding obligations of Seller and enforceable
against Seller and, to Seller’s knowledge, the other parties thereto in
accordance with their terms (except that enforceability may be limited by the
effect of (i) bankruptcy, insolvency, reorganization, moratorium or other similar
Legal Requirements relating to or affecting the rights of creditors or (ii)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity) with no existing or, to Seller’s
knowledge, threatened Default or dispute by Seller or, to Seller’s knowledge,
any other party thereto.  Seller has
fulfilled, or taken all action necessary to enable it to fulfill when due, all
of its material obligations under each of such Material Contracts.  To Seller’s knowledge, all parties to such
Material Contracts have complied in all material respects with the provisions
thereof, no party is in material Default thereunder and no notice of any claim
of Default has been given to Seller.

3.7           No Conflict or
Violation; Consents.  Except as set
forth in Section 3.7 of the Disclosure Schedule, none of the execution,
delivery or performance of this Agreement or any Ancillary Agreement,

 21
 

 

the
consummation of the transactions contemplated hereby or thereby, nor compliance
by Seller with any of the provisions hereof or thereof, will (a) violate or
conflict with any provision of Seller’s articles of incorporation or bylaws,
(b) violate, conflict with, or result in a breach of or constitute a Default
(with or without notice or the passage of time) in any material respect under,
or result in the termination of, or accelerate the performance required by, or
result in a right to terminate, accelerate, modify or cancel under, or require
a notice under, or result in the creation of any Encumbrance upon any of the
Transferred Assets under, any Material Contract, franchise, permit, indenture
or mortgage for borrowed money, instrument of indebtedness, security interest
or other arrangement to which Seller is a party or by which Seller is bound or to
which the Transferred Assets or any portion thereof are subject; provided,
that, for purposes of this clause 3.7(b), this representation shall be as of
the date the definitive schedule of Material Contracts is delivered to
Purchaser and at Closing, (c) violate any applicable Legal Requirement in any
material respect or Court Order or (d) impose any Encumbrance on any
Transferred Assets or the Business. 
Except as set forth in section 3.7 of the Disclosure Schedule, no
notices to, declaration, filing or registration with, approvals or consents of,
or assignments by, any Persons (including any federal, state or local
governmental or administrative authorities) are necessary to be made or
obtained by Seller in connection with the execution, delivery or performance of
this Agreement or any Ancillary Agreement or the consummation of the
transactions contemplated hereby or thereby. 
Except as set forth in Section 3.7 of the Disclosure Schedule, as of the
date hereof, the Assumed Liabilities do not, and as of the Closing will not,
include any indebtedness for borrowed money (including any capital lease) or
outstanding letter of credit or similar obligation.

3.8           Permits.  Seller has all Permits required under any
applicable Legal Requirement in the operation of the Business or its ownership
of the Transferred Assets, and owns or possesses such Permits free and clear of
all Encumbrances, except the failure to have a given Permit would not be
material to the Business or the Transferred Assets.  Seller is neither in Default, nor has Seller
received any written notice of any claim of Default with respect to any such
Permit.

3.9           Financial
Information; Books and Records. Seller has provided to Purchaser accurate
and complete copies of the audited balance sheet and related statements of
income or loss the twelve-month period ending on December 31, 2004 and the
balance sheet, related statements of income or loss and the preliminary audit
report for the twelve-month period ending on December 31, 2005 (the “Audited
Financial Statements”), and an unaudited balance sheet and related
statement of income or loss for the nine-month period ending on September 30,
2006 (the “Interim Financial Statements,” and together with the Audited
Financial Statements, the “Financial Statements”).  Except as set forth in Section 3.9 of the
Disclosure Schedule or as noted in the Financial Statements, the Financial
Statements have been prepared in accordance with Seller’s books and records and
generally accepted accounting principles consistently applied (subject, in the
case of the Interim Financial Statements, to normal year-end adjustments and
the absence of notes) and fairly present, in all material respects, the results
of operations and financial condition of Seller for the respective periods and
as of the dates identified therein, respectively. The accounting books and
records of Seller accurately and fairly reflect the activities of Seller in
connection with the Business. Seller has not engaged in any transaction,
maintained any bank account or used any corporate funds, except for
transactions, bank accounts or funds which have been and are reflected in the
normally maintained accounting books and records.

3.10         Liabilities.  Seller has no material Liabilities or
obligations (absolute, accrued, contingent or otherwise) relating to the
Business or the Transferred Assets except (a) Liabilities disclosed in the
Financial Statements, (b) Liabilities incurred in the ordinary course of
business consistent with past practice, (c) Liabilities arising under Contracts
assumed by Purchaser under this Agreement and (d) Liabilities expressly
identified in Section 3.10 of the Disclosure Schedule.  Upon consummation of the transactions
contemplated by this Agreement, Purchaser will have no liability with respect
to any such Liabilities of Seller except to the extent they shall constitute
Assumed Liabilities.

 22

 

3.11         Litigation.  Except as set forth in Section 3.11 of the
Disclosure Schedule, there is no Action pending or, to Seller’s knowledge,
threatened, against, relating to or affecting Seller or any of the Transferred
Assets which seeks to enjoin or obtain damages in respect of the transactions
contemplated hereby, and with respect to which there is a reasonable likelihood
of a determination which would prevent Seller from consummating the
transactions contemplated hereby.  Except
as set forth in Section 3.11 of the Disclosure Schedule, there are presently no
outstanding judgments, decrees or orders of any court or any Governmental Body
against or affecting Seller, the Business or any of the Transferred Assets.

3.12         Labor
Matters.

(a)           General.  Seller is not a party to any labor agreement
with respect to its Employees with any labor organization, group or
association, and Seller has not experienced any attempt by organized labor or
its representatives to make Seller conform to demands of organized labor relating
to its Employees or to enter into a binding agreement with organized labor that
would cover any of Seller’s Employees. 
There is no unfair labor practice charge or complaint against Seller
pending before the National Labor Relations Board or any other governmental
agency arising out of Seller’s activities, and Seller has no knowledge of any
facts or information which would give rise thereto; there is no labor strike or
labor disturbance pending or, to the knowledge of Seller, threatened against
Seller nor is any grievance currently being asserted against Seller; and Seller
has not experienced a work stoppage or other labor difficulty.  There are no material controversies pending
or, to Seller’s knowledge, threatened between Seller and any of its Employees, and
Seller is not aware of any facts which could reasonably result in any such
controversy.

(b)           Compliance.  Seller is in compliance in all material
respects with all applicable Legal Requirements respecting employment
practices, terms and conditions of employment, wages and hours, equal
employment opportunity, and the payment of social security and similar Taxes
and, to the knowledge of Seller, is not engaged in any unfair labor
practice.  Seller is in compliance with
the Immigration Reform and Control Act of 1986. 
Seller is not liable for any claims for past due wages or any penalties
for failure to comply with any of the foregoing.  Seller has not effectuated (i) a “plant
closing” or partial “plant closing” (as defined in the WARN Act or any similar
Legal Requirement) affecting any site of employment or one or more Facilities
or (ii) a “mass layoff” (as defined in the WARN Act or any similar Legal
Requirement) affecting any site of employment or Facility of Seller.

(c)           Severance Obligations.  Seller has not entered into any severance, “stay-bonus”
or similar arrangement in respect of any present or former Employee that will
result in any obligation (absolute or contingent) of Purchaser to make any
payment to any present or former Employee following termination of employment
(voluntary or involuntary) or upon consummation of the transactions
contemplated by this Agreement or any Ancillary Agreement (whether or not
employment is continued for any specified period after the Closing Date).  Neither the execution and delivery of this
Agreement or any Ancillary Agreement nor the consummation of the transactions
contemplated hereby or thereby will result in the acceleration or vesting of
any other rights of any Person to benefits under any Employee Plan.

(d)           Employees.  Attached hereto as Section 3.12(d) of the
Disclosure Schedule is a list of the names of all present employees.  Seller has provided Purchaser with the amount
of compensation currently payable to such employees by Seller.

3.13         Purchase
Commitments and Outstanding Bids.  As
of the date of this Agreement, Seller has not entered into any Contracts for
the purchase of products or services by Seller in connection with the Business,
other than in the ordinary course of business, except for (a) contracts relating
to the retention of professional advisors for which Seller is solely
responsible and (b) other contracts involving

 23
 

 

the
expenditure of not more than $100,000 in the aggregate.  There
are no obligations to sell Inventory to any third party outside the ordinary
course of business.  No outstanding
purchase or outstanding lease commitment of Seller presently is in excess of
the normal, ordinary and usual requirements of the Business. There are no
outstanding or pending obligations of Seller in connection with the Business to
lease real property other than the Facility Leases.

3.14         Employee Benefit Plans

(a)           Attached hereto as Section 3.14 of
the Disclosure Schedule is a true and complete list of all Employee Plans
existing on the date hereof. Except as listed in Section 3.14 of the Disclosure
Schedule, there are no Pension Plans that are subject to Section 412 of the
Code or Section 302 or Title IV of ERISA, and there are no Multiemployer Plans.

(b)           A true and complete copy of each of
the Employee Plans listed in Section 3.14 of the Disclosure Schedule, together
with any and all related trusts, any and all amendments thereto, the most
recent summary plan description, any and all collective bargaining agreements
relating to such Employee Plan, and the most recent annual reports filed for
such Employee Plan, has been delivered to Purchaser or will be delivered no
later than December 8, 2006.  In the case
of any Employee Plan listed on Section 3.14 of the Disclosure Schedule which is
not in written form, an accurate description of such Employee Plan is included
as part of Section 3.14 of the Disclosure Schedule.

(c)           Each Employee Plan listed on Section
3.14 of the Disclosure Schedule complies, and has complied, in all material
respects in form and operation with all requirements of applicable United
States federal, state, local and other law or regulation, whether domestic or
foreign.  Seller represents and warrants
that all contributions and other payment obligations required to be made on or
before the Closing Date under or in connection with the Employee Plans listed
on Section 3.14 of the Disclosure Schedule have been or will be paid in full on
or as of the Closing Date.

3.15         Transactions with
Related Parties.  Except for
employment agreements and other arrangements or agreements disclosed in Section
3.15 of the Disclosure Schedule, no Related Party has, with respect to the
Business or the Transferred Assets, (a) borrowed or loaned money or other
property to Seller that has not been repaid or returned, (b) any contractual
relationship or other claims, express or implied, of any kind whatsoever
against Seller or (c) any interest in any of the Transferred Assets (including
any Intellectual Property).

3.16         Compliance with
Legal Requirements.  Seller and its
predecessors have conducted the Business in material compliance with all
applicable Legal Requirements and Court Orders. 
Seller has not received any notice to the effect that, or has otherwise
been advised that Seller is not in compliance with any such Legal Requirements
or Court Orders, and , to the knowledge of Seller, Seller has no reason to
anticipate that any existing circumstances are likely to result in a violation
of any of the foregoing.

3.17         Intellectual
Property.

(a)           General.  Section 3.17(a) of the Disclosure Schedule
sets forth with respect to Seller’s Intellectual Property:  (i) for each invention material to the
Business of Seller, whether or not patented, the date of conception and
reduction to practice, names of inventors, priority date of patent applications
(if any), and issue dates of any issued patents, (ii) all material Intellectual
Property in the form of licenses of Seller, and (iii) all material trademarks,
tradenames, patents, copyright registrations and URLs owned or used by Seller
or owned or used by any Person and used in the Business.  True and correct copies of all Intellectual
Property (including all pending applications, application related documents and
materials) owned, controlled or used by or on behalf of Seller or in which
Seller has any

 24
 

 

interest whatsoever have
been provided or made available to Purchaser. 
Section 3.17(a) of the Disclosure Schedule sets forth a true and
complete list of all trade names not owned by Seller, but that are used in the conduct
of the Business.  Section 3.17(a) of the
Disclosure Schedule may be updated through December 8, 2006 (but no material
Intellectual Property may be deleted from the schedule in any such update).

(b)           Adequacy.  Seller’s Intellectual Property are all those
necessary for the normal conduct of the Business as presently conducted
including the procurement, distribution and sale of all products and services
currently under development, planned for development or in practice.

(c)           Royalties and Licenses.  Except as set forth in Section 3.17(c) of the
Disclosure Schedule, Seller has no obligation to compensate any Person for the
use of any of its Intellectual Property nor has Seller granted to any Person
any license, option or other rights to use in any manner any of its
Intellectual Property, including the trade names set forth in Section 3.17(a),
whether requiring the payment of royalties or not.

(d)           Ownership.  Except as set forth in Section 3.17(d) of the
Disclosure Schedule, Seller owns or has the valid right to use the Intellectual
Property, including the trade names identified in Section 3.17(a) of the
Disclosure Schedule, and such Intellectual Property will remain the valid
rights of Seller (or Purchaser following the consummation of the Acquisition)
following the execution, delivery and performance of this Agreement or any
Ancillary Agreement or the consummation of the transactions contemplated hereby
or thereby.  Except as set forth in
Section 3.17(d) of the Disclosure Schedule, all Intellectual Property will be
fully transferable, alienable or licensable by Purchaser without restriction
and without payment of any kind to any third party.  Seller has no obligation to compensate or
account to any person for the use of the Intellectual Property except as
otherwise set forth in Section 3.17(d) of the Disclosure Schedule.  The licenses identified in Section 3.17(d) of
the Disclosure Schedule as the “Key Software Licenses” constitute the only
inbound software licenses or similar services that are critical to the
operation of the Business and are not otherwise generally commercially
available without the payment of a significant advance license or set-up fee
(such licenses, the “Key Software Licenses”).

(e)           Absence of Claims.  Except as set forth in Section 3.17(e) of the
Disclosure Schedule, Seller has not received (i) any notice alleging, or
otherwise has knowledge of facts that might give rise to, invalidity with
respect to any of the Intellectual Property or (ii) any notice of alleged
infringement of any rights of others due to any activity by Seller.  Except as set forth in Section 3.17(e) of the
Disclosure Schedule, Seller’s use of the Intellectual Property in the Business
does not infringe upon or otherwise violate the Intellectual Property rights of
any third party anywhere in the world. 
Except as set forth in Section 3.17(e) of the Disclosure Schedule, no
other Person has notified Seller that it is claiming any ownership of or right
to use any Intellectual Property of Seller, or, to Seller’s knowledge, is
infringing upon any such Intellectual Property in any way.

(f)            Protection of Intellectual
Property.  Seller has taken
reasonable steps to safeguard and maintain its confidential information.

(g)           Licenses.  Seller has secured any export and import
licenses that are necessary or appropriate for the conduct of the Business in
accordance with all applicable laws and regulations.

3.18         Assets Necessary
to Continue to Conduct Business.  The
Transferred Assets (a) constitute all of the assets, properties and rights (i)
used in the Business as presently conducted other than the Excluded Assets, and
(ii) necessary to conduct the Business as presently conducted, and (b) upon
consummation of the transactions contemplated by this Agreement, Purchaser will
obtain the resources necessary to conduct the Business as currently conducted
by Seller.  Except as set forth in
Section 3.18 of the Disclosure Schedule, no Affiliate of Seller (which for
purposes of this Section 3.18 shall include any

 25
 

 

current or
prior shareholder of Seller) has any direct or indirect interest in any asset,
property or right used in, or necessary to conduct, the Business as currently
conducted by Seller (including, without limitation, any URL’s, trade names or
trademarks related to the trade names “The Woodwind & The Brasswind” and “Music
123,” or any derivation thereof, wherever located).

3.19         Brokers;
Transactions Costs.  Except as set
forth in Section 3.19 of the Disclosure Schedule (for which Seller is solely
responsible), Seller has not entered into nor will enter into any contract,
agreement, arrangement or understanding with any Person which has or will
result in the obligation of Purchaser or Seller to pay any finder’s fee,
brokerage commission, legal, accounting or similar payment in connection with
the transactions contemplated hereby.

3.20         No Other
Agreements to Sell the Transferred Assets. 
Seller has no legal obligation, absolute or contingent, to any other
Person to sell the Transferred Assets or any portion thereof or to sell any
capital stock of Seller or to effect any merger, consolidation or other
reorganization of Seller or to enter into any agreement with respect thereto,
except pursuant to this Agreement.

3.21         Product Liability.  To the knowledge of Seller, Seller has not
committed any act, and there has been no omission by Seller, which is
reasonably likely to result in, and there has been no occurrence relating to
any product of Seller which is reasonably likely to result in, product
liability (whether covered by insurance or not) on the part of Seller, with
respect to products distributed, delivered or sold by Seller prior to the
Closing.

3.22         Approvals.  Section 3.22 of the Disclosure Schedule
contains a list of all material approvals or consents relating to the Business
which are required to be given to or obtained by Seller from any Person in
connection with the consummation of the transactions contemplated by this
Agreement, it being acknowledged that the consents related to the continued use
of the Key Software Licenses shall be deemed material.

ARTICLE 4

PURCHASER’S REPRESENTATIONS AND WARRANTIES

As an inducement of Seller
to enter into this Agreement, Purchaser hereby makes the following
representations and warranties to Seller.

4.1           Organization.  Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full corporate power and authority to conduct its business as presently
being conducted.

4.2           Authorization.  Purchaser has all necessary corporate power
and authority to enter into this Agreement and the Ancillary Agreements and has
taken all corporate or similar action necessary to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder.  This Agreement has been duly
executed and delivered by Purchaser, and this Agreement is, and upon execution
and delivery thereof each Ancillary Agreement to which Purchaser is a party
will be, a valid and binding obligation of Purchaser, as the case may be,
enforceable against Purchaser in accordance with its terms, except that
enforceability may be limited by the effect of (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors or (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).

 26
 

 

4.3           Brokers;
Transactions Costs.  Purchaser has
neither entered into or will enter into any contract, agreement, arrangement or
understanding with any Person which has or will result in the obligation of
Seller to pay any finder’s fee, brokerage commission, legal, accounting or
similar payment in connection with the transactions contemplated hereby.

4.4           Transferred
Assets “AS IS”; Purchaser’s Acknowledgment Regarding Same.  Purchaser agrees, warrants, and represents
that, except as set forth in this Agreement, (a) Purchaser is purchasing
the Transferred Assets on an “AS IS” basis based solely on Purchaser’s own
investigation of the Transferred Assets and (b) neither Seller nor any
real estate broker, agent, officer, employee, servant, attorney, or
representative of Seller has made any warranties, representations or
guarantees, express, implied or statutory, written or oral, respecting the
Transferred Assets, or any part of the Transferred Assets, including the Leased
Real Property, or any matters pertaining thereto, including respecting the
compliance or non-compliance with or the applicability or non-applicability of,
any other building, health, zoning, Environmental, Health and Safety Laws, or
any other applicable city and county, state, or federal statute, ordinance,
code, rule, regulation, or other law, relating to the Transferred Assets, or
any part thereof, or relating to the financial performance or future prospects
of the Transferred Assets or the Business, or otherwise with regard to or
pertaining to the Transferred Assets, Purchaser’s intended use and operation
thereof, or the physical condition of the Transferred Assets.  Purchaser further acknowledges that the
consideration for the Transferred Assets specified in this Agreement has been
agreed upon by Seller and Purchaser after good-faith arms’-length negotiation
in light of Purchaser’s agreement to purchase the Transferred Assets “AS IS,”
except as set forth in this Agreement. 
Purchaser agrees, warrants, and represents that, except as set forth in
this Agreement, Purchaser has relied, and shall rely, solely upon its own
investigation of all such matters, and that Purchaser assumes all risks with
respect thereto.  EXCEPT AS SET FORTH IN
THIS AGREEMENT, SELLER MAKES NO EXPRESS WARRANTY, NO WARRANTY OF
MERCHANTABILITY, NO WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, NOR ANY
IMPLIED OR STATUTORY WARRANTY WHATSOEVER WITH RESPECT TO ANY REAL OR PERSONAL
PROPERTY OR ANY MERCHANDISE, INVENTORY OR FURNITURE, FIXTURES AND EQUIPMENT.

4.5           Availability
of Funds.  Purchaser has the
financial capability to consummate the Acquisition.  Purchaser’s consummation of the Acquisition
is not in any way contingent upon or otherwise subject to (a) Purchaser’s
consummation of any financing arrangements or Purchaser’s obtaining of any
financing, or (b) the availability, grant, provision or extension of any
financing to Purchaser.

ARTICLE 5

COVENANTS

5.1           Access
and Availability.  During the
Pre-Closing Period, Seller shall (a) afford Purchaser and its Representatives
reasonable access to, during normal business hours, and if reasonably requested
by Purchaser, evenings and week-ends, in a manner so as not to interfere with
the normal business operations and upon reasonable prior written notice, the
properties, Contracts, books and records and other documents and data
pertaining to Seller, the Business, the Assumed Liabilities and the operation
of the Transferred Assets, and (b) furnish Purchaser and its Representatives
with such additional financial, operating and other data and information as
they may reasonably request.

5.2           Operation of the
Business.

(a)           Except with the
prior written consent of Purchaser (which consent shall not be unreasonably
withheld, delayed or conditioned), as otherwise contemplated or permitted by
this Agreement or as required by the Bankruptcy Code, during the Pre-Closing
Period, Seller shall operate the

 27
 

 

Business
in the ordinary course (taking into account Seller’s status as a debtor-in-possession),
comply with all Legal Requirements applicable to the operation of its business
and preserve its present business organization intact.  During the Pre-Closing Period, Seller shall
use commercially reasonable efforts to:

(i)            maintain
in full force and effect the Permits in all material respects;

(ii)           maintain
all of the Transferred Assets in a manner consistent with past practices,
reasonable wear and tear excepted and maintain the types and levels of
insurance currently in effect in respect of the Transferred Assets;

(iii)          upon
any damage, destruction or loss to any Transferred Asset, apply any insurance
proceeds received with respect thereto to the prompt repair, replacement and
restoration thereof to the condition of such Transferred Asset before such
event or, if required, to such other (better) condition as may be required by
applicable Legal Requirements;

(iv)          replenish
the Inventory such that the mix, character and quality of the Inventory on the
Closing Date is substantially similar as on the date hereof;

(v)           pay
when due all undisputed amounts owed under the Facilities Leases; and

(vi)          consult
with Purchaser on all material aspects of the Business as may be reasonably
requested from time to time by Purchaser, including, but not limited to, personnel,
accounting and financial functions.

(b)           Except
as otherwise contemplated or permitted by this Agreement, during the
Pre-Closing Period, Seller shall not, without the prior written consent of
Purchaser (which consent shall not be unreasonably withheld, delayed or
conditioned):

(i)            terminate
or amend any of the Facilities Leases (or execute any amendments or
modifications to any Facilities Leases), or cancel, modify or waive any claims
held in respect of the Transferred Assets or waive any material rights of
value;

(ii)           do
any act or fail to do any act that will cause a material breach or default in
any of the Facilities Leases;

(iii)          sell,
transfer or otherwise dispose of any of the Transferred Assets except in the
ordinary course of business, consistent with past practices;

(iv)          modify
any of its sales practices or receivables collections practices from those in
place on the date hereof, including offering any discounts, incentives or other
accommodations for early payment;

(v)           conduct
any “going out of business,” liquidation, bankruptcy, or similar sales or take
any action to fashion its business as going out of business, liquidating or
closing;

(vi)          grant
to any Employee any increase in compensation, except increases to
non-management Employees in the ordinary course of business;

(vii)         terminate
any Employee related to the Business, except non-management Employees in the
ordinary course of business;

 28
 

 

(viii)        make
or rescind any material Tax election or take any material Tax position (unless
required by law) or file any Tax Return or change its fiscal year or financial
or Tax accounting methods, policies or practice, or settle any Tax Liability,
except in each case as would not reasonably be expected to materially affect
Purchaser;

(ix)           modify,
rescind or terminate a material Permit, allowance, or credit (or application
therefor) relating to the Business or the Transferred Assets;

(x)            dispose
of or fail to keep in effect any material rights in, to, or for the use of any
of the Intellectual Property, except for rights which expire or terminate in
accordance with their terms;

(xi)           issue any shares of
stock or stock equivalents;

(xii)          subject its assets to any material Encumbrances;

(xiii)         directly or
indirectly make any dividend or other distribution to shareholders or
repurchase or reacquire any equity interests;

(xiv)        close the Store /
Headquarters;

(xv)         issue any purchase
order for non-branded goods in excess of $100,000;

(xvi)        incur any
Indebtedness other than under current credit arrangements provided to
Purchaser; or

(xvii)       authorize any of the
foregoing, or commit or agree to take actions, whether in writing or otherwise,
to do any of the foregoing.

5.3           Notices and
Consents.  As promptly as practicable
following the execution hereof, each of the Parties will deliver any notices
to, make any filings with and use its commercially reasonable efforts to obtain
any authorizations, consents and approvals of Governmental Bodies required in
connection with the consummation of the transactions contemplated by this
Agreement.  During the Pre-Closing
Period, Seller and Purchaser shall reasonably cooperate with one another: (a)
in obtaining all consents identified in Section 3.22 of the Disclosure
Schedule, (b) with respect to all filings that Purchaser is required by any
Legal Requirement to make in connection with the transactions contemplated
hereby, and (c) in delivering any notices deemed necessary or desirable by
Purchaser or Seller in connection with the Bankruptcy Case.  Seller shall promptly deliver to Purchaser
copies of all filings, correspondence and orders to and from any Governmental
Body in connection with the transactions contemplated hereby.

5.4           Commercially
Reasonable Efforts.  Subject to the
terms and conditions of this Agreement:

(a)           During the Pre-Closing Period, each
of Seller and Purchaser shall (i) use its commercially reasonable efforts (A)
to cause the conditions in Article 7 and Article 8, respectively, to be
satisfied, (B) to deliver or cause to be delivered at the Closing the items to
be delivered by Seller and Purchaser pursuant to Section 2.3(b), (C) obtain the
right to assume and assign, or otherwise obtain consent of the applicable
licensors with respect to, the Key Software Licenses so as to assure the
continued availability of such licensed software to Purchaser from and after
the Closing, and (D) to take all other actions to consummate the transactions
contemplated hereby, and (ii) not take any action that

 29
 

 

will have the effect of
unreasonably delaying, impairing or impeding the receipt of any authorizations,
consents, orders or approvals to be sought pursuant to this Agreement.

(b)           From and after the Closing, Seller
and Purchaser shall use commercially reasonable efforts to deliver or cause to
be delivered such additional documents and other papers and to take or cause to
be taken such further actions as may be necessary, proper or advisable to make
effective the transactions contemplated hereby and to carry out the provisions
hereof.

5.5           Notice of
Developments.  Seller shall promptly
notify Purchaser in writing of any change or development that would cause any
of the representations and warranties herein not to be true and correct in any
material respect or any other material development in the Business, the
Transferred Assets, or the Assumed Liabilities.

5.6           Bankruptcy
Proceedings.

(a)           Purchaser and Seller acknowledge that
this Agreement, the sale of the Transferred Assets, and the assumption and
assignment of the Facilities Leases of Seller are subject to Bankruptcy Court
approval.

(b)           Seller has filed with the Bankruptcy
Court (i) a Petition for reorganization relief pursuant to Chapter 11 of the
Bankruptcy Code.  Seller agrees to file
no later than November 21, 2006: (i) the Bidding Procedures Motion, together
with appropriate supporting papers and notices, seeking the entry, on the same
day as the filing of such motion, of the Bidding Procedures Order, and (ii) the
Sale Motion, together with appropriate supporting papers and notices, seeking
the entry, by no later than January 18, 2007, of the Sale Order.

(c)           Seller shall use its commercially
reasonable efforts to obtain entry of (i) the Bidding Procedures Order no later
than December 8, 2006 and (ii) the Sale Order no later than January 18,
2007.

(d)           In the event an appeal is taken or a
stay pending appeal is requested, from either the Bidding Procedures Order or
the Sale Order, Seller shall immediately notify Purchaser of such appeal or
stay request and shall provide to Purchaser promptly a copy of the related
notice of appeal or order of stay. 
Seller shall also provide Purchaser with written notice of any motion or
application filed in connection with any appeal from either of such orders.

(e)           From and after the date hereof, and
to the extent Purchaser is the successful bidder at the Auction, Seller shall
not take any action that is intended, or fail to take any action the intent of
which failure to act would result in the reversal, voiding, modification or
staying of the Bidding Procedures Order or the Sale Order.

(f)            During the Pre-Closing Period,
Seller shall use its reasonable efforts to provide such prior notice as may be
reasonable under the circumstances before filing any papers in the Bankruptcy
Case that relate, in whole or in part, to this Agreement or Purchaser.

(g)           Not later than December 8, 2006,
Purchaser and Seller shall agree on the text of a proposed Sale Order in
customary form and otherwise reasonably acceptable to Purchaser, whereupon such
Sale Order shall be attached hereto as Exhibit C.

5.7           Expense
Reimbursement Amount and Termination Fee. 
If the Bankruptcy Court approves an Alternative Transaction, and such
Alternative Transaction is consummated, Seller shall pay

 30
 

 

Purchaser a
termination fee equal to $1,140,000 (the “Termination Fee”) upon
consummation of such Alternative Transaction. 
If this Agreement is terminated for any reason other than by Seller
pursuant to Section 9.1(d), Seller shall pay Purchaser the Expense
Reimbursement Amount upon termination of this Agreement.  The Termination Fee and the Expense Reimbursement
Amount shall be payable as allowed administrative expenses under Sections
503(b) and 507(a) of the Bankruptcy Code as more fully described in the Bidding
Procedures.  Purchaser’s receipt of the
Termination Fee and/or Expense Reimbursement Amount in accordance with the
terms of this Section 5.7 shall be in full settlement and satisfaction of any
damages of any kind that Purchaser may suffer as a result of the termination of
this Agreement or a breach by Seller of its obligations hereunder prior to
Closing and shall be Purchaser’s sole and exclusive remedy in damages for
Seller’s breach of its obligations hereunder prior to Closing.

5.8           Notice of Bids.  If Seller shall receive any offer, proposal
or inquiry regarding the acquisition of all or any portion of the Transferred
Assets, Seller shall within two (2) Business Days thereafter: (a) notify
Purchaser, in writing, of such proposal or offer, or any inquiry or contact
with any Person with respect thereto, and shall, in any such notice to Purchaser
indicate in reasonable detail the identity of the offeror and the terms and
conditions of any proposal and (b) after entry of the Sale Order, notify
any such offeror of the entry of the Sale Order and the fact that Seller is
neither considering nor permitted to consider any such proposal or offer.

5.9           No Credit Bid.  Seller shall use commercially reasonable
efforts to cause its secured lenders to agree not to credit bid any of their
claims against any offer to acquire the Transferred Assets submitted by Purchaser.

5.10         Employee Matters.

(a)           Prior to the Closing, Purchaser shall
offer to enter into a severance agreement with David G. Yoder to become
effective upon the commencement of his employment with Purchaser, which
agreement shall be on the same terms and conditions as offered by
Purchaser to its executive officers of a similar level.

(b)           Section 5.10 of the Disclosure
Schedule, which Purchaser shall deliver not later than the Business Day prior
to the Closing, shall set forth the list of the employees of Seller that are
expected to become employees of Purchaser or one of its Affiliates (the “Designated
Employees”).  Seller shall terminate
the employment of all Designated Employees to whom Purchaser or one of its
Affiliates offers employment immediately prior to the Closing, and Seller shall
cooperate with and use commercially reasonable efforts to assist Purchaser and
its Affiliates in their respective efforts to secure satisfactory employment
arrangements with the Designated Employees, including providing Purchaser with
access to the Designated Employees for purposes of negotiating terms of
employment. Nothing contained in this Agreement shall confer upon any
Designated Employee any right with respect to employment, or continuance
thereof, with Purchaser or one of its Affiliates, nor shall anything herein
interfere with the right of Purchaser and its Affiliates to terminate the
employment of any of the Designated Employees at any time, with our without
cause and with or without prior notice, or restrict Purchaser or its Affiliates
in the exercise of their independent business judgment in modifying any of the
terms and conditions of the employment of the Designated Employees.  Purchaser shall have no obligation with respect
to claims by any employee of Seller, including any Designated Employee, whether
under any Employee Plan or for severance, unpaid wages, unpaid accrued time
off, unpaid bonuses, credit for prior service, unpaid commissions or otherwise,
except, from and after the Closing, with respect to (i) the Assumed Liabilities
specified in Section 2.2(c)(iii) and (ii) obligations under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. 
Seller shall be responsible for any and all Liability under the WARN Act
or other Legal Requirements that arises out of or results from any termination
of employment by Seller on or before the Closing Date.  Promptly following the filing of the

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Petition, Seller shall
provide all notices required to be provided in order to comply with the WARN
Act.  Seller shall provide a valid and
complete WARN Act notice to each of its employees as soon as practicable and,
in any event, no later than November 24, 2006.

5.11         Confidentiality.  Subject to the requirements of the Bankruptcy
Code or as may be imposed by the Bankruptcy Court, from and after the Closing:
(a) Seller shall, and shall cause its Affiliates to, hold in confidence all
confidential information (including trade secrets, customer lists, marketing
plans and pricing information) of Seller; (b) in the event that Seller or any
of its Affiliates shall be legally compelled to disclose any such information,
Seller shall provide Purchaser with prompt written notice of such requirement
so that Purchaser may seek a protective order or other remedy; and (c) in the
event that such protective order or other remedy is not obtained, Seller or its
Affiliate shall furnish only such information as is legally required to be
provided.  Notwithstanding the forgoing,
nothing in this Section 5.11 shall restrict Seller’s provision of confidential
information to other potential bidders pursuant to a confidentiality agreement
substantially in the form executed by Purchaser, whether or not such Person is
ultimately determined to be a Qualified Bidder.

5.12         Change of Name.  After the Closing Date, neither Seller nor
any of its Affiliates shall use the names or marks listed in Section 3.17(a) of
the Disclosure Schedule or any derivatives thereof for commercial
purposes.  The Sale Order shall provide
for the modification of the caption in the proceedings before the Bankruptcy
Court to reflect the change in the names of Seller, except that during the
pendency of such proceedings, Seller shall be permitted to use the name “Woodwind
& Brasswind” as its corporate alias in connection with matters relating
such case, but for no other commercial purpose. 
After the Closing, Seller and its Affiliates shall promptly file with
the applicable Governmental Bodies all documents necessary to delete from their
names each of the tradenames, marks or any derivatives thereof and shall do or
cause to be done all other acts, including the payment of any fees required in
connection therewith, to cause such documents to become effective as promptly
as practicable.

5.13         Transfer of Assets.  Prior to the Closing, Seller shall cause all
assets used by Seller in the conduct of the Business that are owned by an
Affiliate of Seller to be transferred to Seller.

5.14         Cure Costs.  On or before Closing, Seller shall pay all
Cure Costs.  All Cure Costs will be
agreed upon by Seller and each party entitled to receipt of a cure payment, or
will be determined by the Bankruptcy Court.

ARTICLE 6

CONDITIONS PRECEDENT TO THE PARTIES’ RESPECTIVE OBLIGATION TO CLOSE

The respective obligations of Purchaser and Seller
to consummate the Acquisition shall be subject to the satisfaction at or prior
to the Closing of the following conditions, any or all of which may be waived
only by agreement of Purchaser and Seller, in whole or in part, to the extent
permitted by applicable Legal Requirements:

6.1           No Restraints.  No temporary restraining order, preliminary
or permanent injunction or other order preventing the consummation of the
Acquisition shall have been issued by any court of competent jurisdiction and
remain in effect, and there shall not be any Legal Requirement enacted or
deemed applicable to the consummation of the transactions contemplated by this
Agreement that makes consummation of the Acquisition illegal.

6.2           Governmental
Authorizations.  All requisite
Governmental Authorizations or waiting periods following governmental filings
shall have been obtained or expired.

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ARTICLE 7

CONDITIONS PRECEDENT TO PURCHASER’S OBLIGATION TO CLOSE

The obligation of Purchaser to consummate the
Acquisition shall be subject to the satisfaction at or prior to the Closing of
the following conditions, any or all of which may be waived only by Purchaser,
in whole or in part, to the extent permitted by applicable Legal Requirements:

7.1           Accuracy of
Representations.  (a) Each of the
representations and warranties of Seller in this Agreement that is qualified as
to materiality shall be true and correct in each case as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (unless made as of a specific date, in which event such date shall be
applicable), and (b) each of the representations and warranties of Seller in
this Agreement that is not qualified as to materiality shall be true and
correct in all material respects, in each case as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing Date (unless
made as of a specific date, in which event such date shall be applicable), in
case of each of clause (a) and clause (b), without giving effect to any update
to the Disclosure Schedule.

7.2           Performance of
Obligations.  Seller shall have
complied in all material respects with each of the covenants contained in this
Agreement to be performed by Seller prior to the Closing.

7.3           Deliveries.  Seller shall have executed and delivered or
caused to be executed and delivered to Purchaser the agreements and documents
identified in Section 2.3(b) to be delivered to Purchaser by or on behalf of
Seller, and each such agreement and document shall be in full force and effect.

7.4           No Material
Adverse Effect.  Since the date of
this Agreement there shall have been no event, condition, change, development
or other matter, or any worsening of any existing event, condition, change,
development or other matter that, individually or in combination with any other
event, condition, change, development or other matter or worsening thereof, has
had or could reasonably be expected to have a Material Adverse Effect.

7.5           Orders.  The
Bankruptcy Court shall have entered the Bidding Procedures Order and the Sale
Order and such orders shall have become a Final Order.

7.6           Executory
Contracts.  The Bankruptcy Court
shall have approved and authorized the assumption and assignment of the
Contracts to be identified on the Assignment Agreement.

7.7           Key Software Licenses.  Purchaser shall have
obtained the right to assume and assign, or otherwise obtained consent of the
applicable licensors with respect to, the Key Software Licenses so as to assure
the continued availability of such licensed software to Purchaser from and
after the Closing on terms and conditions reasonably acceptable to Purchaser.

7.8           No Proceedings.  Since the date of this Agreement, there shall
not have been commenced against Purchaser, or against any Person affiliated
with Purchaser, any Proceeding (a) involving any material challenge to, or
seeking material damages or other material relief in connection with, the
Acquisition, or (b) that may have the effect of preventing, materially
delaying, making illegal or otherwise materially interfering with the
Acquisition.

7.9           Governmental
Approvals.  All consents, approvals
and authorizations of any Governmental Entity required in connection with the
transactions contemplated by this Agreement shall have been obtained, in each
case, without (a) the imposition of conditions, (b) the requirement of

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divesting
Purchaser of any assets or property or (c) the requirement of expenditure of
money by Purchaser to a third party in exchange for any such consent.

7.10         Accounts
Receivable and Inventory.  The value
of the (a) accounts receivable of Seller, as set forth in a balance sheet
delivered to Purchaser on the day prior to the date on which the Closing is
scheduled to occur, plus (b) Inventory as set forth on the Preliminary Estimate
shall be equal to or greater than the Closing Date Payment.

ARTICLE 8

CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE

The obligation of Seller to consummate the
Acquisition shall be subject to the satisfaction at or prior to the Closing of
the following conditions, any or all of which may be waived only by Seller, in
whole or in part, to the extent permitted by applicable Legal Requirements:

8.1           Accuracy of
Representations.  (a) Each of the
representations and warranties of Purchaser in this Agreement that is qualified
as to materiality shall be true and correct in each case as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (unless made as of a specific date, in which event such date shall be
applicable), and (b) each of the representations and warranties of Purchaser in
this Agreement that is not qualified as to materiality shall be true and
correct in all material respects, in each case as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing Date (unless
made as of a specific date, in which event such date shall be applicable).

8.2           Performance of
Obligations.  Purchaser shall have
complied in all material respects with each of the covenants contained in this
Agreement to be performed by Purchaser prior to the Closing.

8.3           Deliveries.  Purchaser shall have executed and delivered
or caused to be executed and delivered to Seller the agreements and documents
identified in Section 2.3(b) to be delivered to Seller by or on behalf of
Purchaser, and each such agreement and document shall be in full force and
effect.

8.4           No Proceedings.  Since the date of this Agreement, there shall
not have been commenced against Seller, or against any Person affiliated with
Seller, any Proceeding (a) involving any material challenge to, or seeking
material damages or other material relief in connection with, the Acquisition,
or (b) that may have the effect of preventing, materially delaying, making
illegal or otherwise materially interfering with the Acquisition.

8.5           WARN Act.  Expiration of the period for any notice
required under the WARN Act or, if earlier, 60 days from the date specified in
the last sentence of Section 5.10(b).

8.6           Orders.  The Sale Order shall have become a Final
Order.

ARTICLE 9

TERMINATION

9.1           Termination
Events.  This Agreement may be
terminated prior to the Closing by:

(a)           mutual written consent of Purchaser
and Seller;

(b)           (i) Purchaser if the Closing has not
taken place on or before January 31, 2007 or (ii) Seller if the Closing has not
taken place on or before February 28, 2007 (in each case other than as a

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result of any failure on the
part of the terminating party to comply with or perform any of their respective
covenants or obligations set forth in this Agreement);

(c)           Purchaser (i) if there is a material
breach of any representation or warranty or any covenant or agreement to be
complied with or performed by Seller pursuant to the terms of this Agreement or
(ii) upon the failure of a condition to the obligations of Purchaser set forth
in Article 7 to be satisfied (and such condition is not waived in writing by
Purchaser) on or prior to the Closing Date, or the occurrence of any event that
results or would result in the failure of a condition to the obligations of
Purchaser set forth in Article 7 to be satisfied on or prior to the Closing
Date; provided, however, that such breach or failure is through
no fault of Purchaser; provided,
further, however, that if such inaccuracy in Seller’s
representations and warranties or a breach of a covenant by Seller is curable
by Seller, then Purchaser may not terminate this Agreement under this
Section 9.1(c) on account of such inaccuracy or breach until the earlier
of (A) the expiration of a ten (10) Business Day period commencing upon
delivery of written notice from Purchaser to Seller of such breach or
inaccuracy and (B) Seller ceasing to exercise commercially reasonable efforts
to cure such breach (it being understood that this Agreement shall not
terminate pursuant to this Section 9.1(c) as a result of such particular breach
or inaccuracy if such breach by Seller is cured prior to such termination
becoming effective);

(d)           Seller (i) if there is a material
breach of any representation or warranty or any covenant or agreement to be
complied with or performed by Purchaser pursuant to the terms of this Agreement
or (ii) upon the failure of a condition to the obligations of Seller set forth
in Article 8 to be satisfied (and such condition is not waived in writing by
Seller) on or prior to the Closing Date, or the occurrence of any event that
results or would result in the failure of a condition to the obligations of
Seller set forth in Article 8 to be satisfied on or prior to the Closing Date; provided,
however, that such breach or failure is through no fault of Seller; provided,
further, however, that if such inaccuracy in Purchaser’s representations
and warranties or a breach of a covenant by Purchaser is curable by Purchaser,
then Seller may not terminate this Agreement under this Section 9.1(d) on
account of such inaccuracy or breach until the earlier of (A) the expiration of
a ten (10) Business Day period commencing upon delivery of written notice from
Seller to Purchaser of such breach or inaccuracy and (B) Purchaser ceasing to
exercise commercially reasonable efforts to cure such breach (it being
understood that this Agreement shall not terminate pursuant to this Section
9.1(d) as a result of such particular breach or inaccuracy if such breach by
Purchaser is cured prior to such termination becoming effective);

(e)           Purchaser or Seller if any if a court
of competent jurisdiction or other Governmental Body (other than the Bankruptcy
Court) shall have issued a final and nonappealable order, decree or ruling, or
shall have taken any other action, having the effect of permanently
restraining, enjoining or otherwise prohibiting the Acquisition;

(f)            Purchaser or Seller upon the
approval by the Bankruptcy Court of an Alternative Transaction; or

(g)           (i) Purchaser if (A) the Bankruptcy
Court shall not have entered the Bidding Procedures Order on or before December
8, 2006 or (B) the Bankruptcy Court shall not have entered the Sale Order on or
before January 18, 2007  or (ii) Seller
if (A) the Bankruptcy Court shall not have entered the Bidding Procedures Order
on or before December 15, 2006 or (B) the Bankruptcy Court shall not have
entered the Sale Order on or before January 18, 2007.

9.2           Termination
Procedures.  Subject to Section 9.3,
if Purchaser wishes to terminate this Agreement pursuant to
Section 9.1(a), Section 9.1(b)(i), Section 9.1(c), Section 9.1(e), Section
9.1(f)  or Section 9.1(g)(i), then
Purchaser shall deliver to Seller a written notice stating that Purchaser is
terminating this Agreement in accordance with the respective section.  Subject to Section 9.3, if Seller

 35
 

 

wishes to
terminate this Agreement pursuant to Section 9.1(a), Section 9.1(b)(ii),
Section 9.1(d), Section 9.1(e), Section 9.1(f) or Section (g)(ii), then Seller
shall deliver to Purchaser a written notice stating that Seller is terminating
this Agreement in accordance with the respective section.

9.3           Expenses;
Termination Fees.  Except as set
forth in Section 5.7 (which obligations it is expressly agreed survive
termination of this Agreement), all fees and expenses incurred in connection
with this Agreement and the transactions contemplated by this Agreement shall
be paid by the party incurring such expenses, whether or not the Acquisition is
consummated.

9.4           Effect of
Termination.  If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties
under this Agreement shall terminate; provided, however, that the
Parties shall, in all events, remain bound by and continue to be subject to the
provisions set forth in Section 2.2(a), Section 5.7, Section 5.11, Section
9.3, Section 9.4, Section 11.1, Section 11.2, Section 11.5, Section 11.6 and
Section 11.11.

ARTICLE 10

POST-CLOSING COVENANTS

The Parties agree as follows with respect to the period existing from
and after the Closing:

10.1         General.  In case at any time after the Closing any
further action is necessary to carry out the purposes of this Agreement, each
of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request.  Seller shall use
its commercially reasonable efforts from and after the Closing to cause any and
all Encumbrances on the Transferred Assets that exist on the Closing Date to be
released without cost to Purchaser.

10.2         Leases and Other
Agreements.

(a)           Purchaser shall assume all of Seller’s
right, title and interest in and to, and shall pay and perform all liabilities
and obligations as and when due under, the Facilities Leases; provided, however,
that such assumption shall be conditioned on Purchaser’s successful
renegotiation of the Facilities Leases to (i) amend the terms of the Store /
Headquarters lease in accordance with the material terms of lease amendment
attached as Exhibit G-1, which shall become effective as of the Closing
Date and (ii) amend the Distribution Center lease in accordance with the
material terms of lease amendment attached as Exhibit G-2, which shall
become effective as of the Closing Date; provided, further, that the
terms in such Facilities Leases regarding rent and real property taxes payable
by the tenant shall remain in their current form for the duration of the
amended terms of the respective Facilities Leases.  The assumption agreement relating to such
Facilities Leases shall include representations and warranties that Seller has
good and valid leasehold title to the Leased Real Property, that each Facility
has received all required approvals of Governmental Bodies, and regarding the
suitability of the Leased Real Property and customary estoppel provisions.  The parties acknowledge that such terms have
been agreed to pursuant to a letter agreement between Purchaser and Bamber,
LLC, dated as of the date of this Agreement.

(b)           Purchaser and Seller and the
Affiliates of Seller who control Barrington, Inc. shall arrive at an agreement
with the material terms set forth in Exhibit I designed to provide
Purchaser with continued access to such products consistent with past practice
(the “Barrington/LA Sax Agreement”).

(c)           At or prior to Closing, Seller shall
pay and perform all liabilities and obligations as and when due under the
LaSalle Equipment Lease, including payment of the purchase option, so as to

 36
 

 

cause the Seller to be the
owner of all property subject to such lease and such assets to become
Transferred Assets hereunder.  Seller
estimates the payoff amount as of January 31, 2007 to be $2,718,343.

10.3         Certain Tax
Matters.  The Parties agree that
inasmuch as the Transferred Assets include substantially all the operating
assets of Seller, the sale and purchase of the Transferred Assets may be exempt
from sales and use Taxes in the jurisdictions in which the Transferred Assets
are located pursuant to the bulk sale, occasional sale, or sale for resale
provisions in the applicable Legal Requirements, and the Parties hereto shall
treat the transfer of the Transferred Assets provided for herein as a bulk,
occasional sale, or sale for resale for all purposes; provided, however,
that to the extent it shall be determined after the date of the Agreement that
the sale by Seller, and the purchase by Purchaser, of all or any portion of the
Transferred Assets is subject to a sale, use or other transfer Tax, then such
Tax (and any penalties and interest) shall be paid by Seller.  The Parties shall cooperate with each other
in the preparation, execution and filing of exemption certificates or any Tax
Returns that may be required in connection with such Taxes and any related
filing fees, notarial fees and other costs.

10.4         Access to Books, Records, Etc.;
Further Action.

(a)           Each Party agrees that, after the
Closing, it will cooperate with and make available to the other Parties, during
normal business hours and upon reasonable notice, all books and records, and
other information retained and remaining in existence after the Closing Date
with respect to the Transferred Assets or the Assumed Liabilities that are
necessary or useful in connection with any use of the Transferred Assets or the
operation of the Business by Purchaser after the Closing. Seller agrees that it
shall preserve and keep all such books and records of Seller retained by it for
a period of at least three (3) years from the Closing Date.  After such three (3) year period, Seller
may dispose of such books and records, unless notified by Purchaser at least
sixty (60) days prior to the expiration of such three (3) year period that
Purchaser wishes to retain such books and records, in which case Purchaser
shall be permitted, at its sole cost and expense, to remove all or any part of
such books and records.  Additionally,
Seller shall have access to the books and records acquired by Purchaser for the
period commencing on the Closing Date and ending three (3) years from the
Closing Date for any proper purpose relating to the operation of its business
prior to the Closing Date.  Following the
Closing, Seller shall promptly provide Purchaser with any notices or other
documents received by Seller relating to the Business.

(b)           From and after the Closing Date,
Seller shall cooperate with Purchaser and its Affiliates and Representatives,
and shall execute and deliver such documents and take such other actions as
Purchaser may reasonably request, for the purpose of evidencing the Acquisition
and putting Purchaser in possession and control of all of the Transferred
Assets.  Without limiting the generality
of the foregoing, from and after the Closing Date, Seller shall promptly remit
to Purchaser any funds that are received by Seller and that are included in, or
that represent payment of receivables included in, the Transferred Assets.  Purchaser shall promptly remit to Seller any
funds that are received by Purchaser and that are included in the Excluded
Assets.  Seller: (i) hereby irrevocably
authorizes Purchaser, at all times on and after the Closing Date, to endorse in
the name of Seller any check or other instrument that is made payable to Seller
and that represents funds included in, or that represents the payment of any
receivable included in, the Transferred Assets; and (ii) hereby irrevocably
nominates, constitutes and appoints Purchaser as the true and lawful
attorney-in-fact of Seller (with full power of substitution) effective as of
the Closing Date, and hereby authorizes Purchaser, in the name of and on behalf
of Seller, to execute, deliver, acknowledge, certify, file and record any
document, to institute and prosecute any Legal Proceeding and to take any other
action (on or at any time after the Closing Date) that Purchaser may deem
appropriate for the purpose of (A) collecting, asserting, enforcing or
perfecting any claim, right or interest of any kind that is included in or
relates to any of the Transferred Assets, (B) defending or compromising
any claim or Legal Proceeding relating to any of the Transferred Assets, or
(C) otherwise

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carrying out or facilitating
the Acquisition.  The power of attorney
referred to in the preceding sentence is and shall be coupled with an interest
and shall be irrevocable, and shall survive the dissolution or insolvency of
Seller.  Purchaser shall give prompt
notice in reasonable detail to Seller of any action taken by Purchaser under
the foregoing clause (ii) of this Section 10.4, including copies of any
documents executed by Purchaser under such clause (ii).

ARTICLE 11

GENERAL PROVISIONS

11.1         Applicable Law.  The execution, performance and interpretation
of this Agreement shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of Indiana.

11.2         Jurisdiction;
WAIVER OF JURY TRIAL.  The parties
agree that the Bankruptcy Court shall retain exclusive jurisdiction to resolve
any controversy or claim arising out of or relating to this Agreement or the
implementation or the breach hereof. 
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY.

11.3         Termination of
Representations and Warranties.  The
representations and warranties of the Parties set forth in Articles III and IV
of this Agreement shall terminate and be of no further force or effect after
the Closing Date.

11.4         Notices.  All notices required or permitted to be given
under this Agreement shall be in writing, and will be deemed given on the date
of receipt if delivered in person, or on the date of mailing if mailed by
overnight courier or registered or certified mail, postage prepaid, return
receipt requested, to the applicable Party at its address indicated on the
signatures pages to this Agreement.  Any
Party may change its address for purposes of this Agreement by giving fifteen
(15) days’ prior written notice of such change of address to the other Party in
the manner described in this Section 11.4.

11.5         Confidentiality.  The following is subject to any disclosure
requirements under the Bankruptcy Code or imposed by the Bankruptcy Court:
Purchaser and Seller each agree that it will treat in confidence all documents,
materials and other information that it shall have obtained regarding the other
party during the course of the negotiations leading to the consummation of the
transactions contemplated hereby (whether obtained before or after the date of
this Agreement), the investigation provided for herein and the preparation of
this Agreement and other related documents, and, in the event the transactions
contemplated hereby shall not be consummated, at the request of the disclosing
party, will return to the other party all copies of nonpublic documents and
materials which have been furnished in connection therewith.  Such non-public documents, materials and
information shall not be communicated to any third Person (other than to
Purchaser’s and Seller’s respective counsel, accountants or financial advisors,
in each case subject to the recipient’s agreement to keep the same
confidential).  No other party shall use
any confidential information in any manner whatsoever except solely for the
purpose of evaluating the proposed purchase and sale of the Transferred Assets;
provided, however, that after the Closing, Purchaser may use or
disclose any confidential information included in the Transferred Assets or
otherwise reasonably related to the Transferred Assets and the business.  The obligation of each party to treat such
documents, materials and other information in confidence shall not apply to any
information which (a) is or becomes available to such party from a source other
than the disclosing party, (b) is or becomes available to the public other than
as a result of disclosure by such party or its agents or (c) is required to be
disclosed under applicable law, judicial process or rule of any national
securities exchange or quotation service.

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11.6         Public
Announcements.  All public
announcements or statements with respect to this Agreement, the transactions
contemplated hereby or the activities and operations of the other Party shall
be jointly approved by Seller and Purchaser; provided, however,
that if the Parties are unable to agree on a public statement or announcement
and Seller or Purchaser determines, after consultation with counsel, that such
statement or announcement is required by applicable Legal Requirement or by
obligations of the Parties or their Affiliates pursuant to any listing
agreement with or rules of any national securities exchange or quotation
service, then Seller or Purchaser, as the case may be, may issue such statement
or announcement.

11.7         Binding Effect;
Assignment.  No Party shall assign
any of its rights, or delegate any of its obligations under this Agreement to
any third party without the prior written consent of the other Parties; provided,
however, that Purchaser
may assign this Agreement to one or more Affiliates of Purchaser without the consent
of any Party so long as Purchaser remains fully and primarily liable under this
Agreement.  This Agreement is binding
upon, and shall inure solely to the benefit of, the parties hereto and their
respective heirs, personal representatives, successors and permitted assigns.
This Agreement is not intended to benefit, and shall not be construed as
benefiting, any third party, and no third party shall have standing to enforce
any provision of this Agreement.  Without
limiting the generality of the foregoing, no Transferred Employee shall have
any claim against Purchaser pursuant to this Agreement except pursuant to a
separate written offer of employment delivered directly by Purchaser to such
individual Transferred Employee.

11.8         Modification.  No purported modification, amendment or
waiver of any term of this Agreement shall be effective unless it is in
writing, subsequent to this Agreement and signed by all parties hereto.

11.9         Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same agreement.  Facsimile copies shall also be deemed
originals.

11.10       Severability.  Purchaser and Seller agree that the
provisions of this Agreement are severable and separate and that the
unenforceability of any specific provision or part of any provision shall not
affect the validity of any other provision or term of this Agreement.

11.11       Entire Agreement.  This Agreement, together with the Ancillary
Agreements and the instruments delivered hereunder and thereunder, constitutes
the entire agreement of Purchaser and Seller with respect to the subject matter
hereof and supersedes any and all prior and contemporaneous understandings or
agreements, whether oral or written, concerning such subject matter, including
that certain letter agreement between Purchaser and Seller dated November 3,
2006.  Each Party acknowledges that it
enters into this Agreement without relying on any statement by the other Party
which is not specifically set forth in this Agreement.

11.12       Interpretation of
Agreement.

(a)           The words “hereof,” “herein” and “hereunder”
and words of similar import when used in this Agreement refer to this Agreement
as a whole and not to any particular provision of this Agreement, and article,
section, schedule and exhibit references are to this Agreement unless otherwise
specified.  The meaning of defined terms
shall be equally applicable to the singular and plural forms of the defined
terms.  The terms “include” and “including”
are not limiting and mean “including without limitation.” The masculine gender
shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.

 39
 

 

(b)           References to agreements and other
documents shall be deemed to include all subsequent amendments and other
modifications thereto.

(c)           References to statutes shall include
all regulations promulgated thereunder and references to statutes or
regulations shall be construed as including all statutory and regulatory
provisions consolidating, amending or replacing the statute or regulation.

(d)           The captions and headings of this
Agreement are for convenience of reference only and shall not affect the
construction of this Agreement.

(e)           The Parties participated jointly in
the negotiation and drafting of this Agreement and the language used in this
Agreement shall be deemed to be the language chosen by the Parties to express
their mutual intent.  If an ambiguity or
question of intent or interpretation arises, then this Agreement will
accordingly be construed as drafted jointly by the Parties, and no presumption
or burden of proof will arise favoring or disfavoring any Party by virtue of
the authorship of any of the provisions of this Agreement.

(f)            The annexes, schedules and exhibits
to this Agreement are a material part hereof and shall be treated as if fully
incorporated into the body of the Agreement. For purposes of this Agreement,
whenever the context requires: the singular number shall include the plural,
and vice versa.

(Signature Page Follows)

 40

 

IN WITNESS WHEREOF, the parties have executed this Asset Purchase Agreement effective as
of the date first written above.

	
  

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
  MUSICIAN’S FRIEND, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
   

  	
  c/o Guitar Center, Inc.

  
	
   

  	
   

  	
  5795 Lindero Canyon Road

  
	
   

  	
   

  	
  Westlake Village, California 91362

  
	
   

  	
   

  	
  Attention: General Counsel

  
	
   

  	
   

  	
  Fax: (818) 735-4923

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
   

  	
  Latham & Watkins LLP

  
	
   

  	
   

  	
  140 Scott Drive

  
	
   

  	
   

  	
  Menlo Park, California 94025

  
	
   

  	
   

  	
  Attention: Anthony J. Richmond, Esq.

  
	
   

  	
   

  	
  Fax: (650) 463-2600

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SELLER:

  
	
   

  	
   

  
	
   

  	
  DENNIS BAMBER, INC., D/B/A THE WOODWIND

  & THE BRASSWIND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fax:

  	
   

  	
   

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
   

  	
  c/o

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:

  	
   

  	
   

  
	
   

  	
   

  	
  Fax:

  	
  (     )

  	
   

  	
   

  	
   

  
												

 

 S-1EXHIBIT 10.1

MUTUAL
RELEASE AND SETTLEMENT AGREEMENT

This is a Mutual
Release and Settlement Agreement (“Settlement”) dated as of September 29,
2006, between Charys Holding Company, Inc., a Delaware Corporation (“Charys”)
and its affiliated and related companies and entities Viasys Services Inc.,
Viasys Network Services Inc. (hereinafter collectively referred to as the “Company”)
and New Viasys Holdings LLC, a Delaware limited liability company and its
affiliated and related companies and entities (hereinafter referred to as “New
Viasys”).

WHEREAS,
disputes (referred to collectively as the “Disputes”) have arisen involving the
Company and New Viasys related to that certain Stock Purchase Agreement dated
November 1, 2005 between the Company and New Viasys (the “Agreement”) and
the agreements and other documents associated with the Agreement (referred to
collectively as the “Transaction Documents”);

WHEREAS,
the Company and New Viasys desire to settle and resolve the Disputes.

THEREFORE,
for the consideration and mutual promises listed below, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows
(Capitalized terms not defined herein but defined in the Transaction Documents
shall have the definitions given in the Transaction Documents):

1.             Payment
Price

(a)           The
Agreement called for part of the Base Purchase Price to be a subordinated
secured promissory note in the original principal amount of $3,500,000.00.  The Note was secured by a Security Agreement
giving New Viasys a security interest in the 

 

Collateral
described in Schedule 1.3.1(a) to the Agreement (the “Security Agreement”).

(b)           As
a condition precedent to the Company’s obligations under this Settlement, at
the closing of this Settlement (the “Closing”): (i) New Viasys shall cancel the
Note and return the original Note to Charys, and (ii) Section 1.5 of the
Agreement shall be of no further force and effect, and (iii) Charys shall have
completed a financing transaction in the approximate amount of $20,000,000.

(c)           As
a condition precedent to New Viasys’s obligations under this Settlement,
Charys: (i) shall pay to New Viasys at Closing, in immediately available funds
the sum of $372,424.00; (ii) shall agree
to pay within 60 days after Closing the amount of $426,333.00, $333,333.00 as
Adjusted Base Purchase Price plus $93,000.00 in interest (collectively, $372,424.00 and $426,333.00, the “Settlement Amount”);
and (iii) shall have completed a 
financing transaction in the approximate amount of $20,000,000.

(d)           The
Company and New Viasys shall terminate the Security Agreement at the Closing,
which Security Agreement shall be of no further force and effect.  The Company and New Viasys shall take such
steps as are reasonably necessary to put the Collateral in such condition (with
respect to its custody and possession only) as it was prior to the Security
Agreement.  New Viasys shall have no
further interest in the Collateral.  For
the avoidance of doubt, the security agreement entered into by the parties with
respect to the VA Job (as defined in Section 5(a) below) shall remain in full
force and effect.

2.             Escrowed
Shares and Additional Shares of Charys Stock; Promissory Note

(a)           Pursuant
to the Agreement, Charys deposited 500,000 shares of unregistered Charys common
stock in Escrow (the “Escrow Shares”) with the law firm of Brown 

 2
 

 

Raysman
Millstein Felder & Steiner LLP, with offices at 900 Third Avenue, New York,
NY 10022 (the “Escrow Agent”).

(b)           At
the Closing, Charys shall direct the Escrow Agent to release the Escrow Shares
pursuant to the provisions of the Escrow Agreement, and Charys will issue an
additional 225,000 shares of unregistered Charys common stock (the “Additional
Shares”), all as follows:

(i)            To Mel Harris, 367,305 shares of the Escrow Shares and
112,500 of the Additional Shares; and

(ii)           To Steven Posner, 132,695 shares of
the Escrow Shares and 112,500 of the Additional Shares.

(c)           The
Escrow Shares and the Additional Shares shall have the registration rights set
forth in the Registration Rights Agreement attached hereto as Exhibit 2(c) and
made a part hereof.

(d)           As
of the date that is one year after the Closing date (the “Put Date”), Mel
Harris or Steven Posner or both will have the right to require Charys to
repurchase at a purchase price of $6.50 per share that number of shares
designated in the notice to Charys stating the intention to exercise the put
(the “Shareholder Put Right”).  The
Shareholder Put Right shall expire 90 days after the Put Date (the “Put
Expiration Date”) if the exercise of the Shareholder Put Right is not initiated
by the Put Expiration Date.  Mel Harris
or Steven Posner or both, as the case may be, shall initiate the Shareholder
Put Right by sending written notice to Charys indicating his intent to exercise
the Shareholder Put Right not later than the Put Expiration Date.  Promptly after receipt of a timely notice of
intent to exercise the Shareholder Put Right, Charys and Mel Harris or Steven
Posner or both, as the case may be, shall take such steps as are 

 3
 

 

necessary
to consummate the repurchase of the Escrow Shares and the Additional
Shares.  Charys may pay for some or all
of the shares put to Charys pursuant to this provision by means of a promissory
note bearing interest at a rate equal to 10% per annum with a term of not more
than six months, which promissory note shall be secured by the Charys shares.

(e)           At
the Closing, Charys shall issue promissory notes (the “Promissory Notes”) to
Mel Harris and Steven Posner, in amounts determined by the difference between
$3.5 million and the value of the Escrow Shares and the Additional Shares as
determined by the average closing price of those shares for the ten trading
days ending on September 29, 2006 (the per share price as co computed, the “Computed
Value”) allocated between Mel Harris and Steven Posner as follows:

(i)            To Mel Harris, the difference between $2,316,300 and the
Computed Value of 479,805 shares of Charys common stock; and

(ii)           To Steven Posner, the difference
between $1,183,700 and the Computed Value of 245,195 shares of Charys common
stock.

The Promissory
Notes shall be substantially in the form of Exhibit 2(e).

3.             Standby
Letters of Credit.

(a)           Section
5.2 of the Agreement called for Charys to put an irrevocable standby letter of
credit in place to replace New Viasys’ standby letter of credit #11171 securing
an irrevocable letter of credit for the Policies in the amount of
$1,350,000.  This obligation has been
extended by letter agreement three times.

(b)           As
a condition precedent to the Company’s obligations under this Settlement, Charys’
obligation to establish such standby letter of credit shall be extended to
December 31, 2006; provided, however, that such extension shall not result in
the requirement of 

 4
 

 

additional
amounts to be paid by New Viasys under its standby letter of credit, and
provided, further, that the Company is not in default under the terms of New
Viasys’ standby letter of credit.  Upon
replacement of the standby letter of credit, Charys will return the original
Standby letter of credit and any associated collateral to New Viasys.

(c)           Charys
herby warrants and covenants that it shall indemnify and hold New Viasys
harmless from and against any liability or obligation arising from the
obligation to secure the irrevocable letter of credit and any associated
collateral for the Policies.

4.             Security
Bond.

(a)           Section
5.9 of the Agreement called for Charys to secure the release of New Viasys, as
principal, from the Liberty Mutual Insurance Company surety Bond no.
964-001-334 in the amount of $375,000.

(b)           As
a condition precedent to the Company’s obligations under this Settlement,
Charys’ obligation to secure the release of New Viasys, as principal, from the
Liberty Mutual Insurance Company surety Bond no. 964-001-334 in the amount of
$375,000 shall be extended to December 31, 2006; provided, however, that such
extension shall not result in the requirement of additional amounts to be paid
by New Viasys under such surety bond, and provided, further, that the Company
is not in default under the terms of such surety bond.  Upon replacement of the surety bond, Charys
will return the original surety bond to New Viasys.

(c)           Charys
herby warrants and covenants that it shall indemnify and hold New Viasys
harmless from and against any liability or obligation arising from the obligations
under the Liberty Mutual Insurance Company surety Bond no. 964-001-334 in the
amount of $375,000.

 5
 

 

5.             Provisions
Relating to Contract for the VA Job

(a)           In
connection with the closing of the Agreement, the parties entered into a
Management Agreement by which the Company managed Contract No. C00016042T01
with the Virginia Department of Transportation (the “VA Job”) for the benefit
of New Viasys and in connection herewith the parties shall enter into the First
Amendment to Management Agreement as provided in the “First Amendment to
Management Agreement” a copy of which is attached hereto as Exhibit 5.

6.             Settlement
of Litigation

(a)           Section
11.2(d) of the Agreement provided that Charys would be indemnified by New
Viasys for all Losses in excess of one million dollars ($1,000,000) arising
from the litigation with Lumbermen’s Mutual Casualty Co. (“Lumbermen’s”)
captioned Lumbermen’s Mutual Casualty Company v. Able Telecommunications &
Power, Inc., Transportation Safety Contractors, Inc. and Georgia Electric Company,
United States District Court, Northern District of Georgia, Atlanta Division,
Case No. 1:04-CV-339-WSD.  That
litigation was settled by the payment to Lumbermen’s of 400,000 shares of
Charys stock and $200,000 in cash paid by New Viasys pursuant to an oral
agreement between Charys and New Viasys. 
The agreement between Charys and Lumbermen’s established an agreed upon
value of $4.83 per share giving the settlement an agreed upon value between
Charys and Lumbermen’s of $1,932,000 (the “Lumbermen’s Settlement Amount”).  Charys has stated that it has an
indemnification claim against New Viasys for $732,000, the agreed value of the
Charys shares, less the $200,000 paid in cash by New Viasys.  It is New Viasys’ contention that the
indemnity contained in the Agreement related only to cash paid by Charys to
Lumbermen’s and not to any artificial value of the Charys shares.

 6
 

 

(b)           As
a material part of this Settlement and contingent upon the satisfaction of the
conditions precedent to the Company’s obligations, Charys shall release its
claim against New Viasys for the indemnified portion of the Lumbermen’s
Settlement Amount and New Viasys shall release Charys for New Viasys’ claim for
the $200,000 paid by it to Lumbermen’s.

7.             Executory
Obligations under the Agreement.

(a)           In
addition to the various obligations referred to in Sections 1 through 6 above,
the Agreement provided for a number of other obligations that, at the time of
the closing of the Agreement, had not been fulfilled by Charys as obligor (the “Charys
Executory Obligations”) or by New Viasys as obligor (the “New Viasys Executory
Obligations”).

(b)           The
indemnification by Seller contained in Section 11.2 of the Agreement shall be
amended and restated as follows:

“11.2       Indemnification by Seller.  Subject to this Article 11, including,
without limitation, the provisions of Section 11.3, Purchaser and its officers,
directors, employees, shareholders, representatives and agents (collectively,
the “Purchaser Indemnified Parties”) shall be indemnified and held harmless by
Seller at all times after the Effective Date, against and in respect of any and
all damage, loss, deficiency, liability, obligation, commitment, cost or
expense (including the reasonable fees and expenses of counsel) (collectively, “Losses”)
resulting from, or in respect of, all Tax liabilities of the Company, including
federal, state and local Tax liability, together with any interest or penalties
thereon or related thereto for all periods ending on or prior to the Effective
Date but excluding any Taxes to 

 7
 

 

the extent there is an accrual or reserve on the Post
Closing Audit and any Tax liability of Seller arising in connection with the
transactions contemplated hereby.  Any
Taxes, penalties or interest attributable to the operations of the Company
payable as a result of an audit of any Tax Return for any period ending on or
prior to the Effective Date shall be deemed to have accrued in the period to
which such Taxes, penalties or interest are attributable.”

(c)           The
indemnification by Purchaser contained in Section 11.5 of the Agreement shall
remain in full force and effect with the exception that Charys shall be
released from its obligation under Section 11.5(a); provided,
however, that the indemnification obligations of Charys with respect to its
continuing obligations under this Settlement shall remain in full force and
effect.

(d)           Except
as expressly set forth herein and subject to the satisfaction of the conditions
precedent for the Company’s obligations under this Settlement, the Company for
itself, its successors and assigns, does hereby, now and forever, fully and
finally, RELEASE, acquit and discharge New Viasys including without limitation,
its past or present successors, assigns, representatives, employees, officers,
directors, agents, attorneys, affiliates, parent and subsidiary corporations,
insurers, divisions (collectively referred to hereinafter as “New Viasys
Releasees”), from any and all claims, responsibility, covenants, suits,
judgments, demands, indebtedness, promises, agreements, actions, causes of
action, obligations, damages, costs, expenses, compensation or liabilities of
any type or nature whatsoever (collectively, “Claims”) which the Company now
has, might have, or might claim to have, against any of the New Viasys Releasees
at this time, whether or not known, suspected, developed or undeveloped,
anticipated 

 8
 

 

or
unanticipated, in law or in equity, including but not limited to those which
arise under, arise out of, relate to, or are connected with the New Viasys
Executory Obligations.

(e)           Except
as expressly set forth herein and subject to the satisfaction of the conditions
precedent for New Viasys’ obligations under this Settlement, New Viasys for
itself, its successors and assigns, does hereby, now and forever, fully and finally,
RELEASE, acquit and discharge Charys including without limitation, its past or
present successors, assigns, representatives, employees, officers, directors,
agents, attorneys, affiliates, parent and subsidiary corporations, insurers,
divisions (collectively referred to hereinafter as “Charys Releasees”), from
any and all Claims which New Viasys now has, might have, or might claim to
have, against any of the Charys Releasees at this time, whether or not known,
suspected, developed or undeveloped, anticipated or unanticipated, in law or in
equity, including but not limited to those which arise under, arise out of,
relate to, or are connected with the Charys Executory Obligations, but
excluding any and all Claims relating to or arising under this Settlement and
the covenants of the Company made in Sections 5.4, 5.7 and 5.8 of the
Agreement.

8.             Representations
and Warranties

(a)           Each
party executing this Agreement represents and warrants to the other party
hereto that it has not made any assignments or transfers of any claims relating
to the subject matter of this Agreement and that the person executing this
Agreement on its behalf has full authority to do so and is legally competent to
do so.  Each party also represents that
it has not made and will not make any assignments or transfers for the purpose
of avoiding any of  the requirements
contained in this Agreement, has not formed and will not form any new entities
or associations for the purpose of avoiding any of the requirements contained
in this Agreement, and has not and will not take any other action to circumvent
or otherwise avoid any of the terms 

 9
 

 

of
this Agreement.

9.             Counterparts

The parties agree
that this Agreement may be executed in multiple counterparts, or by facsimile,
each of which shall be considered as an original.

10.          Interpretation

The language used
in this settlement agreement shall be deemed to be language chosen by all
parties hereto to express their mutual intent, and no rule of strict
construction against any party shall apply to any term or condition of this
Agreement.

11.          Successors

This Agreement
shall inure to the benefit of and be binding upon the successors, assigns and
employers of the respective parties.

12.          Arbitration

Each controversy
or claim arising out of or relating to this Settlement shall be settled by
arbitration in Miami, Florida before a panel of three (3) arbitrators in
accordance with the commercial arbitration rules of the American Arbitration
Association then in effect, as supplemented by its Large, Complex Case Rules,
and judgment upon the award rendered in such arbitration shall be final and
binding upon the parties and may be entered in any Federal or state court in
Florida having jurisdiction over the parties.

The arbitrators
shall have the authority and jurisdiction to enter any pre-arbitration awards
that would aid and assist the conduct of the arbitration or preserve the
parties’ rights with respect to the arbitration, as the arbitrators shall deem
appropriate in their discretion.  The
award of the arbitrators shall be in writing and it shall specify in reasonable
detail the issues 

 10
 

 

submitted to arbitration
and the award of the arbitrators with respect to each of the issuers so
submitted.

The prevailing
party as determined by the arbitrators shall also be entitled to recover from
the losing party reasonable attorneys’ fees, costs and expenses actually
incurred in connection therewith and in the enforcement or collection of any
judgment or award rendered therein. 
Included within the costs recoverable by the prevailing party hereunder
shall be filing fees, arbitration fees, arbitrators’ compensation, transcript
costs, investigative costs, expert witness fees and the like.  The arbitration award will be final, binding
and conclusive on all of the parties.

13.          Governing
Law

This Agreement
shall be deemed to be made and entered into pursuant to the laws of the State
of Florida.

14.          Amendment
and Modification

No modification,
amendment or waiver of any provisions of this Agreement shall be effective
unless approved in writing by the parties. 
The failure of a party hereto at any time to require performance by the
other party of any responsibility or obligation hereunder shall in no way
effect the full right to require such performance in the future.  Nor shall the waiver by a party of a breach
of any provision hereof constitute a waiver of any succeeding breach of the
same or any such provision nor constitute a waiver of the responsibility or
obligation itself.  If any provision of
this Agreement is declared void, invalid or unenforceable, it shall have no
effect on the validity or enforceability of any other provision hereof.

 11
 

 

15.          Entire
Agreement

It is understood
and agreed that this Agreement contains the entire agreement between the
parties and that no representations or agreements, oral or otherwise, between
the parties not included herein shall be of any force and effect.

16.          Additional
Condition Precedent

This
Agreement is contingent on both parties executing it.

 

 12
 

 

IN WITNESS
WHEREOF, the parties hereto have made and entered into this Agreement as of the
date first hereinabove set forth.

	
  CHARYS HOLDING COMPANY, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Billy V. Ray, Jr.

  	
   

  
	
   

  	
  Billy V. Ray, Jr., Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  
	
  VIASYS NETWORK SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Billy V. Ray, Jr.

  	
   

  
	
   

  	
  Name: Billy V. Ray, Jr.

  	
   

  
	
   

  	
  Title: Chairman

  	
   

  
	
   

  	
   

  	
   

  
	
  VIASYS SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Billy V. Ray, Jr.

  	
   

  
	
   

  	
  Name: Billy V. Ray, Jr.

  	
   

  
	
   

  	
  Title: Chairman

  	
   

  
	
   

  	
   

  	
   

  
	
  NEW VIASYS HOLDINGS, LLC

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Mel Harris

  	
   

  
	
   

  	
  Name: Mel Harris

  	
   

  
	
   

  	
  Title: Manager

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Douglas Berman

  	
   

  
	
   

  	
  Name: Douglas Berman

  	
   

  
	
   

  	
  Title: Manager

  	
   

  

 

 13

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