Document:

EXHIBIT 10.1

 

Asset Purchase Agreement

Dated As Of December 15, 2006

by and Between

Steinway Musical Instruments,
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

  	
   

  	
  10

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Purchase of Transferred Assets

  	
   

  	
  10

  	
   

  
	
  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

  	
   

  	
  15

  	
   

  
	
  2.6

  	
   

  	
  Inventory.    OPEN ISSUE

  	
   

  	
   

  	
   

  
	
  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

  	
   

  	
  22

  	
   

  
	
  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

  	
   

  	
  25

  	
   

  
	
  3.18

  	
   

  	
  Assets Necessary to Continue to Conduct Business

  	
   

  	
  26

  	
   

  
	
  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

  	
   

  	
  28

  	
   

  
	
  5.3

  	
   

  	
  Notices and Consents

  	
   

  	
  29

  	
   

  
	
  5.4

  	
   

  	
  Commercially Reasonable Efforts

  	
   

  	
  30

  	
   

  
	
  5.5

  	
   

  	
  Notice of Developments

  	
   

  	
  30

  	
   

  
	
  5.6

  	
   

  	
  Bankruptcy Proceedings

  	
   

  	
  30

  	
   

  
	
  5.7

  	
   

  	
  Termination Fee

  	
   

  	
  31

  	
   

  
	
  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

  	
   

  	
  33

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  No Restraints

  	
   

  	
  33

  	
   

  
	
  6.2

  	
   

  	
  Governmental Authorizations

  	
   

  	
  33

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  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

  	
   

  	
  34

  	
   

  
	
  7.7

  	
   

  	
  No Proceedings

  	
   

  	
  34

  	
   

  
	
  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

  	
   

  	
  35

  	
   

  

 

 ii
 

 

 

	
  Article 9 Termination

  	
   

  	
  35

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.1

  	
   

  	
  Termination Events

  	
   

  	
  35

  	
   

  
	
  9.2

  	
   

  	
  Termination Procedures

  	
   

  	
  36

  	
   

  
	
  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

  	
   

  	
  40

  	
   

  

 

	
  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 December 15, 2006, by and
between Steinway Musical Instruments, 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 $35,500,000.

“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).

 “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.

“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).

 6
 

 

“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(c).

“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, 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).

 7
 

 

“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.

“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).

 8
 

 

“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.

“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.

 9
 

 

“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.

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,

 10
 

 

“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;

(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;

 11
 

 

(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 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

(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.

 12
 

 

(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;

(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

 13
 

 

(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;

(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;

 14
 

 

(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.

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

 15
 

 

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 (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

 16
 

 

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,
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).

 17

 

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 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.

 18
 

 

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 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

 19
 

 

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 15, 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 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,

 20
 

 

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 15, 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, 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,

 21
 

 

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.

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 

 22
 

 

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 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.

 23
 

 

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 15, 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.

 24
 

 

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 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 15, 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.

 25
 

 

(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 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

 26
 

 

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).

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

 27
 

 

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 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 subject to the availability of funding pursuant to orders of the
Bankruptcy Court and the determination of the Debtor in its reasonable business
judgment of such mix, character and quality of Inventory on the Closing Date
that is necessary for the continued operation of the Debtor’s business in the
ordinary course of its affairs as of the date thereof;

(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;

 28
 

 

(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;

(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

 29
 

 

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 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 15, 2006 and (ii) the Sale Order no later than
February 2, 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

 30
 

 

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.

(h)           This
Agreement shall be expressly subject to the Bidding Procedures, as approved by
the Bankruptcy Court pursuant to the Bidding Procedures Order including,
without limitation, the terms and conditions governing the Backup Bidder as
defined therein.

5.7           Termination Fee. 
If the Bankruptcy Court approves an Alternative Transaction, and such
Alternative Transaction is consummated, Seller shall pay Purchaser a
termination fee equal to $1,000,000 (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 upon termination of this
Agreement.  The Termination Fee 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 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

 31
 

 

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 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.

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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.

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.

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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 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 $32,100,000.

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

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(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)   Purchaser or Seller if the
Closing has not taken place on or before February 9, 2007 (in each case other
than as a 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,

 35
 

 

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)   Purchaser or 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 February 2,.

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 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

 36
 

 

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 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

 37
 

 

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 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,

 38
 

 

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.

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

 39
 

 

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.

(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:

  
	
   

  	
   

  
	
   

  	
  STEINWAY MUSICAL INSTRUMENTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Dennis M. Hanson

  
	
   

  	
  Name:

  	
  Dennis M. Hanson

  
	
   

  	
  Title:

  	
  Sr. EVP & CFO

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
   

  	
  c/o Steinway Musical Instruments, Inc.

  
	
   

  	
   

  	
  800 South Street, Suite 305

  
	
   

  	
   

  	
  Waltham, MA 02453

  
	
   

  	
   

  	
  Attention: General Counsel

  
	
   

  	
   

  	
  Fax: (781) 894-9803

  
	
   

  	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SELLER:

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ David G. Yoder

  
	
   

  	
  Name: 

  	
  David G. Yoder

  
	
   

  	
  Title:  

  	
  VP, CFO

  
	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
   

  	
  Dennis Bamber, Inc.

  
	
   

  	
   

  	
  4004 Technology Dr.

  
	
   

  	
   

  	
  South Bend, IN 46628

  
	
   

  	
   

  	
  Fax: (574) 251-3549

  
	
   

  	
   

  	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

  	
   

  	
  Howard L. Adelman

  
	
   

  	
   

  	
  Adelman & Gettleman

  
	
   

  	
   

  	
  53 West Jackson Boulevard, Suite 1050

  
	
   

  	
   

  	
  Chicago, IL 60604

  
	
   

  	
   

  	
  (312) 435-1050 / Fax (312) 435-1059

  
	
   

  	
   

  	
  hla@ag-ltd.com

  
						

 

 iEXHIBIT
10.2

ADDENDUM TO ASSET PURCHASE
AGREEMENT DATED AS OF DECEMBER 15, 2006

BY AND BETWEEN STEINWAY MUSICAL
INSTRUMENTS, INC. AND DENNIS BAMBER, INC. 

D/B/A THE WOODWIND & THE
BRASSWIND TO CONFORM TO AMENDMENTS MADE 

TO THE
SMI OFFER AT THE HEARING CONDUCTED ON DECEMBER 15, 2006

The Asset Purchase Agreement (“APA”) dated as of
December 15, 2006, by and between Steinway Musical Instruments, Inc. and Dennis
Bamber, Inc. d/b/a The Woodwind & The Brasswind, submitted to the Court as
an Exhibit at the hearing held in this matter on December 15, 2006, is amended
as follows:

1.             Paragraph 7.10 is deleted.

2.             Paragraph 2.4(d) of the APA is
amended as follows:

(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 and the
Deposit exceeded the amount that was due Seller under this Agreement, any
overpayment shall be immediately refunded to Purchaser from Seller’s estate.

3.             Paragraph 2.2(b)(iii) of the APA is amended as follows:

2.2(b)(iii)    Purchaser shall pay to
Seller the Holdback Amount, minus the Accounts Receivable Adjustment
Amount and the Inventory Adjustment Amount (Provided, however, that the total
of the Accounts Receivable Adjustment Amount and the Inventory Adjustment
Amount shall not exceed the amount by which the Closing Date Qualified Accounts
Receivable and Inventory Value, as of the Closing Date, are less than $36,000,000.),
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.

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