Document:

<Page>

                                                                   EXHIBIT 10.18

                               DEPARTMENT 56, INC.
                          ANNUAL CASH INCENTIVE PROGRAM

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

1.       PURPOSE

         The purpose of the Annual Cash Incentive Program is to enhance
Department 56, Inc.'s ability to attract, motivate, reward and retain employees,
to strengthen their commitment to the success of the Company and to align their
interests with those of the Company's stockholders by providing additional
compensation to designated employees of the Company based on the achievement of
performance objectives. To this end, the Annual Cash Incentive Program provides
a means of annually rewarding participants largely based on the performance of
the Company and, to a much lesser degree, based on exceptional instances of
personal performance.

2.       DEFINITIONS

         (a) "Award" shall mean the cash incentive award earned by a Participant
under the Program for any Performance Period.

         (b) "Base Salary" shall mean the Participant's annual base salary,
based on the Company's latest payroll action/salary adjustment form in effect
for the Participant during the Performance Period to which such form relates.
Annual base salary (1) does not include (i) Awards under the Program, (ii)
profit sharing, 401(k) "match", or other long-term incentive awards, (iii)
imputed or actual income from stock option exercises or such programs as life
insurance or (iv) nonrecurring earnings such as moving expenses, and (2) is
based on salary earnings before reductions for such items as contributions under
Section 401(k) of the Internal Revenue Code of 1986, as amended, and
Company-sponsored deferred compensation arrangements.

         (c)      "Board" shall mean the Board of Directors of the Company.

         (d) "Business Program", for any Performance Period, shall mean the
Company's final financial plan for such Performance Period, submitted to and
approved by the Board before the earlier of (1) the ninety-first day of such
Performance Period or (2) the end of the first quarter of such Performance
Period.

         (e)      "Change of Control" shall mean the occurrence during the term
of the Program of:

                   (i) An acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities") by any 'Person'
(as the term person is used for purposes of Section 13(d) or 14(d) of the
Exchange Act), immediately after which such Person has 'Beneficial Ownership'
(within the meaning of Rule 13d-3 promulgated
<Page>

under the Exchange Act) of fifty-one percent (51%) or more of the combined
voting power of the Company's then outstanding Voting Securities; provided,
however, in determining whether a Change of Control has occurred, Voting
Securities which are acquired in a 'Non-Control Acquisition' (as hereinafter
defined) shall not constitute an acquisition which would cause a Change of
Control. A 'Non-Control Acquisition' shall mean an acquisition by (i) an
employee benefit plan (or a trust forming a part thereof) maintained by (A) the
Company or (B) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned, directly or
indirectly, by the Company (for purposes of this definition, a 'Subsidiary'),
(ii) the Company or its Subsidiaries, or (iii) any Person in connection with a
'Non-Control Transaction' (as hereinafter defined);

                  (ii) The individuals who, as of May 16, 1997, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the members of the Board; provided, however, that if the election,
or nomination for election by the Company's common stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Program, be considered as a member
of the Incumbent Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened 'Election Contest' (as
described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or

                  (iii) Approval by stockholders of the Company of:

                           (1)      A merger, consolidation or reorganization
with or into the Company or in which securities of the Company are issued,
unless such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" is a merger, consolidation or
reorganization with or into the Company or in which securities of the Company
are issued where

                                    (A)     the stockholders of the Company,
immediately before such merger, consolidation or reorganization, own, directly
or indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting power of the
outstanding voting securities of the corporation resulting from such merger or
consolidation or reorganization (the "Surviving Corporation") in substantially
the same proportion as their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization,

                                    (B)     the individuals who were members of
the Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute at least
two-thirds of the members of the board of directors of the Surviving
Corporation, or a corporation beneficially owning a majority of the
<Page>

Voting Securities of the Surviving Corporation,

                                    (C)     no Person other than (1) the
Company, (2) any Subsidiary, (3) any employee benefit plan (or any trust forming
a part thereof) maintained immediately prior to such merger, consolidation or
reorganization by the Company or any Subsidiary, or (4) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of fifty-one percent (51%) or more of the then outstanding Voting
Securities owns, directly or indirectly fifty-one percent (51%) or more of the
combined voting power of the Surviving Corporation's then outstanding voting
securities;

                           (2)      A complete liquidation or dissolution of
the Company; or

                           (3)      The sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).

                  Notwithstanding the foregoing, a Change of Control shall not
be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Persons,
provided that if a Change of Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change of Control shall occur.

         (f)      "Company" shall mean Department 56, Inc., its successors and
assigns.

         (g) "Company Operating Income": for any period, the net income from
operations of (1) the Company and its Subsidiaries on a consolidated basis
determined in accordance with GAAP, or (2) any portion (or combination of
portions) of the Company's business as calculated in a manner consistent with
the Company's internal reporting for such period, in either case as determined
by the Management HR Committee in its discretion.

         (h) "Compensation Committee" shall mean the Compensation Committee of
the Board.

         (i) "Current Year EPS", for any period, shall mean the fully diluted
earnings per share goal for the Company and its Subsidiaries for such period
determined in accordance with GAAP on a consolidated basis.
<Page>

         (j) "Current Year EPS Target", for any Performance Period, shall mean
the Current Year EPS goal for the Company and its Subsidiaries (with such
adjustments as the Compensation Committee may in its discretion authorize for
any one or more officer Participants) (i) as reflected as EPS in the Business
Program or (ii) if such Performance Period is not a fiscal year, as established
by the Compensation Committee.

         (k) "Current Year Operating Income Target", for any Performance Period,
shall mean the Company Operating Income goal for such Performance Period as
established by the Management HR Committee.

         (l) "Current Year Financial Target Earned", for any Performance Period,
shall mean (1) with respect to any non-officer Participant, the bonus payout
percentage based on the achievement of Current Year Operating Income Target (and
based on the achievement of Current Year EPS Target for any non-officer
participant designated by the Management HR Committee) as determined by the
Management HR Committee (or the Board in lieu thereof), and (2) with respect to
any officer Participant, the bonus payout percentage based on the achievement of
Current Year EPS Target as determined by the Compensation Committee (or the
Board in lieu thereof).

         (m)      "Disability" shall mean permanent disability, as provided in
the Company's long-term disability plan.

         (n)      "Effective Date" shall mean the date that the Program is
adopted by the Board.

         (o)      "Employee" shall mean any person (including an officer)
employed by the Company or any of its Subsidiaries on a full-time basis except
for any (i) commissioned sales representative, (ii) non-exempt employee or
seasonal or temporary worker, (iii) employee represented in his or her
employment relationship by a collective bargaining unit or other labor union,
guild or association, (iv) employee of the Company's retail operations who does
not office in its Minneapolis-St. Paul metropolitan area headquarters office
building or (v) employee principally in a non-managerial position in any
operation of the Company or any Subsidiary located outside the United States of
America.

         (p)      "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

         (q)      "GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.

         (r)      "Key Employee" shall mean any Employee so designated by the
Management HR Committee.

         (s)      "Management HR Committee" shall mean a committee composed of
the
<Page>

Company's Chief Executive Officer and the Company's senior human resources
officer.

         (t)      "Participant", for any Performance Period, shall mean an
Employee who is eligible to participate in the Program for such Performance
Period as provided in Section 3 of the Program.

         (u)      "Performance Period" shall mean the fiscal year of the Company
or any other period designated by the Compensation Committee with respect to
which an Award is earned.

         (v)      "Program" shall mean this Department 56, Inc. Annual Cash
Incentive Program, as from time to time amended and in effect.

         (w)      "Retirement" shall mean retirement at or after age 65 or early
retirement with the prior written approval of the Company.

         (x)      "Subsidiary" shall mean a corporation as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, with the
Company being treated as the employer corporation for purposes of this
definition.

         (y)      "Target Award Percentage" for any Participant with respect to
any Performance Period, shall mean the percentage of the Participant's Base
Salary that the Participant would earn as an Award for that Performance Period
if each of the Current Year Financial Target Earned for that Performance Period
is 100%, and shall be as set forth on a schedule adopted by the Compensation
Committee with respect to officers who are Participants and as set forth on a
schedule adopted by the Management HR Committee with respect to all other
Participants, based on the Participant's responsibility level or the position or
positions held during the Performance Period; PROVIDED, HOWEVER, that if any
Participant held more than one position during the Performance Period, then the
Compensation Committee or Management HR Committee, as applicable, may designate
different Target Award Percentages with respect to each position and the Award
will be pro-rated to reflect the number of days during which such Participant
had each Target Award Percentage.

3.       ELIGIBILITY

         Participation in the Program for a Performance Period shall be limited
to those Employees who are eligible to participate as provided in this Section
3. To be eligible to participate in the Program in any Performance Period, an
Employee shall have had a least three months active tenure during such
Performance Period and be actively employed by the Company on the Award payment
date. The Compensation Committee or Management HR Committee may approve, in
accordance with Sections 7 and 8 of this Program, exceptions for special
circumstances.
<Page>

         Employees shall participate in only one annual cash or sales incentive
program for any specific period in time. For example, an individual may not
participate in both the Program and the Company's sales commission or sales
incentive program at the same time. An individual may participate in two
programs sequentially during any Performance Period because of promotion or
reassignment, provided that participation in each such program is pro-rated
based on the number of days he or she participated in each program.

         If an Employee becomes a Participant during a Performance Period, such
Participant's Award will be pro-rated based on the number of days that he or she
is a Participant.

4.       ADMINISTRATION

         The administration of the Program shall be consistent with the purpose
and the terms of the Program. The Program shall be administered by the
Compensation Committee with respect to officers and by the Management HR
Committee with respect to all other Participants. Each member of the
Compensation Committee shall be an "outside director" within the meaning of
Treasury Regulations proposed under Section 162(m) of the Internal Revenue Code
of 1986, as amended. The Compensation Committee and the Management HR Committee,
as the case may be, shall have full authority to establish the rules and
regulations relating to the Program, to interpret the Program and those rules
and regulations, to decide the facts in any case arising under the Program, to
reduce or eliminate any Participant's Award that would otherwise be payable
pursuant to the terms of the Program in the event the Participant has
demonstrated job performance below Company expectations or otherwise in such
committee's discretion, and to make all other determinations and to take all
other actions necessary or appropriate for the proper administration of the
Program, including the delegation of such authority or power, where appropriate;
PROVIDED, HOWEVER, that only the Compensation Committee shall have authority to
amend or terminate the Program. In addition, the Management HR Committee shall
have, with respect to non-officer Employees, full authority to select such
Participants in the Program and to determine each such Participant's Target
Award Percentage. Moreover, with respect to Participants who are not officers or
Key Employees, the Management HR Committee shall have full authority to grant
Awards in such amounts as it may determine in any event that (i) no Awards to
such Participants would otherwise be payable pursuant to Section 5 of this
Program or (ii) Awards to such Participants of lesser amounts would otherwise be
payable pursuant to Section 5 of this Program. The Compensation Committee's and
the Management HR Committee's administration of the Program, including all such
rules and regulations, interpretations, selections, determinations, approvals,
decisions, delegations, amendments, terminations and other actions, shall be
final and binding on the Company, the Subsidiaries, their respective
stockholders and all employees of the Company and the Subsidiaries, including
the Participants and their respective beneficiaries. No member of the
Compensation Committee or the Management HR Committee shall be liable for any
action, failure to act,
<Page>

determination or interpretation made in good faith with respect to the Program
or any transaction hereunder, except for liability arising from his or her own
willful misfeasance, gross negligence or reckless disregard of his or her
duties. The Company hereby agrees to indemnify each member of the Compensation
Committee and each member of the Management HR Committee for all costs and
expenses and, to the extent permitted by applicable law, any liability incurred
in connection with defending against, responding to, negotiating for the
settlement of or otherwise dealing with any claim, cause of action or dispute of
any kind arising in connection with any actions in administering the Program or
in authorizing or denying authorization to any transaction hereunder.

5.       DETERMINATION OF DEFINED AWARDS

         Prior to, or as soon as practicable following, the commencement of each
Performance Period, the Management HR Committee with respect to all non-officer
Participants shall then determine each such Participant's Target Award
Percentage. The Company shall then prepare schedules, which will be treated as
part of the Program for that Performance Period, setting forth (x) the
Participants during that Performance Period, (y) each Participant's Target Award
Percentage for that Performance Period and (z) the Current Year EPS Target and
the Current Year Operating Income Target for that Performance Period. The
Company shall notify each Participant of his or her Target Award Percentage and
the Current Year EPS Target and the Current Year Operating Income Target for the
Performance Period, as applicable. In addition to, and without limiting the
generality of the foregoing, the Company's officers shall also participate in
the Program for every Performance Period in accordance with Section 3 hereof,
and the Target Award Percentage of each officer shall be as set forth on a
schedule adopted by the Compensation Committee.

         Generally, a Participant earns an Award for a Performance Period based
on (i) the Company's achievement of the Current Year EPS Target and/or the
Current Year Operating Income Target applicable to such Participant (the
"Applicable Measure") , and (ii) as further described in Section 6 below, his or
her achievement of extraordinary personal quality performance. Awards pursuant
to this Section 5 will only be earned if achievement of the Applicable Measure
is 90% or higher for such Performance Period.

         Awards shall be earned by Participants in accordance with the following
formula:

                                                     Current
                                                     Year
Target                                               Financial
Award                      Base                      Target
Percentage          x      Salary           x        Earned
<Page>

6.       DETERMINATION OF DISCRETIONARY AWARDS

         There shall be a pool (generally not exceeding one hundred thousand
dollars) created each fiscal year Performance Period from which Awards may be
granted to any Participant solely in respect of such Participant's personal job
performance and without regard to the determination of defined Awards or
achievement of financial targets contemplated by Section 5 above; PROVIDED,
HOWEVER, that no such pool shall be created for a Performance Period unless the
Business Program for such Performance Period assumes and reflects the expense
effect of full utilization of the pool.

         The Compensation Committee (with respect to any Participant) and the
Management HR Committee (with respect to any non-officer Participant) shall each
have the authority to grant and pay Awards from any pool described in the
preceding paragraph at such times and in such amounts as such committee, in its
sole discretion, shall determine. Notwithstanding the proviso contained in the
preceding paragraph, there shall be no obligation of either the Compensation
Committee or the Management HR Committee to grant any Awards (or to continue or
repeat the granting of any Awards) to any Participant or Participants pursuant
to this Section 6.

         Discretionary bonus pool amounts not utilized in a Performance Period
shall not be carried over or accumulated with any discretionary bonus pool
amounts permitted in any subsequent Performance Periods.

7.       CHANGES TO TARGET AWARD PERCENTAGES

         The Compensation Committee, with respect to officers who are
Participants, and the Management HR Committee, with respect to all other
Participants, may at any time prior to the final determination of Awards change
the Target Award Percentage of any Participant or assign a different Target
Award Percentage to a Participant to reflect any change in the Participant's
responsibility level or position during the course of the Performance Period.

         The Compensation Committee, with respect to officers who are
Participants, and the Management HR Committee, with respect to all other
Participants, may at any time prior to the final determination of Awards change
the Current Year EPS Target and/or the Current Year Operating Income Target (as
the case may be) to reflect extraordinary events, accounting changes or a
corporate transaction, such as a merger, consolidation, separation,
reorganization or partial or complete liquidation.

8.       PAYMENT OF DEFINED AWARDS

         As soon as practicable after the close of a Performance Period (but not
before the Audit Committee of the Board has approved the corresponding audited
financial statements if such Performance Period is a fiscal year), the
Compensation Committee, with respect to officers who are Participants, and the
Management HR Committee, with respect
<Page>

to all other Participants, shall confirm the calculation of each Participant's
Award pursuant to Section 5. Subject to the provisions of Section 9 of the
Program, each Award to the extent earned pursuant to Section 5 shall be paid in
a single lump sum cash payment, as soon as practicable after the close of the
Performance Period, but no later than 120 days after the close of the
Performance Period.

         If a Change of Control occurs, the Company shall, within 60 days
thereafter, pay to each Participant in the Program immediately prior to the
Change of Control (regardless of whether the Participant remains employed after
the Change of Control) an Award under Section 5 which is calculated assuming
that Current Year EPS Target and Current Year Operating Income Target for such
Performance Period are fully (100%) achieved, and such Award shall be prorated
to the date of the Change of Control based on the number of days that have
elapsed during the Performance Period through the date of the Change of Control.

9.       LIMITATIONS ON RIGHTS TO PAYMENT OF AWARDS

         No Participant shall have any right to receive payment of an Award
under Section 5 or Section 6 of the Program for a Performance Period unless the
Participant remains in the employ of the Company through the payment date of the
Award for such Performance Period, except as provided in the last paragraph of
Section 8 of the Program. However, if the Participant has active service with
the Company or the Subsidiary for at least three months during any Performance
Period, but, prior to payment of the Award for such Performance Period, a
Participant's employment with the Company terminates due to the Participant's
death, Disability or Retirement, the Participant (or, in the event of the
Participant's death, the Participant's estate, beneficiary or beneficiaries as
determined under Section 10 of the Program) shall remain eligible to receive any
earned Award, which in the case of any Award under Section 5 shall be prorated
to a portion based on the number of days that the Participant was actively
employed by the Company or a Subsidiary and performed services for it during
such Performance Period.

10.      DESIGNATION OF BENEFICIARY

         A Participant may designate a beneficiary or beneficiaries who, in the
event of the Participant's death prior to full payment of any Award hereunder,
shall receive payment of any Award due under the Program. Such designation shall
be made by the Participant on a form prescribed by the Management HR Committee.
The Participant may, at any time, change or revoke such designation. A
beneficiary designation, or revocation of a prior beneficiary designation, will
be effective only if it is made in writing on a form provided by the Company,
signed by the Participant and received by the Secretary of the Company. If the
Participant does not designate a beneficiary or the beneficiary dies prior to
receiving any payment of an Awards, Awards payable under the Program shall be
paid to the Participant's estate.
<Page>

11.      AMENDMENTS

         The Compensation Committee may at any time amend (in whole or in part)
this Program. No such amendment which adversely affects any Participant's rights
to or interest in an Award earned prior to the date of the amendment shall be
effective unless the Participant shall have agreed thereto.

12.      TERMINATION

         The Compensation Committee may terminate this Program (in whole or in
part) at any time. In the case of such termination of the Program, the following
provisions of this Section 12 shall apply notwithstanding any other provisions
of the Program to the contrary:

                  (i) The Compensation Committee shall promulgate administrative
rules applicable to Program termination, pursuant to which each affected
Participant shall receive, with respect to each Performance Period which has
commenced on or prior to the effective date of the Program termination (the
"Termination Date") and for which the Award under Section 5 has not yet been
paid, the amount equal to the amount his or her Award under Section 5 would have
been had the Program not been terminated (prorated for the Performance Period in
which the Termination Date occurred), subject to reduction in the discretion of
the Compensation Committee.

                  (ii)Each Award payable under this Section 12 shall be paid as
soon as practicable, but in no event later than 120 days after the end of the
fiscal year in which the Termination Date occurs.

13.      MISCELLANEOUS PROVISIONS

         (a) This Program is not a contract between the Company and the
Employees or the Participants. Neither the establishment of this Program, nor
any action taken hereunder, shall be construed as giving any Employee or any
Participant any right to be retained in the employ of the Company. The Company
is under no obligation to continue the Program.

         (b) A Participant's right and interest under the Program may not be
assigned or transferred, except as provided in Section 10 of the Program, and
any attempted assignment or transfer shall be null and void and shall
extinguish, in the Company's sole discretion, the Company's obligation under the
Program to pay Awards with respect to the Participant.

         (c) The Program shall be unfunded. The Company shall not be required to
establish any special or separate fund, or to make any other segregation of
assets, to
<Page>

assure payment of Awards.

         (d) The Company shall have the right to deduct from Awards paid any
interest thereon, any taxes or other amounts required by law to be withheld.

         (e) Nothing contained in the Program shall limit or affect in any
manner or degree the normal and usual powers of management, exercised by the
officers and the Board or committees thereof, to change the duties or the
character of employment of any employee of the Company or to remove the
individual from the employment of the Company at any time, all of which rights
and powers are expressly reserved.QuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 10.19    
    

        ASSET PURCHASE AGREEMENT  

 BY

AND

AMONG  

 DEPARTMENT 56, INC.,  

 AXIS HOLDINGS CORPORATION,  

 AXIS CORPORATION,  

 ALL THE SHAREHOLDERS OF AXIS CORPORATION  

 AND  

 KIRK WILLEY IN THE CAPACITY OF SHAREHOLDERS' REPRESENTATIVE  

 DATED AS OF  

 AUGUST 14, 2001  

ASSET PURCHASE AGREEMENT  

        THIS ASSET PURCHASE AGREEMENT, dated as of August 14, 2001, is by and among Department 56, Inc., a Delaware corporation
("Parent"), Axis Holdings Corporation, a Delaware corporation and wholly-owned subsidiary of Parent (the
"Purchaser"), Axis Corporation, a Utah corporation (the "Seller"), all of the shareholders of Seller
(the "Shareholders") and Kirk Willey in the capacity of Shareholders' Representative (as defined below). 

        A.    The
parties hereto wish to provide for the terms and conditions upon which the Purchaser will purchase all of the assets of Seller's business (the
"Business"). 

        B.    The
parties hereto wish to make certain representations, warranties, covenants and agreements in connection with the purchase of the assets and the Business. 

        Accordingly,
and in consideration of the representations, warranties, covenants and agreements herein contained, the parties hereto agree as follows: 

1.    PURCHASE OF ASSETS.  

        1.1.    Assets to be Purchased.    

        (a)  Upon
the terms and subject to the conditions of this Agreement, Seller will sell, transfer, convey, assign and deliver to the Purchaser, and the Purchaser will purchase,
from Seller, at the Closing, all of Seller's right, title and interest in and to the businesses, assets, properties, goodwill and rights of Seller used in or arising out of the operation of the
Business, of every nature, kind and description, tangible and intangible, real, personal or mixed, wheresoever located and whether or not carried or reflected on the books and records of Seller
(collectively, the "Assets"). The Assets include, but are not limited to, all of Seller's right, title and interest in and to the following: 

          (i)  personal
property that is now owned or leased by Seller and used in the Business; 

        (ii)  franchises
relating to the Business; 

        (iii)  Seller's
corporate or entity names used in the Business and all derivatives or combinations thereof, including, without limitation, the "Geppeddo" trade name; 

        (iv)  logos,
trademarks, trademark registrations and trademark applications or registrations thereof used in or relating to the Business, including the goodwill associated
therewith, and the goodwill of the Business; 

        (v)  copyrights,
copyright applications and copyright registrations, patents and patent applications used in or relating to the Business; 

        (vi)  rights
under or pursuant to licenses by or to Seller used in or relating to the Business; 

      (vii)  development
and prototype hardware, software, processes, formula, trade secrets, inventories and royalties, including all rights to sue for past infringements used in
or relating to the Business; 

      (viii)  inventory
(raw materials, work in process, finished goods, accumulated costs of jobs and supplies) used in the Business; 

        (ix)  equipment,
machinery, furniture, fixtures, motor vehicles and supplies used in or relating to the Business; 

        (x)  prepaid
expenses relating to the Business; 

        (xi)  contracts
and purchase orders relating to the Business; 

      (xii)  lists
of customers of the Business, including those customers identified on Exhibit 1.1(a)(xii) attached
hereto; 

 

      (xiii)  lists
of suppliers and all favorable business relationships, causes of action, judgments, claims and demands of whatever nature relating to the Business; 

      (xiv)  telephone,
telefax and telex numbers and all listings in all telephone books and directories relating to the Business; 

      (xv)  all
credit balances of or inuring to Seller under any state unemployment compensation plan or fund related to employees of the Business; 

      (xvi)  employment
contracts, including all confidentiality, assignment of invention and non-competition agreements relating to the employees and consultants of
the Business, except for those employment contracts specifically excluded herein; 

    (xvii)  obligations
of the present and former officers and employees of the Business and of individuals and corporations of the Business; 

    (xviii)  rights
under joint venture agreements or arrangements relating to the Business; 

      (xix)  files,
papers and records relating to the Business and assets used in the Business; 

      (xx)  all
web sites, URLs and domain names of Seller used in and relating to the Business, including without limitation the web sites listed in Disclosure
Schedule 2.12; 

      (xxi)  the
assets as reflected on the balance sheet of Seller dated as of June 30, 2001, attached hereto as  Exhibit 1.1(a)(xxi) (the "Latest Balance Sheet"), with only such dispositions of such
assets reflected on the
Latest Balance Sheet as will have occurred in the ordinary course of business between the date thereof and the Closing and which are permitted by the terms hereof; 

    (xxii)  cash,
money and deposits with financial institutions and others, certificates of deposit, commercial paper, notes, evidences of indebtedness, stocks, bonds and other
investments of the Business; 

    (xxiii)  accounts
receivables of the Business; and 

    (xxiv)  all
of Seller's rights under that certain letter dated July 11, 2001 from Harvey C. Gordon (General Counsel, Ashton-Drake Galleries) to Michael E. Mangelson
(it agreed and understood that neither Parent nor Purchaser assumes any Liability arising out of Ashton-Drake's underlying infringement and other claims against the Seller or any of its customers
arising out of the same). 

        (b)  Notwithstanding
the foregoing, Seller will not sell, transfer, convey, assign or deliver to the Purchaser, and the Purchaser will not purchase from Seller, the following
assets: 

          (i)  the
consideration delivered to Seller pursuant to this Agreement for the Assets; 

        (ii)  the
minute books (and any documents related to Seller's organization, corporate affairs or foreign qualification contained in such minute books), corporate seal and
stock records of Seller; 

        (iii)  shares
of the capital stock of Seller, including shares held by Seller as treasury shares; 

        (iv)  all
documentation pertaining to any liability of Seller not assumed by the Purchaser; 

        (v)  all
employment or severance agreements of management not hired by Parent or Purchaser; and 

        (vi)  the
assets specifically described on Exhibit 1.1(b) hereto. 

        1.2.    Liabilities Assumed.    

        At
the Closing, the Purchaser will assume the liabilities of the Business (the "Assumed Liabilities") set forth on  Exhibit 1.2 (the "Liabilities Undertaking"). Each of Seller and the Shareholders expressly
understands and agrees that, except for the Assumed Liabilities, the Purchaser and Parent have not 

2

 

agreed to pay, will not be required to assume and will have no liability or obligation, direct or indirect, absolute or contingent, for, the liabilities of the Business, Seller, the Shareholders or
any of their respective affiliates or associates or any other person, which liabilities will, as between Seller and Shareholders, on the one hand, and the Purchaser and Parent, on the other hand,
remain the sole responsibility of, and will be satisfied by, Seller or the Shareholders, as applicable, pursuant to the terms of this Agreement (the "Retained
Liabilities"). The Retained Liabilities include, but are not limited to, the following: 

        (a)  any
debt, liability or obligation of the Business or Seller, or any of their respective affiliates or associates, direct or indirect, known or unknown, fixed, contingent
or otherwise, that (i) is unrelated to the Assets or the Business; or (ii) relates to the Assets or the Business and is based upon or arises from any act, omission, transaction,
circumstance, sale of goods or services, state of facts or other condition occurring or existing on or before the Closing Date, whether or not then known, due or payable, except to the extent that the
same constitutes an Assumed Liability; 

        (b)  any
obligation for Taxes related to any of the Assets for any Tax period or portion thereof ending on or before the Closing Date (including any tax liability relating to
or arising from the transfer of Assets) and any obligation for other Taxes of Seller; 

        (c)  any
debt, liability or obligation, direct or indirect, known or unknown, fixed, contingent or otherwise, based upon or arising from any act, omission, transaction,
circumstance, state of facts or other condition occurring or existing on or before the Closing Date and relating to any collective bargaining agreement or any employee benefit plan, policy, practice
or agreement to which Seller is a party or under which any of Seller's employees or former employees, or their spouses, dependents, family members, domestic partners or beneficiaries is covered,
including without limitation any obligation to contribute to, or any obligation or liability for any withdrawal liability arising in connection with, any "multiemployer plan" within the meaning of
Section 4001(a)(3) of the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), attributable to participation therein by
current or former employees of Seller as a result of this Agreement and the transactions contemplated hereby or otherwise; 

        (d)  (i) any
liability arising out of or related to the events, circumstances or conditions described in Section 2.21 of the Disclosure Schedule;
(ii) any liability arising out of or related to the management of wastes, byproducts or spent materials generated by the Seller or any of its subsidiaries, former subsidiaries or affiliates; or
any liability arising out of or related to any pollution or threat to human health or the environment or violation of any Environmental and Occupational Safety and Health Law that is related in any
way to any of Seller's management, use, control, ownership or operation of the Assets, any property or the business of Seller, any of its subsidiaries, former subsidiaries or affiliates, including
without limitation any on-site or off-site activities involving Environmentally Regulated Materials, and that occurred, existed, arises out of conditions or circumstances that
occurred or existed,
or was caused, in whole or in part, on or before the Closing Date, whether or not the pollution or threat to human health or the environment or violation of any Environmental and Occupational Safety
and Health Law is described in the Disclosure Schedule; and (iii) any Environmental Claim against any person or entity whose liability for such Environmental Claim of the Seller has or may have
assumed or retained either contractually or by operation of law; 

        (e)  any
debt, liability or obligation, direct or indirect, known or unknown, fixed, contingent or otherwise owing by Seller to any of its affiliates, officers, directors or
stockholders; 

        (f)    any
debt, liability or obligation, direct or indirect, known or unknown, fixed, contingent or otherwise owing by Seller or any Shareholder to any attorney, accountant,
investment banker or other Person, to the extent relating to or incurred in connection with this Agreement or the transactions contemplated hereby; 

3

 

        (g)  any
debt, liability or obligation, direct or indirect, known or unknown, fixed, contingent or otherwise, relating to the claims or matters described in Disclosure
Schedules 2.13, 2.18, Item 1of 2.26, or 2.27. 

        At
the Closing, Seller will convey, transfer, assign and delegate, and the Purchaser will accept and assume, those contracts, agreements and commitments listed on  Exhibit A to the Liabilities
Undertaking (the "Assumed Contracts"). 

        1.3.    Purchase Price.    

        (a)  The
total consideration to be paid by the Purchaser to Seller for the Assets (the "Purchase Price") will be an amount
equal to: 

          (i)  seven
million nine hundred thirty-eight thousand five hundred twenty-one dollars ($7,938,521), plus or minus the aggregate amount of any Initial Purchase
Price Adjustment as defined below in Section 1.3(a)(iv) (such amount, after giving effect to any Initial Purchase Price Adjustment, the "Initial Cash
Consideration"); plus 

        (ii)  a
contingent right to receive up to an additional twelve million dollars ($12,000,000) (the "Contingent Consideration"),
as determined under and more fully described below in this Section 1.3(a)(ii); 

        (1)  Definitions. Capitalized terms used but not defined in this section 1.3(a)(ii) have the meanings given
elsewhere in this Agreement, and for the purposes of this section 1.3(a)(ii) the following additional terms have the respective meanings indicated. 

        (A)  "Fiscal 2000" means the twelve month period ending February 28, 2001; "Fiscal
2001" means the twelve month period ending February 28, 2002; "Fiscal 2002" means the twelve month period ending
February 28, 2003; and "Fiscal 2003" means the twelve month period ending February 29, 2004. 

        (B)  "Operating Income" means income of the Purchaser from continuing operations in the referenced period in the ordinary
course of business per audited financial statements prepared in accordance with generally accepted accounting principles consistently applied ("GAAP")
(it being understood that income from continuing operations is exclusive of interest income, rental income, gains on fixed asset sales and similar non-operating income, interest expense
and provisions for federal, state and local income taxes). 

        (C)  "Operating Income Margin" means Operating Income in a given fiscal year divided by Revenue in the same fiscal year. 

        (D)  "Period" means the three year period from and including Fiscal 2001 through and including Fiscal 2003. 

        (E)  "Revenue" means net sales in the referenced period in the ordinary course of business per audited financial statements
prepared in accordance with GAAP, adjusted for bad debt expense per audited financial statements prepared in accordance with GAAP (it being understood that net sales is net of returns, allowances and
discounts and exclusive of sales taxes, interest income, rental income, gains on fixed asset sales and similar non-operating income) and "Revenue in Fiscal
2000" means $14,532,097. 

        (F)  "Revenue Base", for purposes of subsection (4) below, has the meaning determined in accordance with subsections
(3)(A)(ii), (3)(B)(ii), (3)(C)(ii) or 3(D)(ii), as the case may be, and for purposes of subsection (5) below, has the meaning determined in accordance with subsections (4)(A)(ii),
(4)(B)(ii), (4)(C)(ii) or (4)(D)(ii), as the case may be. 

4

 

        (2)  Procedures for Determining Contingent Consideration.

        (A)  Delivery of Contingent Consideration Statement by Purchaser. Within seventy (70) days after the close of each
fiscal year during the Period, Purchaser will deliver to the Shareholders' Representative a statement setting forth in reasonable detail Purchaser's calculation of the Contingent Consideration due for
such fiscal year (each such statement, a "Contingent Consideration Statement"). The Contingent Consideration Statements for Fiscal 2001, Fiscal 2002 and
Fiscal 2003 shall be prepared in accordance with subsections 3, 4 and 5 below, respectively, and each Contingent Consideration Statement shall be prepared in accordance with subsections 6 and 7 below. 

        (B)  Review of Contingent Consideration Statement by Shareholders' Representative. Within sixty (60) days after the
receipt by the Shareholders' Representative of a Contingent Consideration Statement, the Shareholders' Representative will notify Purchaser in writing of any disagreement with respect to the
calculation of the Contingent Consideration due. If such notice of disagreement is not received by Purchaser within sixty (60) days after the receipt by the Shareholders' Representative of a
Contingent Consideration Statement (or if the Shareholders' Representative sooner provides written notice to Purchaser that the Shareholders' Representative has no objection to such calculations),
then the Contingent Consideration Statement sent by Purchaser will be final and conclusive for all purposes. 

        (C)  Disputes
Regarding Contingent Consideration Statements. 

          (i)  If
the Shareholders' Representative timely delivers a notice of disagreement (the "Disagreement Notice") to the
Purchaser as described in the preceding paragraph (B), then 

        (A)  within
ten (10) days after the receipt by Purchaser of the Disagreement Notice, the Purchaser shall wire (pursuant to wire instructions of the Shareholders'
Representative provided at least three (3) days in advance), readily available funds equal to the amount of the Contingent Consideration reflected on the Contingent Consideration Statement (the
"Undisputed Contingent Consideration"); and 

        (B)  beginning
on the date of the receipt by the Purchaser of the Disagreement Notice, the Shareholders' Representative and Purchaser shall commence a 30-day
period of good faith negotiations to resolve their disagreement as to the amount of Contingent Consideration that the Shareholders' Representative claims is due in excess of the Undisputed Contingent
Consideration (such excess, the "Disputed Contingent Consideration"). 

        (ii)  If
the Shareholders' Representative and Purchaser are not able to resolve their differences regarding the Disputed Contingent Consideration within the
30-day period described in the preceding paragraph (i), then the Purchaser and the Shareholders' Representative shall immediately submit the dispute for mediation as contemplated by
Section 9.8 and shall proceed in good faith to resolve, within 90 days of Purchaser's receipt of the Disagreement Notice, their disagreement as to the amount of the Disputed Contingent
Consideration. 

        (iii)  If
the Shareholders' Representative and Purchaser are not able to resolve their differences regarding the Disputed Contingent Consideration within the
90-day period described in the preceding paragraph (ii), then the Purchaser, within ten (10) days after Purchaser's receipt of a further written notice from the Shareholders'
Representative, shall deposit the full amount of the Disputed Contingent 

5

 

Consideration with an escrow agent on escrow terms reasonably and mutually agreeable to the Shareholders' Representative and Purchaser, and such dispute shall be resolved as promptly as reasonably
possible in accordance with the dispute resolutions set forth in section 9.8 of this Agreement. 

        (iv)  If
the Purchaser fails to (A) timely wire the Undisputed Contingent Consideration, (B) timely deposit the Disputed Contingent Consideration with an escrow
agent if the dispute is submitted to arbitration as described in the preceding paragraph (iii), or (C) pay the Disputed Contingent Consideration within ten (10) days after receipt
of a further written demand from the Shareholders' Representative following the final decision of arbitrators in favor of the Shareholders' Representative, then the covenants of the Seller and the
Shareholders set forth in Section 4.12 of this Agreement shall immediately terminate and be of no further force or effect. If Purchaser Indemnified Parties are entitled to indemnification
pursuant to Article 8 and elect, to the extent permitted by Section 8.6 of this Agreement, to offset the amount due pursuant to such claim against Contingent Consideration otherwise
payable, then such offset, and consequent non-payment of Contingent Consideration, shall not trigger the termination provisions of this paragraph. 

        (D)  Payment of Contingent Consideration by Purchaser. Within ten (10) days after the earliest of: (i) the
receipt by Purchaser of written notice from the Shareholders' Representative that the Shareholders' Representative has no objection to the calculations, as set forth in a Contingent Consideration
Statement; (ii) the expiration of the sixty-day period for giving notice of disagreement with such calculation, if no such notice is timely received by Purchaser; or
(iii) the resolution of any dispute pursuant to Section 1.3(a)(ii)(2)(C) above (including Purchaser's receipt of a further written demand by the Shareholders' Representative), Purchaser
shall wire (pursuant to wire instructions of the Shareholders' Representative provided at least three (3) days in advance), readily available funds equal to the Contingent Consideration due, if
any, for the applicable fiscal year (the tenth day after the earliest of (i), (ii) or (iii) is referred to as the "Payment Date"). If the
Payment Date, or any other date on which any payment is due by any party under this Agreement, is not a business day, then the Contingent Consideration due will be due without interest on the first
business day following the Payment Date. 

        (E)  Reasonable Audit Rights of Shareholders' Representative. Purchaser shall keep and maintain records of the information
directly related to the Contingent Consideration (the "Contingent Consideration Documentation"). The Contingent Consideration Documentation shall be
open to inspection at reasonable times (but no more than twice in any fiscal year during the Period) by the Shareholders' Representative and a certified public accountant chosen by the Shareholders'
Representative and acceptable to Purchaser, which approval Purchaser will not unreasonably withhold. Such inspection shall be made at the Shareholders' Representative's expense (but may be charged
back to the Shareholders pursuant to any agreement between the Shareholders' Representative and the Shareholders). The Shareholders' Representative agrees to hold the Contingent Consideration
Documentation confidential; provided, however, that the Shareholders' Representative may permit the Shareholders, the Seller and their respective counsel, accountants and other advisors to review, use
and copy the Contingent Consideration Documentation, subject to the foregoing confidentiality obligation. The Contingent Consideration Documentation shall be maintained by the Purchaser and available
for inspection in accordance with this Agreement for a period of one (1) year following the end of the Period. 

6

 

        (3)  Fiscal 2001. In preparing the Contingent Consideration Statement with respect to Fiscal 2001 pursuant to the procedures
set forth in subsection 2 above, the following shall apply. 

        (A)  Revenue Growth and OIM Surplus. If (X) Revenue in Fiscal 2001 exceeds Revenue in Fiscal 2000 and
(Y) Operating Income Margin in Fiscal 2001 exceeds 12.5%, then 

          (i)  A
dollar amount shall be arrived at pursuant to the following steps. STEP 1: divide (X) the difference between Revenue in Fiscal 2001 minus Revenue in Fiscal
2000 by (Y) Revenue in Fiscal 2000. STEP 2: multiply the result from Step 1 by 100. STEP 3: Multiply the result from Step 2 by $67,000. STEP 4: divide (X) Operating Income in Fiscal 2001
by (Y) Revenue in Fiscal 2001. STEP 5A: multiply the result from Step 4 by 100. STEP 5B: subtract 12.5 from the result from Step 5A. STEP 6: multiply the result from Step 5 by $200,000. STEP 7:
combine the result from Step 3 and the result from Step 6. The result of STEP 7 shall be the Contingent Consideration due with respect to Fiscal 2001. 

        (ii)  The
term "Revenue Base" in subsection (4) below shall mean the Revenue in Fiscal 2001. 

        (B)  Revenue Growth and OIM Shortfall. If (X) Revenue in Fiscal 2001 exceeds Revenue in Fiscal 2000 and
(Y) Operating Income Margin in Fiscal 2001 is less than 12.5%, then 

          (i)  A
dollar amount shall be arrived at pursuant to the following steps. STEP 1: divide (X) the difference between Revenue in Fiscal 2001 minus Revenue in Fiscal
2000 by (Y) Revenue in Fiscal 2000. STEP 2: multiply the result from Step 1 by 100. STEP 3: Multiply the result from Step 2 by $67,000. STEP 4: divide (X) Operating Income in Fiscal 2001
by (Y) Revenue in Fiscal 2001. STEP 5A: multiply the result from Step 4 by 100. STEP 5B: subtract 12.5 from the result from Step 5A. STEP 6: multiply the result from Step 5 by $200,000. STEP 7:
combine the result from Step 3 and the result from Step 6. If the result of Step 7 is greater than zero ($0), then such amount shall be the Contingent Consideration due with respect to Fiscal 2001; if
the result of Step 7 is less than zero ($0), then no Contingent Consideration shall be due for Fiscal 2001. 

        (ii)  The
term "Revenue Base" in subsection (4) below shall mean the Revenue in Fiscal 2001. 

        (C)  Revenue Shortfall and OIM Surplus. If (X) Revenue in Fiscal 2001 is less than Revenue in Fiscal 2000 and
(Y) Operating Income Margin in Fiscal 2001 exceeds 12.5%, then 

          (i)  A
dollar amount shall be arrived at pursuant to the following steps. STEP 1: divide (X) the difference between Revenue in Fiscal 2001 minus Revenue in Fiscal
2000 by (Y) Revenue in Fiscal 2001. STEP 2: multiply the result from Step 1 by 100. STEP 3: Multiply the result from Step 2 by $67,000. STEP 4: divide (X) Operating Income in Fiscal 2001
by (Y) Revenue in Fiscal 2001. STEP 5A: multiply the result from Step 4 by 100. STEP 5B: subtract 12.5 from the result from Step 5A. STEP 6: multiply the result from Step 5 by $200,000. STEP 7:
combine the result from Step 3 and the result from Step 6. If the result of Step 7 is greater than zero ($0), then such amount shall be the Contingent Consideration due with respect to Fiscal 2001; if
the result of Step 7 is less than zero ($0), then no Contingent Consideration shall be due for Fiscal 2001. 

7

 

        (ii)  (X) If
the result of Step 7 is greater than zero ($0), then the term "Revenue Base" in subsection
(4) below shall mean Revenue in Fiscal 2001; and (Y) if the result of Step 7 is less than zero ($0), then the term "Revenue Base" in
subsection (4) below shall mean the result arrived at pursuant to the following additional steps. STEP Q: divide the result from Step 6 by $67,000. STEP R: divide the result from Step Q by 100.
STEP S: add 1.00 to the result from Step R. STEP T: divide Revenue in Fiscal 2000 by the result from Step S. 

        (D)  Revenue Shortfall and OIM Shortfall. If (X) Revenue in Fiscal 2001 is less than Revenue in Fiscal 2000 and
(Y) Operating Income Margin in Fiscal 2001 is less than 12.5%, then 

          (i)  No
Contingent Consideration shall be due for Fiscal 2001. 

        (ii)  The
term "Revenue Base" in subsection (4) below shall mean Revenue in Fiscal 2000. 

        (4)  Fiscal 2002. In preparing the Contingent Consideration Statement with respect to Fiscal 2002 pursuant to the procedures
set forth in subsection 2 above, the following shall apply. 

        (A)  Revenue Growth and OIM Surplus. If (X) Revenue in Fiscal 2002 exceeds Revenue Base and (Y) Operating Income
Margin in Fiscal 2002 exceeds 15.0%, then 

          (i)  A
dollar amount shall be arrived at pursuant to the following steps. STEP 1: divide (X) the difference between Revenue in Fiscal 2002 minus Revenue Base by
(Y) Revenue Base. STEP 2: multiply the result from Step 1 by 100. STEP 3: Multiply the result from Step 2 by $67,000. STEP 4: divide (X) Operating Income in Fiscal 2002 by
(Y) Revenue in Fiscal 2002. STEP 5A: multiply the result from Step 4 by 100. STEP 5B: subtract 15.0 from the result from Step 5A. STEP 6: multiply the result from Step 5 by $200,000. STEP 7:
combine the result from Step 3 and the result from Step 6. The result of STEP 7 shall be the Contingent Consideration due with respect to Fiscal 2002. 

        (ii)  The
term "Revenue Base" in subsection (5) below shall mean the Revenue in Fiscal 2002. 

        (B)  Revenue Growth and OIM Shortfall. If (X) Revenue in Fiscal 2002 exceeds Revenue Base and (Y) Operating
Income Margin in Fiscal 2002 is less than 15.0%, then 

          (i)  A
dollar amount shall be arrived at pursuant to the following steps. STEP 1: divide (X) the difference between Revenue in Fiscal 2002 minus Revenue Base by
(Y) Revenue Base. STEP 2: multiply the result from Step 1 by 100. STEP 3: Multiply the result from Step 2 by $67,000. STEP 4: divide (X) Operating Income in Fiscal 2002 by
(Y) Revenue in Fiscal 2002. STEP 5A: multiply the result from Step 4 by 100. STEP 5B: subtract 15.0 from the result from Step 5A. STEP 6: multiply the result from Step 5 by $200,000. STEP 7:
combine the result from Step 3 and the result from Step 6. If the result of Step 7 is greater than zero ($0), then such amount shall be the Contingent Consideration due with respect to Fiscal 2002; if
the result of Step 7 is less than zero ($0), then no Contingent Consideration shall be due for Fiscal 2002. 

        (ii)  The
term "Revenue Base" in subsection (5) below shall mean the Revenue in Fiscal 2002. 

8

 

        (C)  Revenue Shortfall and OIM Surplus. If (X) Revenue in Fiscal 2002 is less than Revenue Base and
(Y) Operating Income Margin in Fiscal 2002 exceeds 15.0%, then 

          (i)  A
dollar amount shall be arrived at pursuant to the following steps. STEP 1: divide (X) the difference between Revenue in Fiscal 2002 minus Revenue Base by
(Y) Revenue in Fiscal 2002. STEP 2: multiply the result from Step 1 by 100. STEP 3: Multiply the result from Step 2 by $67,000. STEP 4: divide (X) Operating Income in Fiscal 2002 by
(Y) Revenue in Fiscal 2002. STEP 5A: multiply the result from Step 4 by 100. STEP 5B: subtract 15.0 from the result from Step 5A. STEP 6: multiply the result from Step 5 by $200,000. STEP 7:
combine the result from Step 3 and the result from Step 6. If the result of Step 7 is greater than zero ($0), then such amount shall be the Contingent Consideration due with
respect to Fiscal 2002; if the result of Step 7 is less than zero ($0), then no Contingent Consideration shall be due for Fiscal 2002. 

        (ii)  (X) If
the result of Step 7 is greater than zero ($0), then the term "Revenue Base" in subsection
(5) below shall mean Revenue in Fiscal 2002; and (Y) if the result of Step 7 is less than zero ($0), then the term "Revenue Base" in
subsection (5) below shall mean the result arrived at pursuant to the following additional steps. STEP Q: divide the result from Step 6 by $67,000. STEP R: divide the result from Step Q by 100.
STEP S: add 1.00 to the result from Step R. STEP T: divide Revenue Base by the result from Step S. 

        (D)  Revenue Shortfall and OIM Shortfall. If (X) Revenue in Fiscal 2002 is less than Revenue Base and
(Y) Operating Income Margin in Fiscal 2002 is less than 15.0%, then 

          (i)  No
Contingent Consideration shall be due for Fiscal 2002. 

        (ii)  The
term "Revenue Base" in subsection (5) below shall not change and shall have the same meaning as in this
subsection (4). 

        (5)  Fiscal 2003. In preparing the Contingent Consideration Statement with respect to Fiscal 2003 pursuant to the procedures
set forth in subsection 2 above, the following shall apply. 

        (A)  Revenue Growth and OIM Surplus. If (i) Revenue in Fiscal 2003 exceeds Revenue Base and (ii) Operating
Income Margin in Fiscal 2003 exceeds 17.5%, then a dollar amount shall be arrived at pursuant to the following steps. STEP 1: divide (X) the difference between Revenue in Fiscal 2003 minus
Revenue Base by (Y) Revenue Base. STEP 2: multiply the result from Step 1 by 100. STEP 3: Multiply the result from Step 2 by $67,000. STEP 4: divide (X) Operating Income in Fiscal 2003
by (Y) Revenue in Fiscal 2003. STEP 5A: multiply the result from Step 4 by 100. STEP 5B: subtract 17.5 from the result from Step 5A. STEP 6: multiply the result from Step 5 by $200,000. STEP 7:
combine the result from Step 3 and the result from Step 6. The result of STEP 7 shall be the Contingent Consideration due with respect to Fiscal 2003. 

        (B)  Revenue Growth and OIM Shortfall. If (i) Revenue in Fiscal 2003 exceeds Revenue Base and (ii) Operating
Income Margin in Fiscal 2003 is less than 17.5%, then a dollar amount shall be arrived at pursuant to the following steps. STEP 1: divide (X) the difference between Revenue in Fiscal 2003 minus
Revenue Base by (Y) Revenue Base. STEP 2: multiply the result from Step 1 by 100. STEP 3: Multiply the result from Step 2 by $67,000. STEP 4: divide (X) Operating Income in Fiscal 2003
by (Y) Revenue in Fiscal 2003. STEP 5A: multiply the result from Step 4 by 100. STEP 5B: subtract 17.5 from the result from Step 5A. STEP 6: multiply the result from Step 5 by $200,000. STEP 7:
combine the result from Step 3 and the result from Step 6. If the result of Step 7 is 

9

 

greater than zero ($0), then such amount shall be the Contingent Consideration due with respect to Fiscal 2003; if the result of Step 7 is less than zero ($0), then no Contingent Consideration shall
be due for Fiscal 2003. 

        (C)  Revenue Shortfall and OIM Surplus. If (i) Revenue in Fiscal 2003 is less than Revenue Base and
(ii) Operating Income Margin in Fiscal 2003 exceeds 17.5%, then a dollar amount shall be arrived at pursuant to the following steps. STEP 1: divide (X) the difference between Revenue in
Fiscal 2003 minus Revenue Base by (Y) Revenue in Fiscal 2003. STEP 2: multiply the result from Step 1 by 100. STEP 3: Multiply the result from Step 2 by $67,000. STEP 4: divide
(X) Operating Income in Fiscal 2003 by (Y) Revenue in Fiscal 2003. STEP 5A: multiply the result from Step 4 by 100. STEP 5B: subtract 17.5 from the result from Step 5A. STEP 6: multiply
the result from Step 5 by $200,000. STEP 7: combine the result from Step 3 and the result from Step 6. If the result of Step 7 is greater than zero ($0), then such amount shall be the Contingent
Consideration due with respect to Fiscal 2003; if the result of Step 7 is less than zero ($0), then no Contingent Consideration shall be due for Fiscal 2003. 

        (D)  Revenue Shortfall and OIM Shortfall. If (i) Revenue in Fiscal 2003 is less than Revenue Base and
(ii) Operating Income Margin in Fiscal 2003 is less than 17.5%, then no Contingent Consideration shall be due for Fiscal 2003. 

        (6)  Fiscal and Period Ceilings. In preparing the Contingent Consideration Statements pursuant to the procedures set forth in
subsection 2 above, and notwithstanding any provision of this Agreement, the parties acknowledge and agree as follows. 

        (A)  In
no case shall the Purchaser be required to pay Contingent Consideration of more than six million dollars ($6,000,000) with respect to any one fiscal year during the
Period. 

        (B)  The
total Contingent Consideration payable pursuant to this Agreement shall not exceed twelve million dollars ($12,000,000). 

        (7)  Certain Capital Expenditures and Other Matters. The parties further acknowledge and agree as follows. 

        (A)  Certain
post-Closing capital expenditures of the Purchaser, including capital expenditures and other operating costs, may be advantageous to development of
the Business subsequent to the Closing Date. Accordingly, upon the mutual written agreement of the Shareholders' Representative and the Parent, certain post-Closing expenditures shall be
excluded from the relevant calculations in preparing the
Contingent Consideration Statements. However, absent fraud, Parent's refusal to agree to such exclusions shall be unfettered and not subject to challenge pursuant to the dispute resolution provisions
of this Agreement or otherwise. 

        (B)  Notwithstanding
Section 7(A), the parties agree that interest charged on advances or other indebtedness owed by Purchaser to Parent, whether pursuant to the
Management Agreement or otherwise, shall be excluded entirely from the relevant calculations in preparing the Contingent Consideration Statements. 

        (C)  Notwithstanding
Section 1.3(a)(ii)(B) above, the parties agree that, for purposes of determining the amount of Contingent Consideration payable to the Seller, the
amount of any rental income received by or for the benefit of the Purchaser during the Period shall be credited against, and shall reduce the amount of, lease expense attributed to the Purchaser (it
being the intention of the parties that the receipt by or for the benefit of Purchaser of any rental income shall have the effect of increasing the amount of 

10

 

Operating Income for the fiscal year in which the rental income is received, insofar as such rental income is not already reflected in the Operating Income as reflected in the audited financial
statements for such fiscal year.) 

        (iii)  the
assumption by the Purchaser of the Assumed Liabilities as of the Closing Date pursuant to the Liabilities Undertaking referred to in Section 1.2 hereof; 

        (iv)  minus
the amount, if any, by which the difference between (A) total assets (as determined in accordance with GAAP) of the Business as of the Closing Date minus
(B) total liabilities (as determined in accordance with GAAP) of the Business as of the Closing Date is less than two hundred forty-two thousand dollars ($242,000) (the
"Net Assets Adjustment"). In addition, up to $100,000 of reasonable business expenses incurred by the Seller in the ordinary course after
June 30, 2001 shall be excluded from the total liabilities component of the preceding calculation in this paragraph (iv). 

For
the purposes of determining the amount of the Purchase Price to be paid at the Closing, the amount of the Net Assets Adjustment (the "Purchase Price
Adjustment") will be based on the amounts shown on the Latest Balance Sheet, unless a more recent balance sheet is available, in which case the more recent balance sheet will
be used to determine such amounts. The Purchase Price Adjustment so determined will be referred to herein as the "Initial Purchase Price Adjustment."
After the Closing, final Purchase Price Adjustment will be determined in accordance with Section 1.3(c) below. 

        (b)  At
the Closing, the Purchaser will: 

          (i)  pay
Seller, by wire transfer, immediately available funds equal to 95% of the Initial Cash Consideration to a bank account of Seller pursuant to written instructions of
Seller given to the Purchaser at least 48 hours prior to the Closing; provided, however, that the parties acknowledge Purchaser's tender to Seller, prior to or concurrent with the execution of
this Agreement, of an aggregate of $25,000 at the signing of the letter of intent relating to this Agreement (the "Earnest Deposit"), and such Earnest
Deposit will be applied toward the amount due at Closing under this paragraph; 

        (ii)  Deposit,
on behalf of Seller, an amount equal to 5% of the Initial Cash Consideration (the "Escrow Deposit") with U.S.
Bank, N.A. or another escrow agent mutually acceptable to Seller and the Purchaser (the "Escrow Agent") under the escrow agreement (the
"Escrow Agreement"), a copy of which is attached as Exhibit 1.3(b)(ii) hereto, which Escrow Deposit will be retained and disbursed by the
Escrow Agent under the terms of the Escrow Agreement; and 

        (iii)  execute
and deliver to Seller, the Liabilities Undertaking. 

        (c)  After
the Closing Date, the Purchase Price Adjustment will be determined as follows: 

          (i)  Seller
will prepare and deliver to the Purchaser within 30 days following the Closing Date (or as soon thereafter as practicable) a balance sheet for the
Business as of the opening of business on the Closing Date (the "Closing Balance Sheet"). The Closing Balance Sheet will be used to determine the
Purchase Price Adjustment for purposes of determining the Purchase Price for the Assets (the "Final Basic Purchase Price"). 

        (ii)  The
Closing Balance Sheet will be prepared in accordance with GAAP, applied consistently with the principles, practices and procedures used in the preparation of the
Latest Balance Sheet. Seller and the Purchaser will provide each other with full cooperation in connection with the preparation of the Closing Balance Sheet, and each will have the right to review the
supporting work papers in connection with the preparation of the Closing Balance Sheet. 

        (iii)  Within
30 days after the parties' receipt of the Closing Balance Sheet, the Purchaser will notify Seller as to whether it disagrees with any of the amounts
included in the Closing Balance 

11

 

Sheet. If such notice is not given, the Closing Balance Sheet will be final and conclusive for all purposes. If the parties are unable to resolve their differences within 60 days of their
receipt of the Closing Balance Sheet, the Purchaser and Seller agree to retain the accounting firm of PricewaterhouseCoopers to arbitrate the dispute and render a decision within 30 days of
such retention, which decision will be final and binding for all purposes. Any award pursuant to this Section 1.3(c)(iii) may be entered in and enforced by any court having jurisdiction
over the matter, as
described in Section 9.8(a). The Purchaser, on the one hand, and Seller, on the other hand, will each pay one-half of the actual and reasonable costs of services rendered by said
accounting firm. 

        (iv)  Within
five days after the expiration of the 30-day period for giving notice of disagreement with the accountants' finding, if no such notice is given, or
within five days after the resolution of disputes, if any, pursuant to Section 1.3(c)(iii) above, the Purchase Price Adjustment will be determined using the Closing Balance Sheet and the
formulas set forth in Section 1.3(a)(iv)—(vi) (the "Final Purchase Price Adjustment") and the Purchase Price will be
determined using the Final Purchase Price Adjustment. The Purchaser or Seller, as appropriate, will by wire transfer in immediately available funds make payment to the other of any appropriate
amounts, such that after such payments, and taking into account amounts previously received by Seller pursuant to Section 1.3(b) hereof, the Purchaser will have paid Seller the Purchase Price
(other than the Contingent Consideration, if any is earned). 

        1.4.    Allocation of Purchase Price.    

        The
Purchase Price will be allocated among the Assets in the manner required by Section 1060 of the Internal Revenue Code of 1986, as amended (the
"Code"). The parties recognize that due to the potential adjustment to the Purchase Price referenced in Section 1.3(c) of this Agreement, the
allocations set forth in Exhibit 1.4 hereto are an estimate. Accordingly, in making the final, actual allocation, the estimated allocations set
forth in Exhibit 1.4 attached hereto will be binding and apply; provided, however, that during the 90-day period following Closing,
and in connection with finalization of the Purchase Price pursuant to Section 1.3(c) of this Agreement, the Purchaser and Seller will negotiate in good faith to refine  Exhibit 1.4 to reflect
the actual values of the Assets and the resulting modified and final allocation of the Purchase Price among the various
Assets. Such final determination (or the estimate in Exhibit 1.4 if the parties cannot in good faith agree to any modification) will be binding
on the Purchaser only for the purposes of U.S. federal, state and local taxation. The Purchaser and Seller will file all Tax Returns and tax reports (including IRS Form 8594) in accordance with
and based upon such final allocation (or the estimate in Exhibit 1.4 if the parties cannot in good faith agree to any modification) and will take
no position in any Tax Return, tax proceeding or tax audit which is inconsistent with such allocation. 

        1.5.    Closing.    

        Concurrently
with execution of this Agreement, a closing (the "Closing") will be held at such time and place as the parties may agree upon
(the "Closing Date"). At the Closing, the documents and instruments necessary or appropriate to effect the transactions contemplated herein will be
exchanged by the parties. 

        1.6.    Instruments of Transfer to Purchaser.    

        (a)  At
the Closing, Seller will deliver to the Purchaser such bills of sale, endorsements, assignments, deeds and other good and sufficient instruments of conveyance and
transfer, in form and substance
reasonably satisfactory to the Purchaser and its counsel, as will be required to vest in the Purchaser title to the Assets, including without limitation: 

          (i)  bills
of sale executed by Seller vesting in the Purchaser good and marketable title to all of the personal property of Seller included in the Assets, substantially in
the form attached as Exhibit 1.6(a)(i) hereof; 

12

 

        (ii)  appropriate
endorsements and assignments of the contracts, licenses, agreements, permits, plans, commitments and other binding arrangements included in the Assets; 

        (iii)  all
written and electronic data relating to the Assets, property and goodwill included in the Business; and 

        (iv)  to
the extent owned or used by Seller all copies of the source code and object code and all documentation relating thereto for all computer software programs included
in the Assets. 

        (b)  Seller
will take all other actions necessary to put the Purchaser in actual possession and operating control of the Assets. 

        (c)  At
the Closing, Purchaser and Parent will deliver to Seller such assumption agreements and similar documents, in form and substance reasonably satisfactory to Seller, as
will be required to effect Purchaser's assumption of all of the Assumed Contracts and other Assumed Liabilities on and as of the Closing Date and to fulfill the other obligations of Purchaser and
Parent contemplated by this Agreement, including, but not limited to: 

          (i)  the
Liabilities Undertaking; and 

        (ii)  a
Security Agreement, substantially in the form of Exhibit 1.6(c)(ii). 

        2.    REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SHAREHOLDERS    Seller and the Shareholders, jointly and
severally, hereby represent and warrant to the Purchaser and Parent as of the date hereof as follows (provided, however, that the representations and warranties made by
and with respect to any individual Shareholder in Sections 2.3, 2.4, 2.5, 2.8, 2.13, 2.24 or 2.26 are made solely by such Shareholder): 

        2.1.    Disclosure Schedule.    

        The
disclosure schedule attached as Exhibit 2 hereto (the "Disclosure Schedule") is
divided into sections which correspond to the sections of this Article 2. The Disclosure Schedule is accurate and complete. Nothing in the Disclosure Schedule will be deemed adequate to
disclose an exception to a representation or warranty made herein, unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable
detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item will not be deemed adequate to disclose an exception to a representation
or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself). 

        2.2.    Corporate Organization.    

        Seller
is a corporation duly organized, validly existing and in good standing under the laws of the State of Utah with requisite corporate power and corporate authority to carry on the
Business as it is now being conducted by Seller and to own, operate and lease its properties and assets used in the conduct of the Business. Seller is duly qualified or licensed to do business as a
foreign corporation in good standing in every other jurisdiction in which the character or location of the properties and assets owned, leased or operated by it in the conduct of the Business or the
conduct of the Business, itself, requires such qualification or licensing, except those jurisdictions in which the failure to be qualified or licensed would not have a Material Adverse Effect on the
Business. The Disclosure Schedule contains a list of all jurisdictions in which Seller is qualified or licensed to do business as a result of the Business. 

        2.3.    Authorization.    

        Seller
has full corporate power and corporate authority to enter into this Agreement and to carry out the transactions contemplated herein. The execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been duly and validly authorized by the board of directors of Seller and the Shareholders, and no other corporate proceedings on the
part of Seller are necessary therefor. Seller has taken all action required by law, its articles of incorporation and its bylaws, and otherwise to authorize the execution, delivery and performance of
this Agreement 

13

 

and the consummation of the transactions contemplated herein. This Agreement has been duly and validly executed and delivered by Seller and the Shareholders and is the valid and binding legal
obligation of Seller and the Shareholders, enforceable against them in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of applicability
relating to or affecting creditors' rights and general principles of equity. The Shareholders, and each of them, have the legal capacity to enter into this Agreement and to carry out the transactions
contemplated by this Agreement, including without limitation the legal capacity to execute, deliver and
perform the agreements or contracts, if any, required to be executed and delivered by any of them in connection with the Closing. 

        2.4.    Non-Contravention.    

        Except
as set forth in the Disclosure Schedule, neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated herein will:
(i) violate or be in conflict with any provision of the articles of incorporation or bylaws of Seller; (ii) be in conflict with, or constitute a default, however defined (or an event
which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to any right of
termination, cancellation, imposition of material fees or penalties under any of the following if (A) listed or required to be listed in the Disclosure Schedule or (B) otherwise material
to the Business: any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which Seller or the
Shareholders is a party or by which Seller or the Shareholders, or any of their properties or assets is or may be bound; (iii) result in the creation or imposition of any mortgage, pledge,
lien, security interest, conditional or installment sales agreement, encumbrance, claim, easement, right of way, tenancy, covenant, encroachment, restriction or charge of any kind of nature (whether
or not of record) (a "Lien"), other than (A) mechanics', carriers', workers' or other like liens arising in the ordinary course of business;
(B) minor imperfections of title which do not individually or in the aggregate, impair the continued use and operation of the real property assets and fixtures to which they relate in the
operation of the Business as currently conducted; and (C) liens for current taxes not yet due and payable ("Permitted Liens"), upon the Assets,
under any Assumed Contract or any debt, obligation, contract, agreement or commitment to which Seller is a party or by which Seller or any of the Assets is or may be bound; or (iv) violate any
statute, treaty, law, judgment, writ, injunction, decision, decree, order, regulation, ordinance or other similar authoritative matters (referred to herein individually as a
"Law" and collectively as "Laws") of any foreign, federal, state or local governmental or quasi-
governmental, administrative, regulatory or judicial court, department, commission, agency, board, bureau, instrumentality or other authority (referred to herein individually as an
"Authority" and collectively as "Authorities"). 

14

   
        2.5.    Consents and Approvals.    

        Except
as set forth in the Disclosure Schedule, with respect to Seller and the Shareholders, no consent, approval, order or authorization of or from, or registration, notification,
declaration or filing (referred to herein individually as a "Consent" and collectively as "Consents")
with any individual or entity, including without limitation any Authority, is required in connection with the execution, delivery or performance of this Agreement by Seller or the Shareholders, or the
consummation by Seller or the Shareholders of the transactions contemplated herein. 

        2.6.    Financial Statements.    

        The
Disclosure Schedule contains true and complete copies of an audited balance sheet of the Business as of February 28, 2001 and the related statements of earnings, changes in
stockholders' equity, and cash flows, for the fiscal year then ended, and the unaudited balance sheet of the Business as of June 30, 2001, and its related statements of operations (or income or
loss) for the Business for the fiscal year to date period and month then ended. Except as disclosed therein, the foregoing financial statements (i) are in accordance with the books and records
of Seller; and (ii) fairly present, in all material respects, the financial position of the Business as of the respective dates thereof, and its results of operations (or income or loss) for
the periods then ended. 

        2.7.    Absence of Undisclosed Liabilities.    

        Except
as and to the extent (i) reflected on or reserved for in the Latest Balance Sheet, (ii) set forth on the Disclosure Schedule or (iii) incurred in the ordinary
course of business after the date of the Latest Balance Sheet and not material in amount (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement or violation of Law), either individually or in the aggregate, neither Seller nor any Shareholder has any debt, liability or obligation of any kind
whatsoever relating to the Business, whether known or unknown, secured or unsecured, accrued or unaccrued, fixed or contingent, matured or unmatured, direct or indirect, absolute, contingent,
unasserted or otherwise, and whether due or to become due (referred to herein as a "Liability" and collectively as
"Liabilities"). 

        2.8.    Absence of Certain Changes.    

        Except
as set forth in the Disclosure Schedule, since the date of the Latest Balance Sheet, Seller has owned or operated the Assets in the ordinary course of business and consistent with
past practice. Without limiting the generality of the foregoing, subject to the foregoing exceptions neither Seller nor any Shareholder has, since the date of the Latest Balance Sheet: 

        (a)  experienced
any change which has had a Material Adverse Effect on the Business or experienced any event or failed to take any action which reasonably could be expected
to result in a Material Adverse Effect on the Business; 

        (b)  suffered,
in connection with or related to the Business, any material loss, damage, destruction of property used in the conduct of the Business or other casualty to
property used in the conduct of the Business (whether or not covered by insurance); 

        (c)  suffered
any loss of officers, directors, partners, employees, dealers, distributors, independent contractors, customers or suppliers which had or may reasonably be
expected to result in a Material Adverse Effect on the Business; 

        (d)  (i) increased
in any manner the compensation of any of the officers, employees, consultants and others who provide services to the Business; (ii) paid or
agreed to pay any pension, retirement allowance or other employee benefit not required or permitted by any existing plan, agreement or arrangement to any such officer, employee, consultant or other
person, whether past or present of the Business; (iii) except in connection with any written arrangement approved by the Purchaser, committed the Business to any additional pension,
profit-sharing, bonus, incentive, deferred 

15

 

compensation, group insurance, severance pay, retirement or other employee benefit plan, agreement or arrangement, or to any employment agreement or consulting agreement (arising out of prior
employment) with or for the benefit of any person providing services to the Business; (iv) terminated, entered into, adopted, instituted or otherwise become subject to or amend any collective
bargaining agreement; or (v) amended any of such plans or any of such agreements in existence on the date of this Agreement; 

        (e)  incurred,
assumed, suffered or become subject to, whether directly or by way of guarantee or otherwise, any Liabilities which, individually or in the aggregate, have or
would have a Material Adverse Effect on the financial conditions of the Business or the condition of the Assets; 

        (f)    paid,
discharged or satisfied any Liabilities of the Business other than the payment, discharge or satisfaction in the ordinary course of the Business and consistent
with past practice; 

        (g)  sold,
transferred, or otherwise disposed of any material Assets, other than inventory in the ordinary course of the Business and consistent with past practice; 

        (h)  permitted
or allowed any of the Assets to be subjected to any Lien, except for Permitted Liens; 

        (i)    written
down the value of any Inventory (including write-downs by reason of shrinkage or mark-down), except for immaterial write-downs in the ordinary course
of the Business and consistent with past practice; 

        (j)    canceled
or amended any debts, waived any claims or rights or sold, transferred or disposed of any of the Assets, other than Inventory in the ordinary course of the
Business; 

        (k)  licensed,
sold, transferred, pledged, modified, disclosed, disposed of or permitted to lapse any rights to the use of any of the Intellectual Property Rights (except as
necessary in the conduct of the Business); 

        (l)    made
or entered into any commitment for capital expenditures for additions to property, plant, equipment or intangible capital assets of the Business in excess of
$25,000; 

        (m)  paid,
lent or advanced any amount to, or sold, transferred, disposed of or leased any of the properties or assets (real, personal or mixed, tangible or intangible) used
in connection with the Business to, or entered into any agreement or arrangement with, any officer, director, employee or any other person providing services to the Business; 

        (n)  terminated,
entered into or amended in any material respect any contract, agreement, lease, license or commitment identified in the Disclosure Schedule, or taken any
action or omitted to take any action which will cause a breach, violation or default (however defined) under any such items, except in the ordinary course of the Business and consistent with past
practice; 

        (o)  acquired
for the Business any material business or assets of any other person or entity; 

        (p)  permitted
any of current insurance (or reinsurance) policies relating to the Business to be canceled or terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination,
cancellation or lapse, replacement policies providing coverage equal to or greater than coverage remaining under those canceled, terminated or lapsed are in full force and effect; 

        (q)  suffered
any adverse change in the Business' relationship with any customer, including the loss of any such customer; 

        (r)  entered
into other agreements, commitments or contracts not in the ordinary course of the Business or in excess of current requirements; 

16

 

        (s)  modified,
amended or terminated any Assumed Contract, or waived, released relinquished or assigned any Assumed Contract or other right or claim; 

        (t)    settled
or compromised any material suit, claim or dispute or threatened material suit, claim or dispute; 

        (u)  made
any change in the accounting methods, principles or practices used in connection with the Business except as required or permitted by GAAP, including revenue
recognition methodologies; or 

        (v)  agreed
in writing or otherwise to take any of the foregoing actions or any action which would make any representation or warranty in this Agreement untrue or incorrect
in any material respect. 

        2.9.    Assets.    

        (a)  Except
as set forth in the Disclosure Schedule, Seller has good and marketable title to all of the Assets owned by Seller and a valid leasehold interest in all of the
Assets leased by Seller, in each case free and clear of any Lien, other than Permitted Liens. 

        (b)  Seller
has full right and power to, and at the Closing will, convey to the Purchaser good title to (or the valid right to use) all of the Assets, free and clear of any
Lien, other than Permitted Liens. 

        (c)  The
machinery, equipment, vehicles and other personal property used by Seller in the Business are in good operating condition and repair, normal wear and tear excepted,
and fit for the intended purposes thereof. Such machinery, vehicles and other personal property has been maintained in accordance with Seller's standard maintenance procedures and no material
maintenance, replacement or repair has been deferred or neglected. 

        (d)  Except
as set forth in the Disclosure Schedule, all real properties included in the Latest Balance Sheet or acquired after the date thereof by Seller, and all real
properties leased by Seller (collectively, the "Real Property"), are free from any structural defects, in good operating condition and repair, with no
material maintenance, repair or replacement having been deferred or neglected, suitable for the intended use, and free from other material defects, normal wear and tear accepted. Except as set forth
on the Disclosure Schedule, each such Real Property and its present use conform in all respects to all occupational, safety or health, zoning, planning, subdivision, platting and similar Laws. Except
as set forth on the Disclosure Schedule, all public utilities necessary for the use and operation of any facilities on the Real Property are available for use or access at such Real Property and there
is no legal or physical impairment to free ingress or egress from any of such facilities or Real Property. With respect to the leased Real Property, the Disclosure Schedule includes
termination/renewal provisions of such leasehold interest, and the amount of rent and/or royalty to be paid under the terms of such leases. All such leasehold interests are valid and in full force and
effect and enforceable in accordance with their terms, subject to the effect of applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance, and other laws affecting the
rights of creditors generally or the availability of specific performance, injunctive relief and other equitable remedies. There does not exist any violation, breach or default, of or under such
leasehold interest. Except as set forth in the Disclosure Schedule, no such leasehold interest contains any provision that would be triggered or cause a breach or a right to terminate such leasehold
interests upon a change in control (or change in ownership) of the lessee. Except as set forth in the Disclosure Schedule, the lease by and between the Seller and 613S, LLC for the real property
located at 643 South 400 West, Salt Lake City, Utah is freely assignable by the Seller to the Purchaser without the consent of the landlord or any other person. Upon such assignment to, and assumption
by, the Purchaser, the Purchaser will be entitled to all of the benefits of such lease and the terms of such lease will be binding upon the landlord. 

        (e)  The
Assets constitute all of the material property and assets, real, personal and mixed, tangible and intangible, presently used to carry on the Business of Seller, and
the Assets are adequate to carry on the Business of Seller as presently conducted. 

17

 

        (f)    Neither
Seller nor any Shareholder is a foreign person or is controlled by a foreign person, as the term foreign person is defined in Section 1445(f)(3) of the
Code. 

        2.10.    Inventories.    

        Except
as set forth in the Disclosure Schedule, all inventory used in the Business (the "Inventory") are of a quality and quantity usable
in the ordinary course of the Business, and the present quantities of Inventory used in the Business are reasonable. 

        2.11.    Receivables and Payables

        (a)  The
Disclosure Schedule contains a listing of all of the receivables, if any, of Seller relating to the Business as of July 31, 2001. Except as set forth on the
Disclosure Schedule, (i) Seller has good right, title and interest in and to all of its trade accounts receivable and notes receivable relating to the Business; (ii) none of such trade
accounts receivable and notes receivable is subject to any Lien, other than Permitted Liens; (iii) all of the trade accounts receivable and notes receivable owing to Seller constitute valid and
enforceable claims arising from bona fide transactions in the ordinary course of business, and there are no known claims, refusals to pay or other rights of set-off against any thereof;
(iv) no account or note debtor is delinquent in payment by more than 30 days; (v) the aging schedule of the trade accounts receivable and notes receivable accounts of Seller
attached to the Disclosure Schedule is complete and accurate; and (vi) the reserve established by Seller on the Latest Balance Sheet is adequate to cover any doubtful accounts. 

        (b)  The
Disclosure Schedule contains a listing of all trade accounts payable and notes payable of Seller relating to the Business as of the date first set forth above in
this Agreement. All such trade accounts payable and notes payable arose from bona fide transactions in the ordinary course of the Business and, except as set forth on the Disclosure Schedule, no such
account payable or note payable is delinquent by more than 30 days in its payment. 

        2.12.    Intellectual Property Rights.    

        (a)  The
Disclosure Schedule contains a listing of all (i) patents, patent applications (collectively the "Patents"),
(ii) copyrights, copyright applications (the "Copyrights"), (iii) tradenames, registered and common law trademarks, trademark applications
(the "Trademarks"), (iv) service marks, service mark applications (the "Service Marks"), and
(v) computer programs and other computer software, trade secrets, plans and specifications, inventions, know-how, technology, proprietary processes and formulae (the
"Trade Secrets") necessary or used in connection with the Assets and for the conduct of the Business (the Patents, Copyrights, Trademarks, Service Marks
and Trade Secrets are collectively referred to as "Intellectual Property Rights"). All issued Patents and registered Copyrights, Trademarks and Service
Marks are collectively referred to as the "Registered Intellectual Property Rights." The Intellectual Property Rights are sufficient to conduct the
Business as presently conducted and as proposed to be conducted. 

        (b)  Except
as set forth in the Disclosure Schedule, Seller owns, has the unrestricted right to use and has sole and exclusive possession of and has good and valid title to,
or sufficient license or other rights to, all of the Intellectual Property Rights, free and clear of all Liens. 

        (c)  All
Registered Intellectual Property Rights owned by Seller are in compliance with formal legal requirements (including the payment of filing, examination and
maintenance fees and proofs of working or use), are valid and enforceable and, except as set forth on the Disclosure Schedule, are not subject to any maintenance fees or taxes or actions falling due
within 90 days after the Closing Date. All Patents issued to Seller are valid and enforceable and no Patents have been or are now involved in any interference, reissue, reexamination,
opposition, declaratory judgment or other invalidating proceeding, nor, to the Knowledge of Seller is any such action threatened with respect to any of the Patents. To the Knowledge of Seller, no
application for a potentially infringing patent has been filed and no potentially infringing patent has been issued. To the Knowledge of Seller, no Trademarks have 

18

 

been or are involved in any opposition, invalidation or cancellation proceeding and, there is no basis for the commencement of any such proceeding. The Trademarks owned by Seller are valid and
enforceable and no person holds any infringing or potentially infringing trademark and, to the Knowledge of Seller, no application for any infringing or potentially infringing trademark has been made. 

        (d)  Copies
of all material documentation relating to the Trade Secrets have been furnished to the Purchaser. Such documentation is current, accurate, complete in all
material respects. To the Knowledge of Seller, no Trade Secrets owned by Seller are part of the public domain or literature or have been used, divulged or appropriated for the benefit of any person or
entity other than Seller or to the detriment of Seller. Seller has taken reasonable measures and precautions to protect the secrecy, confidentiality and value of the Trade Secrets owned by Seller. 

        (e)  Except
as set forth on Section 2.12(C) of the Disclosure Schedule, the use of all Intellectual Property Rights necessary or required for the conduct of the
Business as presently conducted and as proposed to be conducted does not and will not infringe or violate any trade secrets, plans and specifications, patents, copyrights, tradenames, registered and
common law trademarks, trademark applications, service marks, service mark applications, computer programs and other computer software, inventions, know-how, technology, proprietary
processes and formulae or other intellectual property rights of any other person or entity (the "Third Party Intellectual Property Rights"). Neither
Seller nor any Shareholder nor any of their respective employees, contractors, consultants or agents is using any confidential information or trade secrets of others in the conduct of the Business. 

        (f)    All
agreements relating to licenses of Intellectual Property Rights granted by or to Seller or any of their respective subsidiaries, officers, directors and stockholders
and relating to the Business are set forth on the Disclosure Schedule. Except as set forth on the Disclosure Schedule, all such licenses set forth on the Disclosure Schedule are in good standing,
valid and effective in accordance with their respective terms and there is not, under any of such licenses, any existing default or event of default (or event which with notice or lapse of time, or
both, would constitute a default, or would constitute a basis for a claim of force majeure or other claim of excusable delay or non-performance), in each case by Seller or by any other
party thereto. There are no outstanding and, to the Knowledge of Seller, no threatened disputes or disagreements with respect to any such agreement. 

        (g)  Except
as set forth on the Disclosure Schedule, neither Seller nor any Shareholder is obligated or under any Liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner of, licensor of, or other claimant to, any Intellectual Property Rights or Third Party Intellectual Property Rights. 

        (h)  Except
as set forth on the Disclosure Schedule, all employees, contractors and consultants of Seller involved in the technical or scientific aspects of the Business have
executed written agreements with Seller which assign to Seller, as the case may be, all rights to any inventions, improvements, discoveries or information which relate to the Business. No employee,
contractor or consultant of Seller has entered into any agreement which restricts or limits in any way the scope or type of work in which such employee, contractor or consultant may be engaged or
requires such employee, contractor or consultant to transfer, assign or disclose information concerning such employee's, contractor's or consultant's work to anyone other than Seller. 

        (i)    Except
as set forth in the Disclosure Schedule, the software, hardware, and firmware used by Seller in the Business are Year 2000 Compliant and are sufficient for
operation of the Business. The term "Year 2000 Compliant" as used in the preceding sentence, means that no operational, financial, data transmission,
communication or process has been or will be materially affected or materially 

19

 

interrupted by dates prior to, during or after the Year 2000, and in particular, without prejudice to the generality of the foregoing that: 

          (i)  no
value for current date has caused or will cause any interruption in operation; 

        (ii)  all
manipulation of time related data has been produced and will continue to produce the required results for all valid date values prior to, during and after the Year
2000; 

        (iii)  if
the date elements in interfaces and data storage specify the century, they have permitted and will continue to permit specifying the correct century either
explicitly or by unambiguous algorithms or inferencing rules; and where any date element is represented without a century, the correct century has been unambiguous and will continue to be unambiguous
for all manipulations involving that element; and 

        (iv)  Year
2000 has been and will continue to be recognized as a leap year. 

        2.13.    Litigation.    

        Except
as set forth in the Disclosure Schedule, there is no legal, administrative, arbitration, or other proceeding, suit, claim or action of any nature or investigation, review or audit
of any kind (including without limitation a proceeding, suit, claim or action, or an investigation, review or audit, involving any environmental Law or matter), judgment, decree, decision, injunction,
writ or order pending, or, to the Knowledge of Seller, noticed, scheduled, threatened or contemplated (a) by or against or involving Seller, any Shareholder, the Assets or Seller's officers,
directors, agents or employees (but only in their capacity as such), whether at law or in equity, before or by any person or entity or Authority relating to the Business, or (b) which questions
or challenges the validity of this Agreement or any action taken or to be taken by the parties hereto pursuant to this Agreement or in connection with the transactions contemplated herein. 

        2.14.    Tax Matters.    

        (a)  Seller
has properly completed and duly filed on a timely basis (or a valid extension has been obtained and the extension period has not expired) and in form and
substance that is, in all material respects, correct, all Tax Returns required to be filed on or prior to the date hereof with respect to Taxes of Seller (or relating to the Business). As of the time
of filing, the foregoing Tax Returns correctly reflected, in all material respects, the facts regarding the income, business, assets, operations, activities, status or other matters of Seller or any
other information required to be shown thereon. There is no material omission, deficiency, error, misstatement or misrepresentation, whether innocent, intentional or fraudulent, in any Tax Return
filed by Seller for any period. Any Tax Returns filed by or on behalf of Seller or any Shareholder after the date hereof, but including periods through the Closing Date, will conform with the
provisions of this Section 2.14. 

        (b)  With
respect to all amounts of Taxes imposed upon Seller, or for which Seller is or could be liable, whether to taxing Authorities (as, for example, under Law) or to
other persons or entities (as, for example, under tax allocation agreements), with respect to all taxable periods or portions of periods ending on or before or including the Closing Date, all
applicable Tax Laws and agreements have been or will be complied with, and all such amounts of Taxes required to be paid by Seller to taxing Authorities or others on or before the date hereof have
been duly paid or will be paid on or before the Closing Date. There are no Liens affecting any of the Assets arising out of, connected with, or related to Taxes other than Liens arising under Law for
Taxes not yet due and payable. Seller has withheld and remitted all amounts required to be withheld and remitted by them in respect of Taxes. 

        (c)  Except
as set forth in the Disclosure Schedule, neither the federal Tax Returns of the Seller nor any state, local or foreign Tax Return of Seller has been examined by
the Internal Revenue Service or any similar state, local or foreign Authority, and, except to the extent shown therein, all deficiencies asserted as a result of such examinations have been paid or
finally settled and no issue has been raised 

20

 

by the Internal Revenue Service or any similar state, local or foreign Authority in any such examination which, by application of similar principles, reasonably could be expected to result in a
proposed deficiency for any other period not so examined. Except as set forth in the Disclosure Schedule, all deficiencies and assessments of Taxes of Seller resulting from an examination of any Tax
Returns by any Authority have been paid and there are no pending examinations currently being made by any
Authority nor has there been any written or oral notification to Seller of any intention to make an examination of any Taxes by any Authority. Except as set forth in the Disclosure Schedule, there are
no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Return for any period. 

        (d)  For
purposes of computing Taxes and the filing of Tax Returns, neither Seller nor any Shareholder has failed to treat as "employees" any individual providing services to
the Business who would be classified as an "employee" under the applicable rules or regulations of any Authority with respect to such classification. 

        2.15.    Benefit Plans.    

        (a)  Section 2.15
of the Disclosure Schedule lists each pension, welfare, incentive, deferred compensation, equity-based compensation, perquisite, paid time off,
severance or other benefit plan, policy or practice covering current or former employees of the Business or their spouses, dependents, family members, domestic partners or beneficiaries (a
"Benefit Plan"). With respect to each Benefit Plan, Seller has made available to Purchaser the current Plan document or a complete and accurate
description of the Plan. 

        (b)  Seller
does not and could not have any liability arising directly or indirectly under Section 412 of the Internal Revenue Code of 1986, as amended (the
"Code") or Section 302 or Title IV of ERISA. 

        (c)  Seller
does not and could not have any liability arising directly or indirectly to or with respect to any "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA. 

        (d)  Seller
does not and could not have any liability arising directly or indirectly in connection with any failure of Seller or any affiliate of Seller to comply with
Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA. 

        (e)  Nothing
has occurred or failed to occur with respect to any Benefit Plan which could result in any liability to Purchaser or any affiliate of Purchaser other than a
liability expressly assumed pursuant to this Agreement. 

        (f)    Except
as set forth in Section 2.15(f) of the Disclosure Schedule, there are no facts or circumstances which could, directly or indirectly, subject Parent, the
Purchaser or any of their respective affiliates to any liability of any nature with respect to any pension, welfare, incentive, deferred compensation, perquisite, paid time off, severance or other
benefit plan, policy, practice or agreement sponsored, maintained or contributed to by the Seller or any affiliate, to which the Seller or any affiliate is a party or with respect to which the Seller
or any affiliate could have any liability (a "Seller Plan"). 

        2.16.    Powers of Attorney.    

        There
are no persons or entities holding general or special powers of attorney from Seller relating to the Business. 

        2.17.    Contracts and Commitments; No Default.    

        (a)  The
Disclosure Schedule contains an accurate and complete list of: 

          (i)  All
real property in which Seller has a leasehold or other interest and which is included in the Assets or which is used by Seller in connection with the operation of
the Business, together with a list identifying each lease, sublease, license, or any other instrument under which Seller 

21

 

claims or holds such leasehold or other interest or right to the use thereof or pursuant to which Seller has assigned, sublet or granted any rights therein, identifying the parties thereto, the
rental or other payment terms, expiration date and cancellation and renewal terms thereof, has been delivered to the Purchaser. 

        (ii)  All
machinery, tools, equipment, motor vehicles and other tangible personal property (other than inventory and supplies), owned, leased or used by Seller in the conduct
of the Business and included in the Assets, except for items having a cost of less than $5,000. Seller has provided the Purchaser with either a copy of or a summary description of all leases and Liens
relating thereto, identifying the parties thereto, the rental or other payment terms, expiration date and cancellation and renewal terms thereof. 

        (iii)  All
contracts, agreements and commitments not fully performed, in respect of the issuance, sale or transfer of capital stock, bonds, or other securities of Seller or
pursuant to which Seller has acquired any Asset material to the Business, regardless of cost. 

        (iv)  All
contracts, agreements, commitments or understandings that restrict Seller from carrying on the Business or any part thereof anywhere in the world or from competing
in any line of business with any person or entity. 

        (v)  All
purchase or sale contracts or agreements that call for aggregate purchases or sales in excess over the course of such contract or agreement of $25,000 or which
continues for a period of more than
12 months (including without limitation periods covered by any option to renew or extend by either party) which is not terminable on 60 days' or less notice without cost or other
Liability at or any time after the Closing. 

        (vi)  Any
contract, commitment, agreement or arrangement with any "disqualified individual" (as defined in Section 280G(c) of the Code) which contains any severance or
termination pay liabilities which would result in a disallowance of the deduction for any "excess parachute payment" (as defined in Section 280G(b)(1) of the Code) under Section 280G of
the Code. 

      (vii)  All
Assumed Contracts. 

      (viii)  The
names and current annual salary rates of all employees of and consultants to the Business, showing separately for each such person the amounts paid or payable as
salary, bonus payments and any indirect compensation for the fiscal year ended February 28, 2001, as well as the vacation time, holiday time and sick pay due each such employee and consultant
as of the date of this Agreement. 

        (ix)  All
collective bargaining agreements, employment and consulting agreements, executive compensation plans, bonus plans, deferred compensation agreements, employee option
or purchase plans, other employee arrangements or commitments, whether or not legally binding, including without limitation, holiday, vacation, paid time-off, Christmas and other bonus
practices, to which Seller is a party or is bound and which relates to employees or consultants of the Business or the operation of the Business. 

        (x)  All
imaging, scanning, coding, pricing agreements, schedules and other contracts or agreements with customers for services provided in the Business. 

        (b)  The
Assumed Contracts and all other contracts, agreements, leases, licenses and commitments required to be listed on the Disclosure Schedule (other than those which have
been fully performed), are valid and binding, enforceable in accordance with their respective terms in all material respects, except as enforcement might be limited by bankruptcy and other laws
related to creditors' rights and principles of equity, and are in full force and effect. Except as otherwise specified in the Disclosure Schedule, the Assumed Contracts are validly assignable to the
Purchaser without the consent of any other party so that, after the assignment thereof to the Purchaser pursuant hereto, the Purchaser will 

22

 

be entitled to the full benefits thereof (subject to the performance thereof by Purchaser). Except as disclosed in the Disclosure Schedule, none of the payments required to be made under any Assumed
Contract has been prepaid more than 30 days prior to the due date of such payment thereunder. Except as set forth in the Disclosure Schedule, neither Seller nor any Shareholder is in material
breach, violation or default, however defined, in the performance of any of their obligations under any Assumed Contract or any other contract, agreement, lease, license or commitment required to be
listed
on the Disclosure Schedule, and no facts and circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such a material breach, violation or default
thereunder or thereof. None of the Assumed Contracts is, either when considered singly or in the aggregate with others, materially adverse, unduly burdensome, or onerous to the Business or likely,
either before or after the Closing, to result in any material loss or liability to the Business. Except as set forth in the Disclosure Schedule, none of the Assumed Contracts is subject to
renegotiation with any government body. True and complete copies of all of the Assumed Contracts (together with any and all amendments thereto) have been delivered to the Purchaser. 

        2.18.    Orders, Commitments and Returns.    

        Except
as set forth in the Disclosure Schedule, all accepted and unfulfilled orders for the sale of products and the performance of services entered into by Seller relating to the
Business and all outstanding material contracts or material commitments for the purchase of supplies, materials and services were made in bona fide transactions in the ordinary course of the Business.
Except as set forth in the Disclosure Schedule, Seller has not received any claims against Seller to return products of the Business by reason of alleged over-shipments, defective products
or otherwise, or of products in the hands of customers, retailers or distributors under an understanding that such products would be returnable. To the Knowledge of Seller, neither Seller nor any
Shareholder is subject to any outstanding sales or purchase contracts, commitments or proposals relating to the Business which is anticipated to result in a loss upon completion or performance
thereof. 

        2.19.    Labor Matters.    

        Except
as set forth in the Disclosure Schedule, in connection with the Business: 

        (a)  Seller
is and has been in compliance in all material respects with all applicable Laws respecting employment and employment practices, terms and conditions of employment
and wages and hours, including without limitation any such Laws respecting employment discrimination and occupational safety and health requirements, and has not and is not engaged in any unfair labor
practice; 

        (b)  there
is no unfair labor practice complaint against Seller pending or to the Knowledge of Seller, threatened before the National Labor Relations Board or any other
comparable Authority; 

        (c)  there
is no labor strike, dispute, slowdown or stoppage actually pending or to the Knowledge of Seller, threatened against or directly affecting Seller and the Business; 

        (d)  no
labor representation question exists respecting the employees of the Business and there is not pending or to the Knowledge of Seller, threatened any activity intended
or likely to result in a labor representation vote respecting the employees of the Business; 

        (e)  to
the Knowledge of Seller during the last 12 months, there has been no attempt by either employees of the Business, any labor organization, or others to organize
the employees of the Business into a labor union or to provide for other labor representation; 

        (f)    no
grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending and no claims therefor exist or, to the Knowledge of
Seller, have been threatened; 

23

 

        (g)  no
collective bargaining agreement is binding and in force against Seller or currently being negotiated by Seller relating to the Business; 

        (h)  Seller
has not experienced any significant work stoppage or other significant labor difficulty relating to the Business; 

        (i)    Seller
is not delinquent in payments to any persons performing services for the Business for any wages, salaries, commissions, bonuses or other direct or indirect
compensation for any services performed by them or amounts required to be reimbursed to such persons, including without limitation any amounts due under any Seller Plan, including any Benefit Plan; 

        (j)    upon
termination of the employment of any person, neither Seller, any Shareholder the Purchaser, nor any affiliate of the Purchaser will, by reason of anything done at
or prior to or as of the Closing Date, be liable to any of such persons for so-called "severance pay" or any other payments; and 

        (k)  within
the twelve-month period prior to the date of the Agreement, there has not been any expression of intention to Seller by any officer or key employee (including but
not limited to area and district managers) of the Business to terminate such employment. 

        2.20.    Compliance with Law; Permits and Other Operating Rights.    

        Except
as set forth in the Disclosure Schedule, and without limiting the scope of any other representations or warranties contained in this Agreement, but without intending to duplicate
the scope of such other representations and warranties, the assets, properties, business and operations of the Business, are and have been in compliance with all Laws applicable to the assets,
properties, business and operations of the Business. Except as set forth in the Disclosure Schedule, neither Seller nor any Shareholder requires the Consent of any Authority to permit the Business to
operate in the manner in which it is presently being operated. Seller possesses all material permits, licenses and other authorizations from all Authorities necessary to permit Seller to operate the
Business in the manner in which Seller presently conducts it, and the consummation of the transactions contemplated by this Agreement will not prevent the Purchaser from being able to continue to use
such permits and operating rights. 

        2.21.    Environmental and Safety Matters.    

        Except
as set forth on the Disclosure Schedule: 

        (a)  Neither
Seller, any Shareholder any subsidiary or former subsidiary of Seller, nor, to the Knowledge of Seller, any previous owner, tenant, occupant or user of any
property owned or leased by or to Seller and used in connection with the Business, or by or to any subsidiary or former subsidiary (the "Properties")
engaged in or permitted, direct or indirect operations or activities upon, or any use or occupancy of the Properties, or any portion thereof, for the purpose of or in any way involving the handling,
manufacture, treatment, storage, use, generation, emission, release, discharge, refining, dumping or disposal of any Environmentally Regulated Materials (whether legal or illegal, accidental or
intentional, direct or indirect) on, under, in or about the Properties, or transported any Environmentally Regulated Materials to, from or across the Properties, nor are any Environmentally Regulated
Materials presently constructed, deposited, stored, placed or otherwise located on, under, in or about the Properties. The Properties do not contain any: (i) underground or aboveground storage
tanks; (ii) asbestos; (iii) equipment using PCBs; (iv) underground injection wells; or (v) septic tanks in which process waste water or any Environmentally Regulated
Materials have been disposed. 

        (b)  

          (i)  No
violation or noncompliance with Environmental and Occupational Safety and Health Laws has occurred with respect to the Properties or operations conducted thereon
during the period in which Seller operated such Properties and conducted such operations; Seller has 

24

 

obtained all permits, licenses and authorizations required by, and Seller, the Seller and the Properties are in compliance with, all Environmental and Occupational Safety and Health Laws including,
without limitation, all applicable restrictions, conditions, standards, limitations, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental and Occupational
Safety and Health Laws or contained in any regulation, code, plan, order, decree, judgment, injection, notice or demand letter issued, entered, promulgated or approved thereunder; 

        (ii)  no
enforcement, investigation, cleanup, removal, remediation or response or other governmental or regulatory actions have been, or could have been at any time in the
past, asserted or threatened (A) with respect to operations conducted by Seller on the Properties or, (B) against Seller or any of its subsidiaries or former subsidiaries with respect to
or in any way regarding the Properties pursuant to any Environmental and Occupational Safety and Health Laws; and 

        (iii)  no
claims or settlements relating to or arising out of Environmental and Occupational Safety and Health Laws or Environmentally Regulated Materials, have been made or,
to the Knowledge of Seller, been threatened by any third party, including any Authority, nor, to the Knowledge of Seller, does there exist any basis for any such claim (any such enforcement,
investigation, cleanup, removal, remediation or response, other governmental or regulatory action, claim or settlement is herein referred to as an "Environmental
Claim") against Seller, the Seller or any of their respective subsidiaries or former subsidiaries with respect to the Properties or operations conducted thereon, or with
respect to the Properties or the operations thereon. 

        (c)  With
regard to Seller, there are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or
prevent compliance or continued compliance with Environmental and Occupational Health and Safety Laws, as in effect on the Closing Date. 

        2.22.    Insurance.    

        The
Disclosure Schedule contains a listing of all policies of fire and other casualty, general liability, theft, life, workers' compensation, health, directors and officers, business
interruption and other forms of insurance owned or held by Seller and relating to the Business, identifying the insurer, the policy number, the risk insured against, the term of the coverage, the
limits of coverage, the deductible amount (if any), the premium rate, the date through which coverage will continue by virtue of premiums already paid and, in the case of any "claims made" coverage,
the same information as to predecessor policies for the previous five years. All present policies are in full force and effect and all premiums with respect thereto have been paid. Seller has not been
denied any form of insurance and no policy of insurance has been revoked or rescinded during the past five years, except as described on the Disclosure Schedule. 

        2.23.    Brokers.    

        Except
as set forth in Schedule 2.23 of the Disclosure Schedule, neither Seller, the Shareholders nor any of Seller's or any Shareholder's directors, officers, shareholders,
agents or employees has employed any broker, finder, or financial advisor or incurred any liability for any brokerage fee or commission, finder's fee or financial advisory fee, in connection with the
transactions contemplated hereby, nor is there any basis for any such fee or commission to be claimed by any person or entity. 

        2.24.    Absence of Certain Business Practices.    

        Neither
Seller, any Shareholder nor any director, officer, partner, employee or agent of Seller, nor any other person acting on their behalf, has, directly or indirectly, within the past
five years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder Seller (or assist
Seller in connection with any 

25

 

actual or proposed transaction) which: (i) might subject Seller, any Shareholder the Purchaser, Parent or the Purchaser's or Parent's affiliates to any damage or penalty in any civil, criminal
or governmental litigation proceeding; (ii) if not given in the past, might have had a Material Adverse Effect on the Business; or (iii) if not continued in the future, might materially
adversely affect the Business or which might subject Seller, any Shareholder the Purchaser, Parent or the Purchaser's or Parent's affiliates to suit or penalty in any private or governmental
litigation or proceeding. 

        2.25.    Business Generally.    

        Except
as set forth in the Disclosure Schedule, there has been no event, transaction or information which has come to the attention of Seller which would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the Business. Without limiting the generality of the foregoing, except as set forth in the Disclosure Schedule, there has not
been in the 12-month period prior to the date hereof any change in the business relationship of Seller with any customer, dealer or supplier to the Business which may reasonably be
expected to have a Material Adverse Effect on the Business. 

        2.26.    Transactions with Certain Persons.    

        Except
as set forth in the Disclosure Schedule, during the past three years, neither Seller nor any Shareholder has, directly or indirectly, purchased, leased or otherwise acquired any
property or obtained any services from, or sold, leased or otherwise disposed of any property or furnished any services to in connection with the Business, or otherwise dealt with, in the ordinary
course of the Business or otherwise in connection with the Business, any affiliate or associate of Seller or any member, shareholder, or partner of any affiliate or associate of Seller (except with
respect to compensation in the ordinary course of the Business for services rendered as a director, officer, employee or consultant of Seller). Neither Seller nor any Shareholder owes any amount to,
or has any agreement or contract with or commitment to, any of its partners, directors, officers, employees or consultants or any affiliate or associate thereof (other than compensation for current
services not yet due and payable and reimbursement of expenses arising in the ordinary course of business), and none of such persons owes any amount to Seller. 

        2.27.    Customers.    

        Except
as set forth on the Disclosure Schedule, there has not been in the 12-month period prior to the date hereof, any dispute with any customer of the Business, or any set
of circumstances, either of which is reasonably anticipated to have a Material Adverse Effect on the relationship between Seller and any customer or which may reasonably be expected to have a Material
Adverse Effect on the Business. Except as set forth on the Disclosure Schedule, neither Seller nor any Shareholder is aware of any circumstances that could materially and adversely affect the ability
of any customer of the Business to continue doing business with Seller in the manner in which such business has been conducted in the past or commence doing business with the Purchaser or Parent. 

        3.    REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT.    

        The
Purchaser and the Parent, jointly and severally, represent and warrant to Seller as of the date hereof as follows: 

        3.1.    Corporate Organization.    

        Each
of the Parent and the Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 

        3.2.    Authorization.    

        Each
of the Purchaser and the Parent has all the requisite corporate power and authority to enter into this Agreement and to carry out the transactions contemplated herein. Each of the
boards of 

26

 

directors of the Purchaser and the Parent has taken all action required by law, its articles of incorporation and bylaws or otherwise to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein and no action of the stockholders of the Purchaser or the Parent is required. This Agreement is a valid and binding legal
obligation of the Purchaser and the Parent enforceable against each of them in accordance with its terms subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of
applicability relating to or affecting creditors' rights and general principals of equity. 

        3.3.    Consents and Approvals.    

        No
Consent is required by any person or entity, including without limitation any Authority, in connection with the execution, delivery and performance by the Purchaser and the Parent of
this Agreement, or the consummation of the transactions contemplated herein, other than any Consent which, if not made or obtained, will not, individually or in the aggregate, have a Material Adverse
Effect on the business of the Purchaser or the Parent. 

        3.4.    Brokers.    

        Except
for its agreement with U.S. Bancorp Piper Jaffray, neither the Purchaser, the Parent nor any of their officers, directors or employees have employed any broker, finder, or
financial advisor or incurred any liability for any brokerage fee or commission, finder's fee or financial advisory fee, in connection with the transactions contemplated hereby, nor is there any basis
known to the Purchaser or the Parent for any such fee or commission to be claimed by any person or entity. 

        3.5.    Litigation.    

        Except
as disclosed to Seller in writing prior to the execution of this Agreement, there is no legal, administrative arbitration or other proceeding, suit, claim or action of any nature
or investigation, review or audit of any kind, judgment, decree, decision, injunction, writ or order pending or, to the knowledge of Purchaser threatened or contemplated by or against or involving
Purchaser, Parent or their respective officers, directors, agents or employees (but only in their capacity as such) whether at law or in equity, before or by any person, entity or Authority, which
(a) questions or challenges the validity of this Agreement or any action taken or to be taken by the parties hereto pursuant to this Agreement or in connection with the transactions
contemplated herein or (b) is material to the business and operations of Parent and all its affiliates (including Purchaser) taken as a whole. 

        3.6.    Securities Filings.    

        The
Parent has filed all reports, registration statements, forms and other documents that it is required to file with the United States Securities and Exchange Commission or any exchange
on which it is traded or reporting service through which any of its securities are quoted, including without limitation all filings required by the Securities Act of 1933, as amended, and any rules
promulgated thereunder (the "Parent SEC Filings"). At the time filed, none of the Parent SEC Filings included any untrue statement of material fact or
omitted a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading. 

        4.    COVENANTS OF THE PARTIES.    

        4.1.    [Intentionally Omitted]    

        4.2.    [Intentionally Omitted]    

        4.3.    [Intentionally Omitted]    

        4.4.    Confidentiality.    

        Each
of the parties hereto agrees that it will not use, or permit the use of, any of the information relating to any other party hereto furnished to it in connection with the
transactions contemplated herein ("Information") in a manner or for a purpose detrimental to such other party or otherwise than 

27

 

in connection with the transaction, and that they will not disclose, divulge, provide or make accessible (collectively, "Disclose"), or permit the
Disclosure of, any of the Information to any person or entity, other than their respective directors, officers, governors, managers, employees, investment advisors, accountants, counsel and other
authorized representatives and agents, except as may be required by judicial or administrative process or, in the opinion of such party's counsel, by other requirements of Law;  provided, however, that
prior to any Disclosure of any Information permitted hereunder, the disclosing party will first obtain the recipients'
undertaking to comply with the provisions of this subsection with respect to such information. The term "Information" as used herein will not include
any information relating to a party which the recipient of such information can show: (i) to have been in its possession prior to its receipt from another party hereto; (ii) to be now or
to later become generally available to the public through no fault of the recipient; (iii) to have been available to the public at the time of its receipt by the recipient; (iv) to have
been received separately by the recipient in an unrestricted manner from a person entitled to disclose such information; or (v) to have been developed independently by the recipient without
regard to any information received in connection with this transaction. Each party hereto also agrees to promptly return to the party from whom it originally received such information all original and
duplicate copies of materials in any media containing Information should the transactions contemplated herein not occur. A party hereto will be deemed to have satisfied its obligations to hold the
Information confidential if it exercises the same care as it takes with respect to its own similar information. 

        4.5.    Filings; Consents; Removal of Objections.    

        Subject
to the terms and conditions herein provided, the parties hereto will use their respective good faith best efforts to take or cause to be taken all actions and do or cause to be
done all things necessary, proper or advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable, the transactions contemplated hereby, including without
limitation obtaining all Consents of any person or entity, whether private or governmental, required in connection with the
consummation of the transactions contemplated herein. In furtherance, and not in limitation of the foregoing, it is the intent of the parties to consummate the transactions contemplated herein at the
earliest practicable time, and they respectively agree to exert their respective good faith best efforts to that end, including without limitation: (i) the removal or satisfaction, if possible,
of any objections to the validity or legality of the transactions contemplated herein; and (ii) the satisfaction of the conditions to consummation of the transactions contemplated hereby. 

        4.6.    Further Assurances; Cooperation; Notification; Management Agreement.    

        (a)  Each
party hereto will, at and after Closing, execute and deliver such instruments and take such other actions as the other party or parties, as the case may be, may
reasonably require in order to carry out the intent of this Agreement. Without limiting the generality of the foregoing, at any time after the Closing, at the reasonable request of the Purchaser and
without further consideration, Seller and the Shareholders will execute and deliver such instruments of sale, transfer, conveyance, assignment and confirmation and take such action as the Purchaser
may reasonably deem necessary or desirable in order to more effectively consummate the transactions contemplated hereby and to vest in the Purchaser good and marketable title to, all of the Assets (to
the extent contemplated by this Agreement), to put the Purchaser in actual possession and operating control thereof and to assist the Purchaser in exercising all rights with respect thereto, without
unreasonable cost or expense to Seller or the Shareholders. 

        (b)  Seller
and the Shareholders will cooperate with the Purchaser to promptly develop plans for the management of the Business after the Closing, including without
limitation plans relating to productivity, marketing, operations and improvements, and Seller and the Shareholders will further cooperate with the Purchaser to provide for the implementation of such
plans as soon as practicable after the Closing. Subject to applicable Law, Seller and the Shareholders will confer on a regular and 

28

 

reasonable basis with one or more representatives of the Purchaser to report on material operational matters and the general status of ongoing operations. 

        (c)  At
all times from the date hereof until the Closing, each party will promptly notify the other in writing of the occurrence of any event which it reasonably believes
will or may result in a failure by such party to satisfy the conditions specified in Article 5 and Article 6 hereof. 

        (d)  Each
party hereto will, at and after the Closing, comply with the terms and provisions of the management agreement for the operation of the Business and Assets during
Fiscal 2001, Fiscal 2002 and Fiscal 2003 attached hereto as Exhibit 4.6(d) (the "Management
Agreement"). 

        4.7.    [Intentionally Omitted]    

        4.8.    Public Announcements.    

        None
of the parties hereto will make any public announcement with respect to the transactions contemplated herein without the prior written consent of the other party, which consent will
not be unreasonably withheld or delayed; provided, however, that any of the parties hereto may at any time make any announcements which are required by applicable Law so long as the party so required
to make an announcement promptly upon learning of such requirement notifies the other party of such requirement and discusses with the other party in good faith the exact proposed wording of any such
announcement. 

        4.9.    Tax Matters.    

        (a)  No
new elections with respect to Taxes, or any changes in current elections with respect to Taxes, affecting the Assets will be made after the date of this Agreement
without the prior written consent of the Parent or the Purchaser. 

        (b)  As
a condition precedent to the consummation of the transactions contemplated by this Agreement, Seller and the Shareholders will provide the Purchaser with any
clearance certificate or similar document(s) which may be required by any state taxing authority in order to relieve the Purchaser of any obligation to withhold any portion of the Purchase Price. 

        (c)  In
addition to and without limiting those representations and warranties set forth in Section 2.14 of this Agreement, in the event that any sales or use Tax, or
any Tax in the nature of a sales or use tax, or any transactional Tax is payable or assessed relative to the transactions contemplated herein, Seller and the Shareholders will pay all such Taxes and
will not collect any part thereof from the Purchaser or the Parent. The parties hereto will cooperate to make any necessary filings with state and local or foreign taxing Authorities and to furnish
any required supplemental information with respect to any state and local or foreign Tax liabilities resulting from the consummation of the transactions contemplated herein. 

        (d)  In
addition to and without limiting those representations and warranties set forth in Section 2.14 of this Agreement, Seller and the Shareholders will pay all
Taxes arising from or relating to the transactions contemplated by this Agreement, including without limitation Tax on any income or gains arising from the sale of the Assets; but excluding any Taxes
attributed to the income of Parent or Purchaser. Seller and the Shareholders will cause to be prepared and filed all federal, foreign and state income Tax Returns for the Business reflecting all
activities of the Business through and including the Closing Date. 

        (e)  Seller
and the Shareholders, on the one hand, and the Purchaser, on the other hand, will: 

          (i)  each
provide the other with such assistance as may reasonably be requested by any of them in connection with the preparation of any Tax Return, audit or other
examination by any taxing Authority or judicial or administrative proceedings relating to liability for Taxes, 

29

  

        (ii)  each
retain and provide the other with any records or other information which may be relevant to such Tax Return, audit or examination, proceeding or determination, and 

        (iii)  each
provide the other with any final determination of such audit or examination, proceeding or determination that affects any amount required to be shown on any Tax
Return of the other for any period. 

        Without
limiting the generality of the foregoing, Seller, the Shareholders and the Purchaser will retain, until the applicable statutes of limitations (including all extensions) have
expired, copies of all Tax Returns, supporting work schedules and other records or information which may be relevant to such Tax Returns for all Tax periods or portions thereof ending on or before the
Closing Date and will not destroy or otherwise dispose of any such records without first providing the other party with a reasonable opportunity to review and copy the same. 

        4.10.    Bulk Transfers.    

        Seller
and the Shareholders have requested and the Purchaser has, subject to its indemnification rights, agreed to waive the requirements of the Uniform Commercial Code concerning bulk
transfers, as in effect in the various states in which Seller and the Shareholders have assets used in the Business, including without limitation the requirement of notice to creditors. 

        4.11.    Employee Benefits.    

        (a)  On
or as soon as administratively practicable after the Closing Date, the Purchaser will extend offers of immediate employment to employees of the Business listed on  Exhibit 4.11 hereto (the
"Selected Employees"). Except as otherwise expressly provided in this
Agreement, the terms and conditions of each such offer and of any continuing employment will be determined by the Purchaser in its sole discretion and any resulting employment relationship will be at
will; provided, however, that Purchaser shall, to the fullest extent permitted under applicable laws, recognize accrued vacation and other employment benefits of the Selected Employees that are based
upon periods of service with Seller and that constitute Assumed Liabilities. Any employee of the Business who accepts such an employment offer and reports for work on the date directed by the
Purchaser will be sometimes hereinafter referred to as a "Transferred Employee." Seller and the Shareholders hereby authorize the Purchaser to enter
into discussions with any of the Selected Employees concerning the future employment of such individual by the Purchaser; provided, however, that (i) such discussions will not be commenced
prior to the giving of notice by Seller or the Shareholders to the employees of the Business of the transactions contemplated by this Agreement; and (ii) all such discussions will be conducted
in such a manner as not to interfere unreasonably with the operations of the Business. 

        (b)  [Reserved] 

        (c)  [Reserved] 

        (d)  The
Purchaser will not be obligated under, and hereby specifically disclaims any assumption or liability with respect to, any collective bargaining agreement to which
Seller is a party or under which Seller's or any Shareholder's employees or former employees are covered or any Seller Plan, including any Benefit Plan. Without limiting the generality of the
foregoing, (i) the Purchaser is not assuming any obligation to contribute to, or any obligation or liability for any withdrawal liability arising in connection with, any "multiemployer plan"
within the meaning of Section 4001(a)(3) of ERISA, attributable to participation therein by current or former employees of Seller as a result of this Agreement or the transactions contemplated
hereby, and (ii) with respect to each current or former employee of Seller, the Seller or any affiliate and each other individual who is a "qualified beneficiary" with respect to such current
or former employee in connection with a "group health plan" maintained by Seller, the Seller or any affiliate (as such terms are defined in Section 4980B of the Code), as between the Purchaser,
on the one hand, and Seller, on the other hand, Seller are responsible for providing group health plan continuation coverage in accordance with Section 4980B of the Code and 

30

 

Part 6 of Subtitle B of Title I of ERISA (without regard to whether the Purchaser is ultimately determined to be responsible to provide such coverage to any such current or former employee)
and will indemnify, defend and hold harmless the Purchaser and its affiliates from and against any liability, expense, cost, tax or obligation of any nature with respect to such current or former
employee or other individual arising in connection with group health plan coverage required under Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA. 

        4.12.    Covenant Not to Compete; Non-Solicitation.    

        (a)  In
order that the Purchaser and the Parent may have and enjoy the benefit of the transactions contemplated in this Agreement, each of Seller and the Shareholders
covenants and agrees that, for a period expiring on the earlier to occur of (i) four (4) years from the Closing Date or (ii) one (1) year after the entire Contingent
Consideration has been earned (as determined pursuant to Section 1.3(a)(ii)(2) and, if necessary, Section 9.8 (such that, for instance, if the Shareholders' Representative claims that
the Contingent Consideration is fully earned on February 28, 2003, the Parent contests such claim in an arbitration resolved favorably to the Shareholders on May 1, 2003, then the
Restricted Period will expire February 28, 2004 rather than May 1, 2004)) (the "Restricted Period"), neither they nor any of their
affiliates will, directly or indirectly, within any geographical area or territory in the United States, own, manage, operate or control, or participate in the ownership, management, operation or
control of, or have any interest in, as a stockholder, member, director, governor, manager, officer, employee, agent,
consultant or partner, any business of the type engaged in or contemplated by the Business; provided, however, that nothing contained herein will prohibit them from owning less than 4% of any class of
securities listed on a national securities exchange or traded publicly in the over-the-counter market. 

        (b)  During
the Restricted Period, neither Seller, any Shareholder nor any of their respective affiliates will call upon, solicit, contact or serve: (i) any of the
clients, customers, vendors or suppliers of the Business existing as such on or before the last date of the Restricted Period; (ii) any clients, customers, vendors or suppliers that have had a
relationship with Seller or any Shareholder relating to the Business during the twelve (12) months preceding expiration of the Restricted Period; or (iii) any potential clients,
customers, vendors or suppliers that were solicited by Seller or any Shareholder in connection with the Business during the twelve (12) months preceding expiration of the Restricted Period. 

        (c)  During
the Restricted Period, neither Seller, any Shareholder nor any of their respective affiliates will employ or attempt to employ (by soliciting or assisting anyone
else in the solicitation of) any of the Selected Employees or the Purchaser's or the Parent's then employees on behalf of any other entity, whether or not such entity competes with Seller, any
Shareholder the Purchaser or the Parent. 

        (d)  The
invalidity or unenforceability of any provision of this Section 4.12, in whole or by virtue of the following sentence in part, will not affect the validity or
enforceability of any other provision of this Section 4.12 or of any other provision of this Agreement, all of which will to the full extent consistent with applicable law continue in full
force and effect. In addition, if any provision of Section 4.12(a) are adjudged to be excessively broad as to duration, geographical scope, activity or subject, the parties intend that such
provision will be deemed modified to the minimum degree necessary to make such provision valid and enforceable under applicable law and that such modified provision will thereafter be enforced to the
fullest extent possible. Each of Seller and the Shareholder acknowledges that any violation of any of the provisions of Section 4.12(a) is likely to cause irreparable damage to the Purchaser
and the Parent and it is agreed that the Purchaser and the Parent will be entitled to equitable relief, including injunction and specific performance, in the event of any violation of such provision. 

31

 

        (e)  Notwithstanding
the foregoing provisions of this Section 4.12, if the Purchaser fails to (A) timely wire the Contingent Consideration as contemplated by
Section 1.3(ii)(2)(D)(i) or (ii) above, (B) timely wire the Undisputed Contingent Consideration, (C) timely deposit the Disputed Contingent Consideration with an
escrow agent as described in Section 1.3(a)(ii)(2)(C)(iii), or (D) pay the Disputed Contingent Consideration within ten (10) days after receipt of a further written demand from
the Shareholders' Representative following the final decision of arbitrators in favor of the Shareholders' Representative, then (i) the covenants of the Seller and the Shareholders set forth in
this Section 4.12 shall immediately terminate and be of no further force or effect, and (ii) with respect to Purchaser and the Parent, Seller and each of the Shareholders shall have no
further obligation, covenant, restriction or limitation as to (A) their ownership, management, operation or control of any business, enterprise or other operation, or (B) any
solicitation, contact, service, or other communication with any client, customer, vender,
supplier or other party having any contact or relationship with the Business. If Purchaser Indemnified Parties are entitled to indemnification pursuant to Article 8 and elect, to the extent
permitted by Section 8.6 of this Agreement, to offset the amount due pursuant to such claim against Contingent Consideration otherwise payable, then such offset, and consequent
non-payment of Contingent Consideration, shall not trigger the termination provisions of this paragraph. 

        4.13.    [Intentionally Omitted]    

        5.    [INTENTIONALLY OMITTED]    

        6.    [INTENTIONALLY OMITTED]    

        7.    [INTENTIONALLY OMITTED]    

        8.    SURVIVAL AND INDEMNIFICATION.    

        8.1.    Survival of Representations, Warranties and Covenants; Investigation.    

        All
representations and warranties of the parties contained in this Agreement will survive the Closing Date for a period expiring on March 1, 2004 (other than the representations
and warranties set forth in Section 2.9(a), 2.12(b), which survive for a period of five (5) years after the date of this Agreement and the representations and warranties set forth in
Sections 2.14, 2.15 and 2.20 which survive until the expiration of the applicable statute of limitations plus three months). The covenants, agreements and obligations contained herein and in the
exhibits hereto will survive the Closing without limitation as to time unless the covenant or agreement specifies the term, in which case such covenant or agreement will survive until the expiration
of such specified term and will thereupon expire. The right to indemnification or any other remedy based on representations, warranties, covenants and obligations in this Agreement will not be
affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or
the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. 

        8.2.    Indemnification by the Purchaser and Parent.    

        Subject
to the provisions of Section 8.5, the Purchaser and Parent agree, jointly and severally, to indemnify, defend and hold Seller and the Shareholders harmless from and
against any and all losses, liabilities, obligations, demands, judgments, settlements, damages (but excluding consequential damages, lost profits or punitive damages suffered directly by the Seller or
Shareholders as opposed to consequential damages, lost profits or punitive damages paid by the Seller or any Shareholder to a third party) or expense (including but not limited to interest, penalties,
fees and reasonable professional
fees and expenses) and against all claims in respect thereof (including, without limitation, amounts paid in settlement and costs of investigation) or diminution in value, whether or not involving a
third-party claim (collectively as "Seller's Loss" or "Seller's Losses") to which Seller or the
Shareholders may suffer or incur, directly or indirectly, as a result from or in connection with: 

        (a)  any
untrue representation of, or breach of warranty by, the Purchaser or Parent in any part of this Agreement; 

32

 

        (b)  the
breach of or nonfulfillment of any covenant, agreement or undertaking of the Purchaser or Parent in this Agreement; 

        (c)  the
operation of the Assets or the Business after the Closing Date (including, without limitation, any obligation for Taxes associated with the Business or the Assets
for any period (or portion thereof) subsequent to the Closing Date and any obligation of Parent or Purchaser for Taxes, regardless of the period to which they are attributable; and 

        (d)  any
failure of Purchaser or Parent to pay or perform Assumed Liabilities or to pay any portion of the Purchase Price, including, but not limited to, the Contingent
Consideration, if and to the extent earned and payable. 

        8.3.    Indemnification by Seller and the Shareholders.    

        Subject
to the provisions of Section 8.5, Seller and the Shareholders agree, jointly and severally (provided that the following indemnity shall be several with respect to any
Purchaser's Loss relating to a breach of a representation or warranty relating exclusively to a Shareholder under Sections 2.3, 2.4, 2.5, 2.8, 2.13, 2.24 or 2.26), to indemnify the Purchaser and
Parent, their respective subsidiaries and affiliates and each of their respective shareholders, officers, directors and employees (the "Purchaser Indemnified
Parties") against all losses, liabilities, obligations, demands, judgments, settlements, damages (but excluding any claims for consequential damages, lost profits or punitive
damages suffered directly by the Purchaser or Parent as opposed to consequential damages, lost profits or punitive damages paid by the Purchaser to a third party), Taxes, or expenses (including, but
not limited to, interest, penalties, fees, and reasonable professional fees and expenses) and against all claims in respect thereof (including, without limitation, amounts paid in settlement and costs
of investigation) or diminution in value, whether or not involving a third-party claim (herein referred to collectively as "Purchaser's Losses" or
individually as a "Purchaser's Loss") to which the Purchaser or Parent may become subject to or which it may suffer or incur, directly or indirectly, as
a result from or in connection with: 

        (a)  any
untrue representation of or breach of warranty, by Seller or the Shareholders in any part of this Agreement; 

        (b)  the
breach of or nonfulfillment of any covenant, agreement or undertaking of Seller or the Shareholders in this Agreement; 

        (c)  any
debt, liability or obligation, direct or indirect, fixed, contingent or otherwise not included in the Assumed Liabilities, that relates to Seller or the Shareholders
and is based upon or arises from any act or omission, transaction, circumstance, state of facts or other condition occurring or existing on or before the Closing Date, wither or not then known, due or
payable; 

        (d)  any
obligation for Taxes of Seller or the Shareholders for any period (or portion thereof) prior to the Closing Date; 

        (e)  any
Retained Liabilities; 

        (f)    the
failure of Seller or the Shareholders to comply with the requirements of the Uniform Commercial Code concerning bulk transfers, as in effect in the various states in
which Seller or any Shareholder has assets, including, without limitation, the requirement of notice to creditors; 

        (g)  the
failure of Seller or the Shareholders to obtain any clearance certificate or similar document required by any taxing Authority in order to relieve the Purchaser or
the Parent of any obligation to withhold any portion of the Purchase Price or in order to avoid any successor liability for Taxes; 

        (h)  any
liability, expense, cost, tax or obligation of any nature with respect to such current or former employee of the Business or other individual arising in connection
with group health plan coverage required under Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA; and 

33

 

        (i)    the
failure of Seller or the Shareholders to disclose to the Purchaser or Parent a complete and accurate list of any and all severance compensation required to be paid
in connection with the transactions contemplated by this Agreement to any employee of Seller who is not a Transferred Employee. 

Seller
and the Shareholders acknowledge that if a representation or warranty that is qualified by materiality (including a Material Adverse Effect) is breached after giving effect to such materiality
qualification then the Purchaser Losses resulting from such breach will include all Purchaser Losses resulting from a breach of such representation or warranty and not solely the portion of such
Purchaser Losses in excess of such materiality qualifier. 

        8.4.    Claims for Indemnification; Shareholders' Representatives and Power of Attorney.    

        (a)  General. The parties intend that all indemnification claims be made as promptly as practicable by the party seeking
indemnification (the "Indemnified Party"). Whenever any claim will arise for indemnification hereunder the Indemnified Party will promptly notify the
party from whom indemnification is sought (the "Indemnifying Party") of the claim and, when known, the facts constituting the basis for such claim. The
failure so to notify the Indemnifying Party will not relieve the Indemnifying Party of any liability that it may have to the Indemnified Party except to the extent the Indemnifying Party demonstrates
that the defense of such action is materially prejudiced thereby. 

        (b)  Claims by Third Parties. With respect to claims made by third parties, the Indemnifying Party will be entitled to assume
control of the defense of such action or claim with counsel reasonably satisfactory to the Indemnified Party; provided, however, that: 

          (i)  the
Indemnified Party will be entitled to participate in the defense of such claim and to employ counsel at its own expense to assist in the handling of such claim; 

        (ii)  no
Indemnifying Party will consent to (A) the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the
giving by each claimant or plaintiff to each Indemnified Party of a release from all liability in respect of such claim or (B) if, pursuant to or as a result of such consent or settlement,
injunctive or other equitable relief would be imposed against the Indemnified Party or such judgment or settlement could materially interfere with the business, operations or assets of the Indemnified
Party; and, 

        (iii)  if
the Indemnifying Party does not assume control of the defense of such claim in accordance with the foregoing provisions within ten (10) business days after
receipt of notice of the claim, the Indemnified Party will have the right to defend such claim in such manner as it may deem appropriate at the cost and expense of the Indemnifying Party, and the
Indemnifying Party will promptly reimburse the Indemnified Party therefore in accordance with this Article 8; provided that the Indemnified Party will not be entitled to consent to the entry of
any judgment or enter into any settlement of such claim that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnifying Party of a release from all
liability in respect of such claim without the prior written consent of the Indemnifying Party if, pursuant to or as a result of such consent or settlement, injunctive
or other equitable relief would be imposed against the Indemnifying Party or such judgment or settlement could materially interfere with the business, operations or assets of the Indemnifying Party. 

        (c)  Remedies Exclusive. The remedies provided in this Section 8 shall be the exclusive remedy of any party hereto for
any breaches of representations, warranties, agreements or covenants in Section 2 or Section 3 of this Agreement, except to the extent any such breaches relate to (i) fraud or
(ii) bad faith action, with respect to which the remedies provided herein will be cumulative and will not preclude assertion by any party of any rights or the seeking of any other remedies
against any other party. 

34

 

        (d)  Shareholders' Representative; Power of Attorney.

          (i)  Upon
execution of this Agreement by the Shareholders, and without further act of any Shareholder, Kirk Willey ("Willey")
shall be appointed as agent and attorney-in-fact (the "Shareholders' Representative") for each Shareholder, for and on behalf of
the Shareholders, to give and receive notices and communications, to authorize delivery to the Purchaser Indemnified Parties of funds from the Escrow Deposit or other sources in satisfaction of claims
by such Purchaser Indemnified Parties, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Shareholders' Representative for the accomplishment of the foregoing. Such
agency may be changed by the Shareholders from time to time upon not less than thirty (30) days prior written notice to Parent; provided that the Shareholders' Representative may not be changed
unless holders of a two-thirds interest of the Escrow Deposit agree to such change and to the identity of the substituted agent. If Willey is unable or unwilling to serve as Shareholders'
Representative, Jeff Price shall be automatically appointed as the Shareholders' Representative to replace Willey. Except as provided in the preceding sentence, any vacancy in the position of a
Shareholders' Representative may be filled by the holders of a majority in interest of the Escrow Deposit. No bond shall be required of the Shareholders' Representative, and the Shareholders'
Representative shall not receive compensation for his services. Notices or communications to or from the Shareholders' Representative shall constitute notice to or from each of the Shareholders. 

        (ii)  The
Shareholders' Representative shall not be liable for any act done or omitted hereunder as Shareholders' Representative, except for gross negligence or willful
misconduct. The Shareholders on whose behalf the Escrow Deposit was contributed to the Escrow Deposit shall severally, in proportion to their ownership amounts as set forth in  Exhibit 8.5(c),
indemnify the Shareholders' Representative and hold the Shareholders' Representative harmless against any loss, liability or
expense (except for any loss, liability or expense arising out of the gross negligence or willful misconduct of the Shareholders' Representative) incurred on the part of the Shareholders'
Representative and arising out of or in connection with the acceptance or administration of the Shareholders' Representative's duties hereunder, including the reasonable fees and expenses of any legal
counsel retained by the Shareholders' Representative. 

        (iii)  Each
decision, act, consent or instruction of the Shareholders' Representative, including but not limited to an amendment, extension or waiver of this Agreement, shall
constitute a decision of all the Shareholders and shall be final, binding and conclusive upon each such Shareholder, and the Escrow Agent and other parties to this Agreement may rely upon any such
decision, act, consent or instruction of the Shareholders' Representative as being the decision, act, consent or instruction of each and every such Shareholder. The Escrow Agent and other parties to
this Agreement are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Shareholders' Representative. 

        8.5.    Basket and Cap Limitations on Claims for Indemnification.    

        (a)  In
the event of any claim for indemnity under Section 8.3, the Indemnified Party under such representation and warranty claim shall not be entitled to
indemnification therefor unless such Indemnified Party has sustained Losses in excess of One Hundred Thousand and no/100 Dollars ($100,000.00) in the aggregate (the "Exception
Amount"), in which event the Indemnified Party shall be entitled to indemnification for the full amount of all Losses suffered or incurred in excess of Seventy-Five
Thousand and no/100 Dollars ($75,000.00) of Losses; provided, however, that such Exception Amount limitation shall not apply to (i) any claim by the Purchaser Indemnified Parties with respect
to an intentional breach of or intentional nonfulfillment of any covenant, agreement or undertaking of Seller or the Shareholders contemplated in Section 8.3(b); (ii) any claim based on
any breach of the representations and warranties contained in subsections 2.3 (authorization), or 2.23 

35

 

(brokers) hereof; or (iii) any claim based on any breach of the representations and warranties contained in Section 2.14 (tax matters), but only to the extent such breach relates to
payment or non-payment of federal, state or local income taxes by Seller or the Shareholders, and accordingly, the Indemnified Party shall be entitled to indemnification for the full
amount of all such Losses, even if they do not exceed the Exception Amount (the "Rep Basket"). Notwithstanding anything herein to the contrary, the
Exception Amount and Rep Basket shall not apply with respect to (A) any fraudulent breach of any representation or warranty or any claim with respect to fraudulent inducement to enter into this
Agreement or (B) any bad faith action. The parties do not intend that the Exception Amount be deemed to be a definition of what is "material" for any purpose in this Agreement. 

        (b)  The
Indemnifying Party shall not indemnify the Indemnified Parties to the extent Losses exceed, in the aggregate, the Purchase Price (the
"Limitation Amount"); provided, however, that (a) such limitation shall not apply to any claim based on,any breach of the representations and
warranties contained in subsections 2.3 (authorization); or 2.23 (brokers) hereof; or (ii) subsection 2.14 (tax matters), to the extent such breach relates to payment or non-payment
of federal, state or local taxes by Seller or the Shareholders, for which the Purchaser Indemnified Parties may recover to the full extent of their Losses, subject only to the Rep Basket, if
applicable; and (b) notwithstanding anything herein to the contrary, the Limitation Amount shall not apply with respect to (A) any fraudulent breach of any representation or warranty or
any claim with respect to fraudulent inducement to enter into this Agreement or (B) any bad faith action. The parties do not intend that the Limitation Amount be deemed to be a definition of
what is "material" for any purpose in this Agreement. 

        (c)  The
percentage of each total Purchaser's Loss that the Purchaser Indemnified Parties may recover from any particular Shareholder shall equal such Shareholder's
percentage interest in the Seller immediately prior to the Closing, as indicated on Exhibit 8.5(c); provided, however, that (i) the
maximum amount that the Purchaser Indemnified Parties may recover from any particular Shareholder shall not exceed the product of such Shareholder's percentage interest indicated on
Exhibit 8.5(c) multiplied by the aggregate amount of the Purchase Price actually received (regardless of when received) by Seller, and (ii) notwithstanding anything herein to the
contrary, the limitation described in this Section 8.5(c) shall not apply with respect to (A) any fraudulent breach of any representation or warranty or any claim with respect to
fraudulent inducement to enter into this Agreement or (B) bad faith. Accordingly, and without limiting the foregoing, if a Shareholder owned 10% of the outstanding capital stock of the Seller
immediately prior to Closing, the Purchaser's Loss for which the Purchaser Indemnified Parties are entitled to indemnification is one million dollars, and the Seller had actually received, or
thereafter receives, aggregate Purchase Price payment of at least one million dollars, then the maximum amount the Purchaser Indemnified Parties may recover from such Shareholder would be one hundred
thousand dollars ($100,000), which is 10% of the total Loss (absent fraud or bad faith, as described in the preceding sentence) and is not in excess of 10% of the aggregate amount of Purchase Price
received, then or later, by Seller. 

        8.6.    Set-Off Right.    

        (a)  Upon
not less than thirty (30) days' notice to the Shareholders' Representative, specifying in reasonable detail the basis therefor, the Purchaser or Parent may
set off any amount to which they may be entitled under this Article 8 against amounts otherwise payable as Contingent Consideration. If the Shareholders' Representative disputes the amount set
off by Parent or Purchaser, neither Purchaser nor Parent may exercise such set-off rights until such dispute is finally resolved pursuant to Section 9.8 of this Agreement. 

        (b)  The
exercise of such right of set-off by the Purchaser or Parent will not constitute a breach of this Agreement or any other agreement or instrument
contemplated by this Agreement. Neither the exercise of, nor the failure to exercise, such right of set-off will constitute an election of remedies nor limit the Purchaser or Parent in any
manner in the enforcement of any other remedies that may be available to it. 

36

 

        8.7.    Effect of Purchaser's Actual Knowledge.    

        If
(a) there exists Purchaser's Actual Knowledge of a breach of any representation or warranty contained in Section 2 of this Agreement, (b) the effect of such
breach constitutes a Material Adverse Effect with respect to the Seller or the Business, and (c) Purchaser elected to consummate the Closing notwithstanding such breach, then Purchaser shall be
deemed to have waived any claim against the Seller and Shareholders pursuant to Section 8 of this Agreement to the extent of Purchaser's Actual
Knowledge with respect to such breach. For purposes of this Section, "Purchaser's Actual Knowledge" means the actual knowledge of Susan Engel, David Weiser, Lisa Riedesel, Tom Tomlinson and Tony
Ishaug acquired after April 16, 2001. Without limiting the preceding sentence, Purchaser's Actual Knowledge (i) shall not include any knowledge of any other individuals employed by (whether or
not supervised directly or indirectly by Susan Engel, David Weiser, Lisa Riedesel, Tom Tomlinson and Tony Ishaug) or acting as an agent or representative of Purchaser and (ii) shall not be
construed under any circumstance to mean that Susan Engel, David Weiser, Lisa Riedesel, Tom Tomlinson or Tony Ishaug has conducted any independent investigation to determine if there is any breach of
the Shareholders' representations and warranties. In addition, the Seller and Shareholders acknowledge that notwithstanding any provision in this Agreement to the contrary, in the event there is any
dispute as to whether there exists Purchaser's Actual Knowledge, then the burden of proof shall be on the Seller and Shareholders to establish Purchaser's Actual Knowledge. It is further acknowledged
and agreed that if there exists Purchaser's Actual Knowledge of a breach of any representation or warranty contained in Section 2 of this Agreement and the effect of such breach does not
constitute a Material Adverse Effect with respect to the Seller or the Business, then such breach shall be treated as a breach of this Agreement and the waiver described above in this Section shall
not apply. 

        9.    MISCELLANEOUS PROVISIONS.    

        9.1.    Expenses.    

        Parent
and the Purchaser, on the one hand, and Seller and the Shareholders, on the other hand, will each bear their own costs and expenses relating to the transactions contemplated
hereby, including without limitation, fees and expenses of legal counsel, accountants, investment bankers, brokers or finders, printers, copiers, consultants or other representatives for the services
used, hired or connected with the transactions contemplated hereby. 

        9.2.    Amendment and Modification.    

        This
Agreement may not be amended or modified by the parties hereto except by means of a writing duly executed by each of the parties hereto. 

        9.3.    Waiver of Compliance; Consents.    

        Any
failure of a party to comply with any obligation, covenant, agreement or condition herein may be expressly waived in writing by the party entitled hereby to such compliance, but such
waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
No single or partial exercise of a right or remedy will preclude any other or further exercise thereof or of any other right or remedy
hereunder. Whenever this Agreement requires or permits the consent by or on behalf of a party, such consent will be given in writing in the same manner as for waivers of compliance. 

        9.4.    No Third Party Beneficiaries.    

        Nothing
in this Agreement will entitle any person or entity (other than a party hereto and his, her or its respective successors and assigns permitted hereby) to any claim, cause of
action, remedy or right of any kind. 

37

 

        9.5.    Notices.    

        All
notices, requests, demands and other communications required or permitted hereunder will be made in writing and will be deemed to have been duly given and effective: (i) on
the date of delivery, if delivered personally; (ii) on the earlier of the fifth (5th) day after mailing or the date of the return receipt acknowledgment, if mailed, postage prepaid, by
certified or registered mail, return receipt requested; or (iii) on the date of transmission, if sent by facsimile, telecopy, telegraph, telex or other similar telegraphic communications
equipment and receipt thereof is confirmed telephonically: 

	 
	 	 

	If to Seller:	 	 
	

To:	
 	

Axis Corporation

370 East Harmon Avenue—Suite C-311

Las Vegas, NV 89109
	 	 	Attn.:    Kirk Willey
	 	 	Fax:    (801) 366-5025
	

With copies to:	
 	

 
	 	 	Stoel Rives LLP

201 South Main Street, Suite 1100

Salt Lake City, UT 84111
	 	 	Attn:    Brian G. Lloyd
	 	 	Fax:    (801) 578-6999

or
to such other person or address as Seller will furnish to the other parties hereto in writing in accordance with this subsection. 

	 
	 	 

	If to the Purchaser or the Parent:
	

To:	
 	

Department 56, Inc.

One Village Place

6436 City West Parkway

Eden Prairie, MN 55344
	 	 	Attn.:    Percy C. Tomlinson
	 	 	Fax:    (952) 943-4500
	With a copy to:	 	 
	

To:	
 	

Mark J. Sexton

Oppenheimer Wolff & Donnelly LLP

45 South Seventh Street, Suite 3300

Minneapolis, MN 55402
	 	 	Fax:    (612) 607-7100

or
to such other person or address as Parent or the Purchaser will furnish to the other parties hereto in writing in accordance with this subsection. 

38

 

        9.6.    Assignment.    

        This
Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither
this Agreement nor any of the rights, interests or obligations hereunder will be assigned (whether voluntarily, involuntarily, by operation of law or otherwise) by any of the parties hereto without
the prior written consent of the other parties, provided, however, that the Purchaser may assign its rights (but not its obligations) under this
Agreement, in whole or in any part, and from time to time, to a wholly owned, direct or indirect, subsidiary of Parent. 

        9.7.    Governing Law.    

        This
Agreement and the legal relations among the parties hereto will be governed by and construed in accordance with the internal substantive laws of the State of Delaware (without
regard to the laws of conflict that might otherwise apply) as to all matters, including without limitation matters of validity, construction, effect, performance and remedies. 

        9.8.    Arbitration.    

        (a)  The
parties agree that any dispute arising out of or relating to this Agreement or the formation, breach, termination or validity thereof, except for injunctive relief
contemplated by Section 9.12 (a "Dispute") will be resolved as follows. If the Dispute cannot be settled through direct discussions, the parties
will first try to settle the Dispute in an amicable manner by mediation under the Commercial Mediation Rules of the American Arbitration Association, before resorting to arbitration. Any Dispute that
has not been resolved within 60 days of the initiation of the mediation procedure (the "Mediation Deadline") will be settled by binding
arbitration in Minneapolis, Minnesota by a panel of three (3) arbitrators, selected in accordance with subsection (b) below, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "American Arbitration Rules"). The arbitrators in any such arbitration will have the discretion to order a
pre-hearing exchange of information by the parties, including, without limitation, production of requested documents, exchange of summaries of testimony and proposed witnesses, and
examination by deposition of parties. The arbitrators are not empowered to award damages in excess of compensatory damages, as limited by this Agreement, and each party hereby irrevocably waives any
damages in excess of compensatory damages. Judgment upon any arbitration award may be entered in any court having jurisdiction thereof and the parties consent to the jurisdiction of the courts of the
State of Minnesota and the federal district court for the State of Minnesota for this purpose. The parties agree that service of process and of any notices required in connection with any arbitration
hereunder or any related court proceedings may be given in the manner provided for the giving of notices under this Agreement as set forth in Section 9.5. 

        (b)  Within
twenty (20) days of the Mediation Deadline, the Purchaser will nominate one arbitrator and the Seller and the Shareholders, together, will nominate one
arbitrator. Within thirty (30) days of the nomination and appointment of the two arbitrators, the two arbitrators will select a third arbitrator, and if they fail to do so, a neutral arbitrator
will be chosen in accordance with the American Arbitration Rules. 

        9.9.    Counterparts.    

        This
Agreement may be executed simultaneously in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same
instrument. 

        9.10.    Headings.    

        The
table of contents and the headings of the sections and subsections of this Agreement are inserted for convenience only and will not constitute a part hereof. 

39

 

        9.11.    Entire Agreement.    

        This
Agreement, the Disclosure Schedule and the exhibits and other writings referred to in this Agreement or in the Disclosure Schedule or any such exhibit or other writing are part of
this Agreement, together they embody the entire agreement and understanding of the parties hereto in respect of the transactions contemplated by this Agreement and together they are referred to as
this "Agreement" or the "Agreement". There are no restrictions, promises, warranties, agreements,
covenants or undertakings, other than those expressly set forth or referred to in this Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to
the transaction or transactions contemplated by this Agreement, including, but not limited to, the letter of intent dated April 16, 2001. Any provision of this Agreement that becomes invalid or
unenforceable under applicable Law will be stricken to the extent necessary and the remainder of such provisions and the remainder of this Agreement will continue in full force and effect. 

        9.12.    Injunctive Relief.    

        It
is expressly agreed among the parties hereto that monetary damages would be inadequate to compensate a party hereto for any breach by any other party of its agreements and covenants
in Sections 4.4 and 4.12 of this Agreement. Accordingly, the parties agree and acknowledge that any such violation or threatened violation will cause irreparable injury to the other and that,
in addition to any other remedies which may be available, such party will be entitled to injunctive relief against the threatened breach of Sections 4.4 and 4.12 of this Agreement hereof or the
continuation of any such breach without the necessity or proving actual damages and may seek to specifically enforce the terms thereof. 

        9.13.    Certain Definitions.    

        For
purposes of this Agreement, the terms: 

        (a)  "Environmental and Occupational Safety and Health Law" means any common law or duty, case law or other Law, that
(i) regulates, creates standards for or imposes liability or standards of conduct
concerning any element, compound, pollutant, contaminant, or toxic or hazardous substance, material or waste, or any mixture thereof, or relates in any way to emissions or releases into the
environment or ambient environmental conditions, or conduct affecting such matters, or (ii) is designed to provide safe and healthful working conditions or reduce occupational safety and health
hazards. Such laws will include, but not be limited to, the National Environmental Policy Act, 42 U.S.C. §§ 4321 et seq., the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. §§ 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. §§ 1251 et seq., the Federal Clean Air Act, 42 U.S.C. §§ 7401 et seq., the Toxic Substances Control Act, 15 U.S.C.
§§ 2601 et seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C. § 11011, the Hazard Communication Act, 29 U.S.C. §§ 651
et seq., the Occupational Safety and Health Act, 29 U.S.C. §§ 651 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 136, and any case law
interpretations, amendments or restatements thereof, or similar enactments thereto, as is now or at any time hereafter may be in effect, as well as their international, state and local counterparts. 

        (b)  "Environmentally Regulated Materials" means any element, compound, pollutant, contaminant, substance, material or waste,
or any mixture thereof, designated, listed, referenced, regulated or identified pursuant to any Environmental and Occupational Safety and Health Law. 

40

 

        (c)  "Material Adverse Effect" means an individual or cumulative material adverse change in or material adverse effect on the
business, customers, customer relations, operations, properties, working capital condition (financial or otherwise), assets, properties or liabilities of the Business, taken as a whole, or the
Purchaser, Parent and their subsidiaries, as the case may be, or would prevent Seller, on the one hand, or Parent and the Purchaser, on the other hand, from consummating the transactions contemplated
hereby. 

        (d)  "Knowledge of Seller" and other terms of similar import means (i) the actual knowledge or awareness of Seller or
any Shareholder, and (ii) the knowledge or awareness after due inquiry which a prudent business person in the position of any Shareholder would have obtained in the conduct of such business
person's business. 

        (e)  "Taxes" means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, real or personal property, windfall
profits, customs, duties or other taxes, fees, assessments, charges or levies of any kind whatever, together with any interest and any penalties, add`itions to tax or additional amounts with respect
thereto, and the term "Tax" means any one of the foregoing Taxes. 

        (f)    "Tax
Returns" means all returns, declarations, reports, statements and other documents required to be filed with any Authority in respect of Taxes, and the term
"Tax Return" means any one of the foregoing Tax Returns. 

[Remainder of page intentionally left blank]

41

 

        IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. 

	 
	 
	 	 
	 

	

DEPARTMENT 56, INC.	
 	

AXIS CORPORATION
	

By:	

 	
 	

By:	

 
	 	
 Percy C. Tomlinson	 	 	

	Its:	Executive Vice President &

Chief Financial Officer	 	Its:	

	

AXIS HOLDINGS CORPORATION	
 	

SHAREHOLDERS' REPRESENTATIVE
	

By:	

 	
 	

 	

 
	 	
 Percy C. Tomlinson	 	
 Kirk Willey
	Its:	Vice President	 	 	 
	

 	

 	
 	

SHAREHOLDERS
	

 	

 	
 	

 Kirk Willey
	

 	

 	
 	

 Matt Musgrave
	

 	

 	
 	

 Jeff Price
	

 	

 	
 	

 Jeremy Willey
	

 	

 	
 	

 Lee Willey

42

 
 

LIST OF EXHIBITS    
  

	Name of Exhibit
 
	Number of Exhibit

	List of Customers of the Business	Exhibit 1.1(a)(xii)
	

Latest Balance Sheet	

Exhibit 1.1(a)(xxi)
	

Excluded Assets	

Exhibit 1.1(b)
	

Form of Liabilities Undertaking	

Exhibit 1.2
	

Form of Escrow Agreement	

Exhibit 1.3(b)(ii)
	

Allocation of Purchase Price Among the Assets	

Exhibit 1.4
	

Form of Bill of Sale	

Exhibit 1.6(a)(i)
	

Form of Security Agreement	

Exhibit 1.6(c)(ii)
	

Disclosure Schedule	

Exhibit 2
	

Management Agreement	

Exhibit 4.6(d)
	

Employees to be Hired	

Exhibit 4.11
	

Ownership of Seller Immediately Prior to Closing	

Exhibit 8.5(c)

 
 

LIST OF DEFINED TERMS    
  

	Term
 
	 	Page

	Net Assets Adjustment	 	15
	Accruals Adjustment	 	15
	Agreement	 	52
	American Arbitration Rules	 	51
	Assets	 	1
	Assumed Contracts	 	4
	Assumed Liabilities	 	3
	Authorities	 	19
	Authority	 	19
	

Benefit Plan	
 	

28
	Business	 	1
	

Closing	
 	

17
	Closing Balance Sheet	 	16
	Closing Date	 	17
	Code	 	17, 28
	Consent	 	20
	Consents	 	20
	Contingent Consideration	 	5
	Contingent Consideration Documentation	 	9
	Contingent Consideration Statement	 	6
	Copyrights	 	24
	

Disagreement Notice	
 	

7
	Disclose	 	37
	Disclosure Schedule	 	18
	Dispute	 	51
	Disputed Contingent Consideration	 	7
	disqualified individual	 	29
	

Earnest Deposit	
 	

15
	Environmental and Occupational Safety and Health Law	 	53
	Environmental Claim	 	33
	Environmentally Regulated Materials	 	53
	ERISA	 	4
	Escrow Agent	 	15
	Escrow Agreement	 	15
	Escrow Deposit	 	15
	Exception Amount	 	47
	excess parachute payment	 	29
	

Final Basic Purchase Price	
 	

16
	Final Purchase Price Adjustment	 	16
	Fiscal 2000	 	5
	Fiscal 2001	 	5
	Fiscal 2002	 	5
	Fiscal 2003	 	5
	

GAAP	
 	

5
	

Indemnified Party	
 	

45
	Indemnifying Party	 	45
	Information	 	37

	Initial Cash Consideration	 	5
	Initial Purchase Price Adjustment	 	15
	Intellectual Property Rights	 	24
	Inventory	 	23
	

Latest Balance Sheet	
 	

2
	Law	 	19
	Laws	 	19
	Liabilities	 	20
	Liabilities Undertaking	 	3
	Liability	 	20
	Lien	 	19
	Limitation Amount	 	47
	

Management Agreement	
 	

38
	Material Adverse Effect	 	53
	Mediation Deadline	 	51
	

Operating Income	
 	

5
	Operating Income Margin	 	5
	

Parent	
 	

1
	Parent SEC Filings	 	36
	Patents	 	24
	Payment Date	 	8
	Period	 	5
	Permitted Liens	 	19
	Properties	 	32
	Purchase Price	 	5
	Purchase Price Adjustment	 	15
	Purchaser	 	1
	Purchaser Indemnified Parties	 	44
	Purchaser's Actual Knowledge	 	49
	Purchaser's Loss	 	44
	Purchaser's Losses	 	44
	

Real Property	
 	

23
	Registered Intellectual Property Rights	 	24
	Rep Basket	 	47
	Restricted Period	 	41
	Retained Liabilities	 	3
	Revenue	 	5, 6
	Revenue Base	 	6, 9, 10
	Revenue in Fiscal 2000	 	6
	

Selected Employees	
 	

40
	Seller	 	1
	Seller Plan	 	28
	Seller's Knowledge	 	53
	Seller's Loss	 	43
	Seller's Losses	 	43
	Service Marks	 	24
	severance pay	 	31
	Shareholders	 	1
	Shareholders' Representative	 	46

	

Tax	
 	

53
	Tax Return	 	54
	Tax Returns	 	54
	Taxes	 	53
	Third Party Intellectual Property Rights	 	25
	Trade Secrets	 	24
	Trademarks	 	24
	Transferred Employee	 	40
	

Undisputed Contingent Consideration	
 	

7
	

Value of the Assets Adjustment	
 	

15
	

Willey	
 	

46
	

Year 2000 Compliant	
 	

26

QuickLinks

Exhibit 10.19

LIST OF EXHIBITS

LIST OF DEFINED TERMS

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00035-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00035-of-00352.parquet"}]]